CHAPTER 2

Q1

Typical statement of financial position classifications are as follows:

a. Long Term Investments f. Share Capital

b. Plant Assets g. Share Premium

c. Intangible Assets h. Retained Earnings

d. Non - Current Assets i. Non-Current Liabilities

e. Current Assets j Current Liabilities

Indicate by use of the above letters how each of the following items would be classified on a statement of financial position prepared at
st
December 31 , 2019. If a contra account, or any amount that is negative or opposite the normal balance, put parentheses around the letter

selected. A letter may be used more than once or not at all.

1. Accrued salaries and wages

2. Rental revenues for 3 months collected in advance

3. Land used as plant site

4. Equity securities classified as trading

5. Cash

6. Accrued interest payable due in 30 days

7. Share premium–preference shares

9. Petty cash fund

10. Ordinary shares

11. Allowance for doubtful accounts:

12. Accumulated depreciation:

13. Goodwill:

14. 90 day notes payable

15. Investment in bonds of another company; will be held to 2023 maturity

16. Current maturity of bonds payable

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17. Trade accounts payable

18. Preference shares ($10 par)

19. Prepaid rent for next 12 months

20. Copyright

21. Accumulated amortization, patents

22. Earnings not distributed to shareholders

Q2

1- Let’s have a look at a business where capital at the end of 2019 was $20,000. During 2020, there have been no drawings, and no

contributions from the owner. At the end of 2020, the capital was $30,000.

Required:

a. Determine net income (loss) for business for year 2020.

b. Determine net income (loss) for business for year 2020 if drawings had been $7,000.

st
2- ABCcompany has got following information on 3 Quarter of 2019 .Unit: $

1/7/2019 30/9/2019

Cash 1,000 1,200

A/R 1,800 2,400

Goods 5,100 4,000

Equipment 1,000 1,000

Accumulated depreciation (400) (600)

Receive in advance 200 100

A/P 1,000 800

rd
During 3 Quarter of 2019, owner withdrew by cash $300 and no contribution.

Determine:

rd
A - Changes of the owner’s equity during 3 Quarter of 2019.

rd
B - Net income (net loss) for 3 Quarter of 2019?

st
3 – XYZ coporation has got following information on Quarter 1 , 2020

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 Openning balance Closing balance

Assets 3,200 5,100

Liabilies 2,300 2,900

st
During 1 Quarter of 2020, XYZ coporation issued shares and received cash of $1,000. Nodrawings.

st
Require: Determine net income (net loss)for business for 1 Quarter of 2020?

Q3

st
Lee started a business on 1 January 2002 with $35,000 in a bank account. Unfortunately, he did not keep proper books of account.

st st
He must submit a calculation of profit for the year ending 31 Dec 2002 to the inspector of Taxes. At 31 December 2002, he had inventory

valued at cost of $6,200, a van which had cost $6,400 during the year and which had depreciated during the year by $1,600, A/R of $15,200,

expense prepaid $310, a bank balance of $33,490, a cash balance $270, A/P $7,100 and expenses owing $640.

His drawings were: cash $400 per week for 50 weeks, cheque payment $870

Required:

Draw up statements to show the profit or loss for the year.

Q4

Which of the following transactions meet the recognition criteria of FS’s elements?

+ Meet all the criteria – recognize: √

+ Does not meet any criteria – does not recognize: 0

Part A: Which items/transactions satisfy asset recognition criteria?

Result of past Future economic

Reliable measurement Controllable Recognition of asset
Items/ Transactions events benefits

(1) (2) (3) (4) (5) (6)

1. Company’s reputation; ability of

0 0
employees

2. Value of goods that is committed to

0 0
be bought in the future

3. Tools, goods stocked on behalf of 0 0

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other parties

4. Financing lease asset v v v v V

5. Operating lease asset 0 0

6. Cost of goods sold in the period 0 0

7. Ordinary repair of fixed assets 0 0

8. Extraordinary repair of fixed assets

v v v v V
(Overhauls)

9. Obsolete goods cannot be sold 0 0

10. Goods from trial test cannot be

0 0
sold

11.Prepayment of leased assets for

v v v v V
future accounting period

12. Stolen technology secret 0 0

...

Part B: Which items/transactions satisfy liability recognition criteria?

Present
Reliable measurement Past transactions Recognized liability
Items/Transactions obligation

(1) (2) (3) (5) (6)

1. Share dividend (stock dividend) declared, not yet

issued

2. Cash dividend declared, not yet paid

3. Bonds/ debentures

4. Receipt in advance from customers

5. Interest received in advance

6. Lease payment received in advance from lessee

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 7. Provision for warranty

Part C: Which items/transactions satisfy (income) revenue recognition according to accrual basis?

Revenue : earned ( deliver goods or render service)

Realizable ( paid cash or accepted payment)

Reliable Completed obligation

Items/Transactions Increase equity (indirect) Income recognition
measurement for income transactions

(1) (2) (3) (4) (5)

1.Contributions from owners or liabilities

reclassification

2. Receipt in advance

3. Interest/ lease payment, etc received in advance

4. Revenue from delivering goods/rendering services

on credit

5. Interest, dividend earned, not yet received.

Part D: Which items/transactions satisfy income recognition criteria in accordance with cash basis?

Reliable Received cash from the

Equity increase (indirect) Income recognition
Items/ Transactions
measurement transaction

(1) (2) (3) (4) (5)

1. Contributions from owners by assets or

liabilities reclassification

2. Receipt in advance

3. Selling goods on credit

4. Interest, dividend on due date but not received

5. Interest/ asset lease payment received in

advance

Part E: Which items/transactions satisfy expense recognition criteria in accordance with accrual basis?

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 Expense : matching revenue in the current period

Matching with
Reliable measure Equity decrease (indirect) Expense recognition
Items/transactions
current period

(1) (2) (3) (4) (5)

1. Equity withdrawal from owners, dividends

Distribution to owners

Payments utilized from funds (e.g Bonus and

Welfare Fund..)

2. Goods available for sale

3. Cost of goods sold in the period

4. Obsolete goods cannot sell

5. Revenue in the period

6. Salary payable to employees

Part F: Which items/transactions satisfy expense recognition criteria in accordance with cash basis?

Reliable Cash paid out from the

Equity decrease (indirect) Expense recognition
Items/transactions
measurement transactions

(1) (2) (3) (4) (5)

1. Equity withdrawal of owners

Profit distribution to owners

Payments utilized from funds (e.g Bonus and Welfare

Fund, etc)

2. Goods decrease due to unknown reason

3. Purchase goods on credit, sold in the period

4. Interest/ asset lease paid in advance

5. Salary paid in cash during the period

6. Salary payable for employees during the period

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Q5

Caren Smith Corporation, supplies a medical practice. During July 2020, the first month of operation, the business experienced the following

events:

Jul 6 Caren Smith received $55,000 cash from shareholders and issued common stock.

Cash( A) increased 55.000

Common stock(E) increased 55.000

9 Paid $46,000 cash for land.

Land( A) increased 46.000

Cash( A) decreased 46.000

12 Purchased medical supplies of $1,800 on account

Supplies(A) increased 1.800

A/P( L) increased 1.800

15 Officially opened for business

No recording

15-31 During the rest of the month, Caren Smith treated patients and earned service revenue $ 8,000, receiving cash.

Cash (A) increased 8.000

Service revenue (E) increased 8.000

29 Paid cash expense employees’ salaries, $1,600; office rent, $900, utilities, $100

Office rent expense increased ( E decreased) 900

Salaries expense increased ( E decreased) 1.600

Utilities expense increased ( E decreased) 100

Cash (A) decreased 2.600

th
30 Returned supplies purchased on the 12 for the cost of those supplies, $700

A/P(L) decreased 700

Supplies(A) decreased 700

31 Paid $1,100 on account

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 A/P (L) decreased 1.100

Cash (A) decreased 1,100

Required:

Analyze the effects of these events on the accounting equation of business of Caren Smith Corporation.

Q6

Indicate the effects of the following business transactions on the accounting equation of Video Store Corporation. Transaction (a) is answer as a

guide.

a. Received cash of $8,000 and issued common stock.

Answer: increase asset (Cash)

Increase stockholders’ equity (Common stock)

b. Earned video rental revenue on account, $1,800

c. Purchased office furniture on account, $400.

d. Received cash on account, $100

e. Paid cash on account, $100

f. Rented videos and received cash of $100

g. Paid monthly office rent expense of $900.

h. Paid $200 cash to purchase supplies that will be used in the future

Q7

Hongha Corporation has got following information on August 31, 2013.

Unit: $

Cash 2,300 Land 14,000

A/R 1,800 A/P 8,000

RE 7,100 Common stock 3,000

During Sept 2013, the business completed the following transaction:

a. Issued common stock and received cash of $13,000.

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 b. Performed service for client and received cash of $900.

c. Paid off the beginning balance of accounts payable.

d. Purchased supplies on account, $600.

e. Collected cash from customer on account, $700.

f. Received cash of $1,600 and issued common stock.

g. Consulted and billed the client for service rendered, $3,500.

h. Recorded the following business expenses for the month:

1. Paid office rent, $1,200.

2. Paid advertising, $600

i. Paid cash dividends of $2,000

Required:

1. Analyze the effects of these events on the accounting equation of business of Hongha Corporation.

2. Prepare the following financial statements for the month ended 30 Sept 2013:

a. Income statement

b. Statement of RE

c. Balance sheet

Q8

Cash + A/R + Equipment A/P + Common Stock + Revenue - Expense

=

1 31,000 31,000

2 3,800 3,800

3 13,400 13,400

4 190 - 190

5 - 410 - 410

6 - 8,000 - 8,000

7 - 1,500 - 1,500

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Required:

Describe each transaction.

Q9

On 1/1/Y, Company X signed a contract to supply products ordered by Company Y with the total contract value of $ 3,000 and received in

advance $1,000 by cash in bank. On 1/5/Y, Company X delivered finished goods to Company Y with total production cost was $2,500. After

finished goods were delivered, the remaining amount of the contract will be paid in the following period.

COGS= cost of goods sold

Required:

With the given transactions, please identify:

A/ How does X record for elements of financial statement if the accrual basis is applied?

- At the time of receiving in advance.

- At the time of delivery to customer;

- At the time of receiving the remaining amount.

B/ How does Y record for elements of financial statement if the accrual basis is applied?

- At the time of advance payment;

- At the time of receiving goods;

- At the time of paying the remaining amount

Q10

th
On January 1/Year, Company P gave a loan of VND 500 million in two-year term and at 12%/year interest to Company Q. On January 4 , the

borrower prepaid the full interest of VND120 million in two years. On 1/04/Y + 1 the borrower paid the principal to Company P, the interest

received for the last 3 quarters of year (Y + 1) was repaid by the Company P by deducting from the principal.

Required: With the given transactions, please identify:

A/ How does P’s accountant record for elements of financial statement if the accrual basis is applied and the accounting period is quarterly?

- At the time of transfering to the borrower;

- At the time of receiving 02-year interest;

- By the end of each quarter in year Y;

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- At the time of receiving the principal

B/ How does Q’s accountant record for elements of financial statement if the accrual basis is applied and the accounting period is quarterly?

- At the time of receiving from the lender

- At the time of paying 02-year interest;

- By the end of each quarter in year Y;

- At the time of paying the principal.

Q11

In January/Y, A Company sold and handed over to B Company a batch of products for total VND 900 million and received by cash on hand

VND 500 million, the remaining amount will be received in May/Y. Free warranty service was provided for 02 years since the products were

delivered to customer. Based on historical data, the cost of warranty coverage was about 2% of revenue. Accordingly, A Company extracted a

product warranty amount for Jan/Y over of the products sold in this month which was VND 18 million.

Required: With given transactions, please identify:

A / Company A’s Accountant:

A1- How does she/he record elements of financial statement if accrual basis is applied with the accounting period of month?

- At the time of delivery and receipt the first payment;

- At the time of receipt of the second payment;

- At the time of deducting warranty costs.

A2- How to record sales and expenses of January Y from the above events if the cash basis is applied?

A3-It is assumed that the accounting period is quarterly. In Q1/Y, A Company applied the money accounting method, quarter 2/Y changed to

accrual accounting and did not conduct retroaction. Whether sales of the above product batch were omitted or duplicated? how much?

B/ Company B’s Accountant: How to record the financial statement elements if accrual principle is applied with the accounting period of

month?

- At the time of receiving goods and making the first payment;

- At the second payment;

- At the time the seller extracted warranty cost.

Accrual basic

A( seller) B( purchaser)

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At the time of delivery goods and Increase OE( revenue) 900 Increase A( inventory) 900

payment( receiving)- Jan

Increase A( cash) 500 Decrease A( cash ) 500

Increase A( A/R) 400 Increase L ( A/P) 400

At the time of the second payment Decrease A( A/R) 400 Decrease L (A/P) 400

( receiving)- May Increase A( cash) 400 Decrease A( cash) 400

At the time of deducting warranty Decrease OE( expense) 18

cost- January
Provision for warranty ( L) increase 18

Q12

ABC Catering Company, completed the following selected transactions during May, 2019.

May 1 Prepaid rent for three months since 1/May, $1,500

Increase A( prepaid expense) 1,500

Decrease A( cash) 1,500

5 Paid electricity expense, $400

Decrease A( cash) 400

Decrease OE ( expense ) 400

9 Received cash for meals served to customers, $2,600

Increase A( cash) 2,600

Increase OE( revenue) 2,600

14 Paid cash for kitchen equipment, $2,400

Increase A( equipment) 2,400

Decrease A( cash) 2,400

23 Served a banquet on account, $3,000

Increase A ( A/R) 3,000

Increase OE( revenue) 3,000

31 Determine rent expense for May

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 Decrease OE( rent expense) 500

Decrease A( prepaid expense) 500

31 Accrued expense, $1,400

Decrease OE( expense) 1,400

Increase L ( accrued payable) 1,400

31 Recorded depreciation for May on kitchen equipment, $40

Decrease A( depreciation accumulated) 40

Decrease OE( depreciation expense) 40

Required

a. Indicate which accounts were increased or decreased and by what amounts from the transactions above, according the accrual basis

accounting.

b. Show whether each transaction would be handled as a revenue or an expense using both the accrual basic and cash basic by completing the

following table:

Amount of Revenue (Expense) for May

Date Cash basic amount of Revenue (Expense) Accrual basic amount of Revenue (Expense)

c. Calculate the amount of net income or net loss for ABC Catering Company under cash basic and accrual basis.

Q13

Quoc Viet Company completed the following transaction during June, 2020:

June 1 Prepaid rent for June through September, $3,600

Decrease A (cash) 3,600

Increase A (prepaid expense) 3,600

2 Purchased computer for cash, $900

Increase A(computer) 900

Decrease A( cash) 900

3 Performed catering service on account, $2,300

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 Increase OE (revenue) 2,300

Increase A (A/R) 2,300

5 Paid internet service provider invoice, $100

Decrease A( cash) 100

Decrease OE( internet expense) 100

6 Catered wedding event for customer and received cash, $1,500

Increase OE ( revenue) 1,500

Increase A( cash) 1,500

8 Purchased $150 of supplies on account.

Increase A( supplies) 150

Increase L ( A/P) 150

10 Collected $1,200 on account

Increase A( cash) 1,200

Decrease A( A/R) 1,200

14 Paid account payable from June 8

Decrease A( cash) 150

Decrease L ( A/P) 150

15 Paid salary expense, $1,200

Decrease A (cash) 1,200

Decrease OE( salary expense) 1,200

30 Calculate rent expense (see June 1)

Decrease OE( rent expense) 900

Decrease A( prepaid expense) 900

30 Depreciation expense for June, $25

Decrease OE( depreciation expense) 25

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 Decrease A( depreciation accumulated) 25

30 There are $40 of supplies still on hand

Supplies in use = 150- 40 = 110

Decrease OE( supplies expense) 110

Decrease A( supplies) 110

Required

a. Indicate which accounts were increased or decreased and by what amounts from the transactions above, according the accrual basic

accounting.

b. Show whether each transaction would be handled as a revenue or an expense using both the accrual basic and cash basic by completing the

following table:

Amount of Revenue (Expense) for June

Date Cash basic amount of Revenue (Expense) Accrual basic amount of Revenue (Expense)

c. Calculate the amount of net income or net loss for Quoc Viet Company under cash basic and accrual basis.

tranthingocanh@hvtc.edu.vn

Q14

Tropical View Company applies accrual basic accounting. Consider the facts presented in the following table for the company:

Situation

A B C D

Beg prepaid rent $1,200 $900 $200 $700

Payments for prepaid rent during the year 1,400 b 1,800 d

Total amount to account for 2,600 1,400 ? ?

Subtract: ending prepaid rent 600 500 c 400

Rent expense $a $900 $1,900 $1,100

Required

Complete the table by filling in the missing values.

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Q15

The following are changes in all account balances of XYZ Furniture Co. During the current year, except for retained earnings.

Increase (Decrease)

Cash $69,000

Account receivables 45,000

Inventory 127,000

Investments (47,000)

Account Payables (51,000)

Share capital 138,000

Required

Compute the net income for the current year, assuming that there were no entries in the RE account except for net income and a dividend

declaration of $24,000 which was paid in the current year.

Q16

Case 1: Sales salaries paid during 2019 were €70,000. Sales salaries accrued were €1,360 on January 1, 2019, and €1,380 on December 31,

2019. Show the computation of sales salaries on an accrual basis for 2019.

Case 2:

The records for Todd Inc. showed the following for 2019:

Jan. 1 Dec. 31

Accrued expenses R$1,800 R$2,150

Prepaid expenses 720 870

Cash paid during the year for expenses, R$55,500

Show the computation of the amount of expense on accrual basic 2019.

Case 3:

The records for Kiley Company showed the following for 2019:

Jan. 1 Dec. 31

Accrued revenue HK$1,260 HK$920

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Cash collected during the year for revenue, HK$75,000

Show the computation of the amount of revenue that should be reported on the income statement.

Case 4

The records for Kiley Company showed the following for 2019:

Jan. 1 Dec. 31

Unearned revenue HK$1,600 HK$2,160

Cash collected during the year for revenue, HK$75,000

Show the computation of the amount of revenue that should be reported on the income statement.

Case 5

Revenue for the year on accrual basic was €135,800. Account receivable were €4,500 on January 1 and €3,540 on December 31.

Show the computation of revenue for the year on a cash basis.

REVIEW CHAPTER 2

Question 1

1. Resources owned by a company (such as cash, accounts receivable, vehicles) are reported on the balance sheet and are referred to

as __________

2. Obligations (amounts owed) are reported on the balance sheet and are referred to as __________

3. Which of the following characteristics does not describe an asset? Requires the payment of cash or Controlled by an entity?

4. Which of the following characteristics does not describe a liability? Present obligation or must be legally enforceable?

5. If you receive a telephone bill, is your expense increasing or decreasing?

6. If you purchase a motor vehicle, is your asset value increasing or decreasing?

7. If you are informed that your last insurance bill was overstated and that you will receive a credit, is your expense increasing or

decreasing

8. If you receive notification from the bank that you have been charged bank fees, is your asset (the bank account) increasing or decreasing?

Question 2

Business transactions during December of XYZ Company are presented as follows:

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1. The owner invested $30,000 cash in the corporation

2. Purchased $5,500 of equipment with cash

3. Purchased a new truck for $8,500 cash

4. Purchased $500 in supplies on account

5. Paid $300 for supplies previously purchased/

6. Paid February and March Rent in advance for $1,800

7. Performed work for customers and received $50,000 cash

8. Performed work for customers and billed them $10,000

9. Received $5,000 from customers from work previously billed

10. Paid office salaries $900

11. Paid utility bill $1,200

Required: Prepare a tabular analysis which shows the effects of these transactions on the expanded accounting equation

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