Text Name – Fundamental Accounting Principles
CUMULATIVE COMPREHENSION PROBLEM: ECHO SYSTEMS
(This comprehensive problem starts in this chapter and continues in Chapters 3, 4, and 5. Because of its
length this problem is most easily solved if you use the Working Papers14 that accompany this text.)
On October 1, 2020, Mary Graham organized a computer service company called Echo Systems. Echo is
organized
as a sole proprietorship and will provide consulting services, computer system installations, and custom
program development. Graham has adopted the calendar year for reporting, and expects to prepare the
company’s
first set of financial statements as of December 31, 2020. The initial chart of accounts for the accounting
system includes these items:
Account Number Account Name Account Number Account Name
Account Number Account Name Account Number Account Name
101 Cash 301 Mary Graham, Capital
106 Accounts Receivable 302 Mary Graham, Withdrawals
126 Computer Supplies 403 Computer Services Revenue
128 Prepaid Insurance 623 Wages Expense
131 Prepaid Rent 655 Advertising Expense
163 Office Equipment 676 Mileage Expense
167 Computer Equipment 684 Repairs Expense, Computer
201 Accounts Payable 699 Charitable Donations Expense
Part A:
CHECK FIGURES: 4. Total Dr. = $159,450; Profit = $8,920; Total assets = $145,720
Required
1. Set up balance column accounts based on the chart of accounts provided.
2. Prepare journal entries to record each of the following October transactions.
3. Post the October entries.
4. Prepare a trial balance at October 31, 2020.
5. Prepare an income statement and a statement of changes in equity for the month ended October 31,
2020,
as well as a balance sheet at October 31, 2020.
Oct. 1 Graham invested $90,000 cash, a $36,000 computer system, and $18,000 of office equipment in
the business.
2 Paid rent in advance of $9,000.
3 Purchased computer supplies on credit for $2,640 from Abbott Office Products.
5 Paid $4,320 cash for one year’s premium on a property and liability insurance policy.
6 Billed Capital Leasing $6,600 for installing a new computer.
8 Paid for the computer supplies purchased from Abbott Office Products.
10 Hired Carly Smith as a part-time assistant for $200 per day, as needed.
12 Billed Capital Leasing another $2,400 for computer services rendered.
15 Received $6,600 from Capital Leasing on its account.
17 Paid $1,410 to repair computer equipment damaged when moving into the new office.
20 Paid $3,720 for an advertisement in the local newspaper.
22 Received $2,400 from Capital Leasing on its account.
28 Billed Decker Company $6,450 for services.
31 Paid Carly Smith for seven days’ work.
31 Withdrew $7,200 cash from the business for personal use.
Part B:
CHECK FIGURES: 8. Total Dr. = $184,950; 9. Profit = $27,920; Total assets = $161,120
Required
6. Prepare journal entries to record each of the following November transactions.
7. Post the November entries.
8. Prepare a trial balance at November 30, 2020.
9. Prepare an income statement and a statement of changes in equity for the two months ended
November
30, 2020, as well as a balance sheet at November 30, 2020.
Nov. 1 Reimbursed Graham’s business automobile expense for 1,000 kilometres at $1.00 per kilometre.
2 Received $9,300 cash from Elite Corporation for computer services rendered.
5 Purchased $1,920 of computer supplies for cash from Abbott Office Products.
8 Billed Fostek Co. $8,700 for computer services rendered.
13 Notified by Alamo Engineering Co. that Echo’s bid of $7,500 for an upcoming project was accepted.
18 Received $3,750 from Decker Company against the bill dated October 28.
22 Donated $1,500 to the United Way in the company’s name.
24 Completed work for Alamo Engineering Co. and sent a bill for $7,500.
25 Sent another bill to Decker Company for the past due amount of $2,700.
28 Reimbursed Graham’s business automobile expense for 1,200 kilometres at $1.00 per kilometre.
30 Paid Carly Smith for 14 days’ work.
30 Withdrew $3,600 cash from the business for personal use. EMS
CUMULATIVE COMPREHENSION PROBLEM: ECHO SYSTEMS Chapter 3
(This comprehensive problem was introduced in Chapter 2 and continues in Chapters 4 and 5. If the Chapter 2
segment has not been completed, the assignment can begin at this point. You need to use the facts presented in
Chapter 2. Because of its length, this problem is most easily solved if you use the Working Papers 11 that accompany
this book.)
After the success of its first two months, Mary Graham has decided to continue operating Echo Systems.
(The
transactions that occurred in these months are described in Chapter 2.) Before proceeding in December,
Graham
adds these new accounts to the chart of accounts for the ledger:
Account No.
Accumulated Depreciation, Office Equipment ................................. 164
Accumulated Depreciation, Computer Equipment ......................... 168
Wages Payable ......................................................................................... 210
Unearned Computer Services Revenue ............................................ 236
Depreciation Expense, Office Equipment.......................................... 612
Depreciation Expense, Computer Equipment .................................. 613
Insurance Expense .................................................................................. 637
Rent Expense ............................................................................................ 640
Computer Supplies Expense ................................................................. 652
Required
1. Prepare journal entries to record each of the following transactions for Echo Systems. Post the entries
to
the accounts in the ledger.
Dec. 3 Paid $2,100 to the Lakeshore Mall for the company’s share of mall advertising costs.
3 Paid $1,200 to repair the company’s computer.
4 Received $7,500 from Alamo Engineering Co. for the receivable from the prior month.
10 Paid Carly Smith for six days’ work at the rate of $200 per day.
14 Notified by Alamo Engineering Co. that Echo’s bid of $12,000 on a proposed project was accepted.
Alamo paid
an advance of $3,000.
17 Purchased $2,310 of computer supplies on credit from Abbott Office Products.
18 Sent a reminder to Fostek Co. to pay the fee for services originally recorded on November 8.
20 Completed a project for Elite Corporation and received $11,250 cash.
24–28 Took the week off for the holidays.
31 Received $5,700 from Fostek Co. on its receivable.
31 Reimbursed Mary Graham’s business automobile expenses of 600 kilometres at $1.00 per kilometre.
31 Graham withdrew $3,600 cash from the business.
2. Prepare adjusting entries to record the following additional information collected on December 31,
2020.
Post the entries to the accounts in the ledger.
a. The December 31 inventory of computer supplies was $1,440.
b. Three months have passed since the annual insurance premium was paid.
c. As of the end of the year, Carly Smith has not been paid for four days of work at the rate of
$200 per day.
d. The computer is expected to have a four-year life with no residual value.
e. The office equipment is expected to have a three-year life with no residual value.
f. Prepaid rent for three of the four months has expired.
3. Prepare an adjusted trial balance as of December 31, 2020.
4. Prepare an income statement and statement of changes in equity for the three months ended
December 31, 2020.
5. Prepare a balance sheet as of December 31, 2020.
Chapter 4
CUMULATIVE COMPREHENSION PROBLEM: ECHO SYSTEMS
CHECK FIGURE: 2. Total credits in post-closing trial balance = $155,720
(The first two segments of this comprehensive problem were in Chapters 2 and 3, and the final segment
is presented
in Chapter 5. If the Chapter 2 and 3 segments have not been completed, the assignment can begin at this
point. It is recommended that you use the Working Papers11 that accompany this book because they
reflect the
account balances that resulted from posting the entries required in Chapters 2 and 3.)
The transactions of Echo Systems for October through December 2020 have been recorded in the
problem
segments in Chapters 2 and 3, as well as the year-end adjusting entries. Prior to closing the temporary
accounts for 2020, the accounting system is modified to include the Income Summary account, which is
given
the number 901.
Required
1. Record and post the appropriate closing entries.
2. Prepare a post-closing trial balance.
Chapter 5
CUMULATIVE COMPREHENSION PROBLEM: ECHO SYSTEMS
Echo Systems—perpetual or periodic
Note: Solutions are available for both perpetual and periodic.
(The first three segments of this comprehensive problem were presented in Chapters 2, 3, and 4. If those
segments
have not been completed, the assignment can begin at this point. However, you should use the Working
Papers18
that accompany this text because they reflect the account balances that resulted from posting the
entries required
in Chapters 2, 3, and 4.)
CHECK FIGURES: 4. Profit = $23,198; 6. Total current assets = $162,358; Total assets = $208,858
Earlier segments of this problem have described how Mary Graham created Echo Systems on October 1,
2020.
The company has been successful, and its list of customers has started to grow. To accommodate the
growth,
the accounting system is ready to be modified to set up separate accounts for each customer. The
following list
of customers includes the account number used for each account and any balance as of the end of 2020.
Graham decided to add a fourth digit with a decimal point to the 106 account number that had been
used for
the single Accounts Receivable account. This modification allows the existing chart of accounts to
continue
being used. The list also shows the balances that two customers owed as of December 31, 2020:
18 If students have not purchased the Working Papers package, the Working Papers for the Serial
Problem are available on Connect.
Dec. 31
Customer Account No. Balance
Alamo Engineering Co. ..................................................................... 106.1 -0-
Buckman Services.............................................................................. 106.2 -0-
Capital Leasing ................................................................................... 106.3 -0-
Decker Co. ........................................................................................... 106.4 $2,700
Elite Corporation ................................................................................. 106.5 -0-
Fostek Co. ............................................................................................ 106.6 $3,000
Grandview Co. ..................................................................................... 106.7 -0-
Hacienda Inc. ....................................................................................... 106.8 -0-
Images Inc. ........................................................................................... 106.9 -0-
In response to frequent requests from customers, Graham has decided to begin selling computer
software. The
company will extend credit terms of 1/10, n/30 to customers who purchase merchandise. No cash
discount
will be available on consulting revenue. The following additional accounts were added to the general
ledger to
allow the system to account for the company’s new merchandising activities:
Account (Perpetual) No.
Merchandise Inventory .................................................. 119
Sales ................................................................................... 413
Sales Discounts ............................................................... 414
Sales Returns and Allowances .................................... 415
Cost of Goods Sold ........................................................ 502
Account (Periodic) No.
Merchandise Inventory .................................................. 119
Sales ................................................................................... 413
Sales Discounts ............................................................... 414
Sales Returns and Allowances .................................... 415
Purchases .......................................................................... 505
Purchase Returns and Allowances ............................. 506
Purchase Discounts ........................................................ 507
Transportation-In ............................................................. 508
OR
Because the accounting system does not use reversing entries, all revenue and expense accounts have
zero
balances as of January 1, 2021.
Required
1. Prepare journal entries to record each of the following transactions for Echo Systems, assuming either
a
perpetual system or a periodic system.
Jan. 4 Paid Carly Smith for five days at the rate of $200 per day, including one day in addition to the four
unpaid days
from the prior year.
5 Mary Graham invested an additional $48,000 cash in the business.
7 Purchased $11,200 of merchandise from Shephard Corp. with terms of 1/10, n/30, FOB shipping point.
9 Received $3,000 from Fostek Co. as final payment on its account.
11 Completed five-day project for Alamo Engineering Co. and billed them $9,000, which is the total price
of $12,000
less the advance payment of $3,000.
13 Sold merchandise with a retail value of $8,400 and a cost of $6,720 to Elite Corporation with terms of
1/10, n/30,
FOB shipping point.
15 Paid $1,400 for freight charges on the merchandise purchased on January 7.
16 Received $6,000 cash from Grandview Co. for computer services.
17 Paid Shephard Corp. for the purchase on January 7.
20 Elite Corporation returned $800 of defective merchandise from its purchase on January 13. The
returned
merchandise, which had a cost of $640, was scrapped.
22 Received the balance due from Elite Corporation.
24 Returned defective merchandise to Shephard Corp. and accepted credit against future purchases. Its
cost, net of
the discount, was $792.
26 Purchased $16,000 of merchandise from Shephard Corp. with terms of 1/10, n/30, FOB destination.
26 Sold merchandise with a cost of $9,280 for $11,600 on credit to Hacienda Inc.
29 Received a $792 credit memo from Shephard Corp. concerning the merchandise returned on January
24.
31 Paid Carly Smith for 10 days’ work at $200 per day.
Feb. 1 Paid $6,750 to the Lakeshore Mall for another three months’ rent in advance.
3 Paid Shephard Corp. for the balance due.
5 Paid $1,600 to the local newspaper for advertising.
11 Received the balance due from Alamo Engineering Co. for revenue billed on January 11.
15 Mary Graham withdrew $9,600 cash for personal use.
23 Sold merchandise with a cost of $5,120 for $6,400 on credit to Grandview Co.; terms 1/10, n/30.
26 Paid Carly Smith for eight days’ work at $200 per day.
27 Reimbursed Mary Graham’s business automobile expenses for 600 km at $1.00 per kilometre.
Mar. 8 Purchased $4,800 of computer supplies from Abbott Office Products on credit.
9 Received the balance due from Grandview Co. for merchandise sold on February 23.
11 Repaired the company’s computer paying cash of $1,720.
16 Received $8,520 cash from Images Inc. for computing services.
19 Paid the full amount due to Abbott Office Products, including amounts created on December 17 and
March 8.
24 Billed Capital Leasing for $11,800 of computing services.
25 Sold merchandise with a cost of $2,004 for $3,600 on credit to Buckman Services.
30 Sold merchandise with a cost of $2,200 for $4,440 on credit to Decker Company.
31 Reimbursed Mary Graham’s business automobile expenses for 400 km at $1.00 per kilometre.
2. Post the journal entries to the accounts in the company’s general ledger. (Use asset, liability, and
equity
accounts that start with balances as of December 31, 2020.)
3. Prepare a partial work sheet consisting of the first six columns showing the unadjusted trial balance,
the
March 31 adjustments described in (a) through (g) below, and the adjusted trial balance. Do not prepare
closing entries and do not journalize the adjusting entries or post them to the ledger.
a. The March 31 computer supplies on hand is $4,230.
b. Three more months have passed since the company purchased the annual insurance policy at the
cost
of $4,320.
c. Carly Smith has not been paid for seven days of work.
d. Three months have passed since any prepaid rent cost has been transferred to expense. The
monthly rent is $2,250.
e. Depreciation on the computer for January through March is $2,250.
f. Depreciation on the office equipment for January through March is $1,500.
g. The March 31 inventory of merchandise is $1,960.
4. Prepare an interim single-step income statement for the three months ended March 31, 2021. List all
expenses without differentiating between selling expenses and general and administrative expenses.
5. Prepare an interim statement of changes in equity for the three months ended March 31, 2021.
6. Prepare an interim classified balance sheet as of March 31, 2021.
