Accounting Principles I - Online

Chapters 3 & 4 - Exam - Part II

Complete the following activity and save this file on your hard drive. Then submit your file to your instructor on Canvas.

NAME:__ PART A (24 Points) In the journal for McBride Company provided below, record the appropriate adjusting entries as of December 31. Please note that McBride Company has not prepared any adjusting entries for the current year prior to December 31. a. The Store Supplies account showed a beginning balance of $300 and purchases of $700. Unused store supplies at the end of the year were counted and totaled $200. b. On December 1, the company paid three months rent in advance, debiting Prepaid Rent for $2,100. c. Equipment purchased January 1 of the current year for $16,000 was estimated to have a useful life of 4 years with no salvage value. d. Wages are paid each Friday for a 5-day week. The salary is set at a fixed rate of $1,000 per day, and the accounting period ended on Tuesday. e. On November 1, the company accepted a $15,000, 12%, 6-month Note Receivable. An adjusting entry should be made to accrue the interest on this note. f. The balance in Unearned Commissions Revenue at December 31, is $1,800. This represents a customer deposit for which one-half has been earned as of December 31.

McBRIDE COMPANY GENERAL JOURNAL

DATE Dec. 31 Dec 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Supplies Expense Supplies Rent expense Prepaid rent Depreciation expense Accumulated Depreciation - Equipment Salaries and Wages expense Salaries and Wages payable Interest Receivable Interest Revenue Unearned Revenue Service Revenue 1800 1800 300 300 2000 2000 4000 4000 700 700 ACCOUNT TITLES DR 800 800 CR

PART B (30 Points) Below is an Adjusted Trial Balance for Brown Company for the year ended December 31. In the space provided on the next two pages: Required: a. Record the appropriate closing entries in the general journal below. b. Prepare a Post-Closing Trial Balance on the form provided below.

BROWN COMPANY Adjusted Trial Balance December 31, 20xx DEBIT Cash Account Receivable Office Supplies Office Equipment Accumulated Depreciation, Office Equipment Accounts Payable C.R. Brown, Capital C.R. Brown, Drawing Commissions Revenue Interest Revenue Depreciation Expense Salary Expense Utility Expense TOTALS 400 4,400 150 $ 24,700 $ 24,700 500 8,400 800 $ 2,150 2,600 2,500 12,000 $ 4,500 800 10,200 CREDIT

BROWN COMPANY GENERAL JOURNAL DATE

Dec. 31

ACCOUNT TITLE
Commissions revenue Interest Revenue Interest Summary

DR
8400 800

CR

9200 4950 400 4400 150 4250 4250 500 500

Dec 31

Income summary Depreciation expense Salary expense Utility expense

Dec. 31

Owners Capital Income summary

Dec. 31

Owners capital Owners drawings

BROWN COMPANY Post-Closing Trial Balance December 31, 20xx DEBIT Cash
Accounts Receivable Office Supplies Office Equipment Accumulated Depreciation Office equipment Accounts Payable Owners Capital 19250 2150 2600 2500 12000 4500 800 13950 19250

CREDIT

PART C (16 Points) ESSAY QUESTIONS Required: For EACH of the two questions below, write at least one full paragraph in response to the question asked. Be sure each of your paragraphs had a topic sentence. Please pay attention to your spelling, grammar and punctuation. Do not plagiarize from your textbook or any other source. Be sure your answers are in your own words. 1. Journalizing and posting closing entries are required steps in the accounting cycle. Discuss why it is necessary to close the books at the end of an accounting period. If closing entries were not made, how would the preparation of financial statements be affected?

In accounting journalizing and posting closing entries are required steps in the accounting cycle. These entries are required for many reasons. If we do not use these entries our entire financial statement can be subject to errors.

Some accounts are called nominal accounts, and those accounts maintain a balance only for a specific period of time. These nominal accounts are found on the income statement, and are used to find a companies performance at a point in time. If the account is not closed at the end of the accounting period the nominal accounts will continue accumulating and overstate the amounts really incurred during the period. In order to prevent that from happening all accounts are closed using the closing entry, which brings the balances to zero.

2. The long-term liability section of Omega Company's Balance Sheet includes the following accounts: Accounts Payable Mortgage Payable Notes Payable Accumulated Depreciation Total long-term liabilities $75,000 250,000 100,000 125,000 $550,000

Omega Company is an established company and does not experience any financial difficulties or have any cash flow problems. Identify at least two items in the longterm liability section that are questionable and explain where the placement on the balance sheet would be more appropriate and why.

A classified balance sheet puts together similar assets and similar liabilities. This is useful because items within a group have similar economic characteristics. These groupings helps a company see if it has enough assets to pay its debts and claims of long and short term creditors on the companys total assets.

In the Omega Company balance sheet I noticed that the long-term liabilities had two accounts in which I believe to be misplaced. The first would be the accounts payable. The accounts payable is not a long-term liability but rather a Current liability. A long- term liability are obligations a company expects to pay after one year, account payable can be accounts that are due at any time depending on the circumstances. The other item that I noticed was misplaced was the accumulated depreciation. The accumulated depreciation should be placed in the property, plant, and equipment group. Accumulated depreciation shows the total depreciation that a company has expensed in the asset life. Depreciation relate to property, plant, and equipment not long- term liabilities. Besides the two accounts mentioned previously, everything else looks in place and in order on the long- term liabilities section of the balance sheet for Omega Company.