GENERAL ACCOUNTING 2 - “ Four random questions w/ answers”

QUESTION No. 1

Margin of safety - is the difference between the amount of expected profitability and the break-even
point. The margin of safety formula is equal to current sales minus the breakeven point, divided by
current sales.

 Margin of safety = Actual Sales - Breakeven point sales

Break Even Point - is the necessary level of output for a company’s revenue to be equal to its total costs
– or said differently, the inflection point at which a company begins to generate a profit.

 Break-Even point (units) = Fixed Costs ÷ (Sales price per unit – Variable costs per unit) or Fixed
Cost ÷ CM/unit
 Break-Even point (sales dollars) = Fixed Costs ÷ Contribution Margin.

Contribution margin - is a business’ sales revenue less its variable costs. The resulting contribution
dollars can be used to cover fixed costs (such as rent), and once those are covered, any excess is
considered earnings.

 Contribution Margin (units) = Selling price per unit – Variable cost per unit
 Contribution Margin (dollars) = Total Sales Revenue – Total Variable Costs

Given:
Selling price per unit = 42 kr/stk
Variable Cost per unit = 14kr/stk
Fixed Costs = 42.000 kr
Sold pieces in June/Actual sales = 4.000 stykki

All sales revenue that a company collects over and above its  break-even point  represents the margin
of safety.

Contribution Margin (units) = SP per unit – VC per unit

= (42kr/stk - 14kr/stk )

= 28 kr/stk per unit

Break-Even point (units) = Fixed cost ÷ CM/unit

= 42.000 kr/28

= 1.500 pieces or stykki

Margin of safety = (Actual sales - BEP Sales)

Margin of Safety (pieces) = (4.000 – 1.500)

= 2.500 pieces

Margin of safety (value) = 2.500 × 42 kr/stk

= 105.000 kr

QUESTION No. 2
Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases.
The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it
returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The correct journal
entry to record the payment on August 16 is:

Multiple Choice
a.) Debit Merchandise Inventory $8,250; credit Cash $8,250.
b.) Debit Cash $8,250; credit Accounts Payable $8,250.
c.) Debit Accounts Payable $8,250; credit Merchandise Inventory $82.50; credit Cash $8,167.50.
d.) Debit Accounts Payable $9,750; credit Merchandise Inventory $97.50; credit Cash $9,652.50.
e.) Debit Accounts Payable $8,167.50; credit Cash $8,167.50.

Merchandise inventory - the cost of finished goods (COGS) that a retailer or wholesaler has available to
sell to its customers during a given accounting period. For a bookstore, merchandise inventory would
include the cost of the books or magazines it has for sale.

Date Journal Entry Debit Credit

Aug. 7 Merchandise Inventory $ 9,750  
  Accounts Payable   $ 9,750
(To record purchase of MI on account)
Aug. 11 Accounts Payable $ 1,500  
  Merchandise Inventory   $ 1,500
(To record any returned MI )
16.Aug Accounts Payable (MI + Cash) $8,250  
Merchandise Inventory
(purchased cost - returned MI) x terms
    $82.50
percentage " 1/10, n/30" (e.g 1%)
(9,750 - 1,500) x 1%
Cash
(purchased cost - returned MI) x (100% -
$8,167.5
  terms percentage) " 1/10, n/30" (e.g  
0
100%-1% = 99%)
(9,750 - 1,500) x 99%
(To record payment of MI purchased due)
QUESTION No. 3
Question No. 3.1: The adjusted account balances of Hobby Centre at July 31 are as follows: Accounts
Account Balances Account Balances $25,000 Cash $203,000 Accounts receivable 39,000 22,000 18,000
41.000 Supplies Prepaid insurance Accounts Service revenue Interest revenue Depreciation expense
Insurance expense Salary expense Supplies expense Utilities expense 22.000 20,000 Buildings 314,000
44,000 Accumulated depreciation-Buildings 134,000 23,000 Accounts payable 33,000 26,000 D. Fortier,
Capital 209.000 D. Fortier, Drawings 29,000 Prepare the end of the period closing entries for Hobby
Centre. (Credit account titles are automatically indented when the dmount is entered. Do not indent
manually. List all debit entries before credit entries.) Date Account Titles and Explanation Debit Credit
July 31 (To close revenue accounts to income summary.) July 31 (To close expense accounts to income
summary.) July 31 (To close income summary account to capital.) July 31 (To close drawings to capital.)

REQUIREMENT NO. 1: CULLUMBER CENTRE

Date Account Titles and Explanation Debit Credit

July 31 Service Revenue $ 203,000  
  Interest Revenue $ 22,000  
  Income Summary ( $ 203K + $ 22K)   $ 225,000
(To close revenue accounts to income summary)
July 31 Income Summary $ 154,000  
  Depreciation Expense   $ 41,000
  Insurance Expense   $ 20,000
  Salary expense   $ 44,000
  Supllies Expense   $ 23,000
  Utilities Expense   $ 26,000
(To close expense accounts to income summary)
July 31 Income Summary ($ 225K - $ 154K) $ 71,000  
  D. Harris, Capital   $ 71,000
(To close income summary to capital)
July 31 Income Summary $ 29,000  
  D. Harris, Drawings   $ 29,000
(To close drawings to capital)

Question No. 3.2: The adjusted trial balance for Mosley Brown Tiles at December 31, 2024, is as follows:

REQUIREMENT NO. 2:  MOSLEY BROWN TILES

 Mosley Brown Tiles

Balance sheet
December 31,2024
 
ASSETS  
Current Assets  
 Cash $ 32,200
 Accounts Receivable 26,300
 Prepaid Insurance 2,450
 Prepaid Rent 5,180
 Supplies 3,950
Total Current Asset 70,080
   
Fixed Asset  
 Equipment 18,100
 Accumulated Depreciation-Equipment - 5,400
 Furniture 25,300
 Accumulated Depreciation-Furniture - 4,320
Total Non-current assets 33,680
   
Total Assets $ 103,760
   
LIABILITIES AND EQUITY  
Current Liabilities  
 Accounts Payable $ 8,350
 Salary Payable 13,000
 Unearned revenue 6,340
Total current liabilities 27,690
   
Long-term Liabilities  
 Mortgage Payable 37,900
Total Non-current liabilities 37,900
   
Total Liabilities 65,590
   
Shareholder's Equity  
 M.Brown, Capital 57,350
 M.Brown, Drawings - 16,300
 Retained Earnings/Profit&Loss - 2,880
Total Equity 38,170
   
Total Liabilities and Equity $ 103,760

 Mosley Brown Tiles

Profit and Loss Statement
December 31,2024
 
Service revenue   $ 35,000
 Less: Expenses    
Salary Expense 23,600  
Depreciation expense 4,940  
Rent expense 5,750  
Insurance expense 2,000  
Supplies expense 740  
Advertising expense 850 37,880
Net Income/ (Loss)   - 2,880

Question No. 4
Calculation of percentage
= Increase or decrease amount / Base year amount (2021) x 100
= [(Current year amount – Previous year amount) / Previous year amount] x 100

Increase or (Decrease)
  2022 2021 Amount Percentage
Assets        
Current assets $ 123,400 $ 100,000 $ 23,400 23.4%
Plant assets (net) 394,350 330,000 64,350 19.5%
Total assets $ 517,750 $ 430,000 $ 87,750 20.4%
         
Liabilities        
Current liabilities 86,328 72,000 14,328 19.9%
Long-term liabilities 133,280 85,000 48,280 56.8%
Total liabilities 219,608 157,000 62,608 39.9%
         
Stockholders' Equity        
Common stock, $1 par 166,440 120,000 46,440 38.7%
Retained earnings 131,702 153,000 (21,298) (13.9%)
Total stockholders' equity 298,142 273,000 25,142 9.2%
         
Total liabilities and Stockholders'
$ 517,750 $ 430,000 $ 87,750 20.4%
equity