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Honors College Capstone Experience/Thesis Projects 1-1-2010 Honors College at WKU

Assessment of the 'Accounting Cycle': Test Tools for the Accounting Professor
Nicole M. Swanson
Western Kentucky University

Recommended Citation
Swanson, Nicole M., "Assessment of the 'Accounting Cycle': Test Tools for the Accounting Professor" (2010). Honors College Capstone Experience/Thesis Projects. Paper 254. http://digitalcommons.wku.edu/stu_hon_theses/254

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Copyright by  Nicole M. Swanson  2010 

ABSTRACT The two main goals of this thesis are to provide an assessment tool for accounting professors as well as a learning tool for students to gain a better understanding of the accounting cycle. Many students coming out of the basic accounting courses have a pretty good understanding of the different parts of the accounting cycle, but few have a solid understanding of the bigger picture and how each part fits together. I believe this is partly due to the fact that students in 200 level courses are never required to complete the accounting cycle from beginning to end. As such, it is necessary for professors to assess the level of knowledge possessed by new students beginning a particular course. In my experience as a student, I have found that when an introductory assessment is given in order for the professor to reflect on the results of that assessment and makes changes to the course curriculum as necessary, the overall success of the students in that course is much higher than if the assessment had not been given. In order to test the knowledge retention of intermediate level accounting students, I have developed a case applicable to students who have completed the first intermediate financial accounting course and any of its prerequisites. My focus will be on the accounting cycle and issues involving financial accounting as opposed to managerial. I have provided a practice case including case requirements, blank forms and worksheets to be completed by the user, and a solution to the case. Keywords: Accounting, Practice Case, Accounting CE/T, Assessment Tool, Financial Accounting, Accounting Cycle
ii

..................................................... Kentucky 2006 – 2009........................................... Iowa 2002 – 2006......... LLP Bowling Green. 1988 ........Accounting Intern – BKD....... Kentucky FIELDS OF STUDY Major Field: Accounting iii ................................ Kentucky 2010 ..Taylor County High School Campbellsville...........................VITA January 9.......Born – Davenport.......Accountant – Print Media Bowling Green.............................................

.............TABLE OF CONTENTS Page Abstract .......................................................................................................................................................10 Twelve-Column Worksheet .........21 General Ledger – Solved ...36 iv ....................................7 General Ledger.............................................................................................................................................................................................................1 Narrative and Instructions ...................................................... ii Vita ...............................................................5 Transactions ..............................................25 Twelve-Column Worksheet – Solved .............................................................................................................................................34 Financial Statements .................................................................................................................2 Post-Closing Trial Balance (12/31/07) ............19 Transactions – Solved .............................................................................................................................................. iii Contents: Introduction and Objective ..

After the results are found. It requires a strong understanding of the accounting cycle because an instructor won’t always be around to give you the answer. Ultimately. a professor may then decide to adjust their curriculum or teaching methods accordingly. Therefore. it will be an employer expecting you to have a solution. Instead. The case requirements will be to perform all accounting functions from journalizing to preparing financial statements.Introduction & Objective Are upper level accounting students retaining enough knowledge of the basic accounting functions to be successful in their future careers? Accounting outside of college courses is more than completing homework problems with the help of your textbook or class notes. The focus of the case is on the accounting cycle and issues involving financial accounting as opposed to managerial. completion or utilization of this problem will result in information that substantiates the amount of knowledge students in upper level accounting courses have retained from their earlier courses. I have created accounting records for a fictitious company and included a list of typical transactions a company would expect to incur in any given year. In order to provide an assessment tool to test the knowledge retention of accounting students. I have developed a case to be completed by students in second level intermediate financial accounting courses. it is necessary to analyze the retention of student knowledge of the basic accounting functions early on. 1 .

NARRATIVE AND INSTRUCTIONS 2 .

000 note payable 3/1/08 and a $195. The company uses a periodic inventory system. Accounts Payable and Purchases are recorded using the Net Method. was authorized 50. the following information is necessary to complete the financial statements in accordance with GAAP. The long term note was issued at a 10% interest rate payable semiannually on 4/30 & 10/30. Interest is to be received on 2/1 & 8/1. It has a 25 year life and no salvage value. ProStar USA. The allowance method is used to recognize bad debt expense. The company began operations in February 2004 and has recently decided to cease relations with their current accounting firm due to legal matters. An Accounting Practice Case Narrative ProStar USA. However. Inc. Inc. Inc.000 shares of $26 par common stock. Depreciation on machinery and equipment is also calculated using the double declining balance method. Notes Receivable consists of a $50. is a wholesale furniture distributor.000 note payable 4/30/15. Office supplies when purchased are debited to the Office Supplies account: periodic inventory system. Accounts Receivable and Sales are recorded using the Gross Method. the assets that make up this account have various lives and salvage values.000 5 year note issued at 8% on 7/1/07. The current note has a 7% interest rate payable semiannually on 3/1 & 9/1. and 1/1 & 7/1 respectively.ProStar USA. 3 . Notes Payable consists of a $75. You have been given account balances as of 12/31/2007 and are asked to produce financial statements for the year ended 12/31/2008.000 note issued at 12% on 2/1/05 to be paid in full 8/1/2008 and a $75. The building was purchased on 5/31/04 and is depreciated using the double declining balance depreciation method. In addition to the list of transactions provided.

2. You are to complete all phases of the accounting cycle for the 2008 including the financial statements. Be sure to include Earnings per Share. Complete the worksheet. Prepare a statement of retained earnings. 5. 3. Journalize and post “Transactions FYE 12/31/2008” to each respective account ledger. Prepare an income statement. 6.Instructions Transactions for 2008 are provided on the following pages in chronological order. Perform the following tasks in order on the forms provided. Journalize and post the “Accruals and Adjustments”. Prepare a balance sheet. Prepare a trial balance by entering the account balances from the general ledger in the first two columns of the twelve column worksheet. 1. These entries will make up the adjustments columns of the worksheet and should been cross referenced using the related alphabetic characters. 4. 4 . 7.

POST CLOSING TRIAL BALANCE (12/31/07) 5 .

000 13.000 26.000 shares issued.061 950 41.900 44.000 32. Inc.000 72.000 41.000 4.000 195.900 8. Post Closing Trial Balance December 31.000 127.400 6. Account Title 1000 1100 1150 1200 1300 1400 1500 1550 1600 1650 1700 1800 1850 1900 1950 2000 2100 2200 2300 2400 2500 2600 2700 2800 2900 3000 3100 3200 3300 3400 3500 3600 4000 4100 4200 5000 5100 5200 5300 6000 6050 6100 6150 6200 6250 6300 6350 6400 6450 6500 6550 6600 6650 6700 6750 6800 Cash Accounts Receivable Allowance for Doubtful Accounts Inventory Prepaid Insurance Office Supplies Interest Receivable Notes Receivable Patent Goodwill Land Building Accumulated Depreciation Building Machinery & Equipment Accumulated Depreciation Machinery & Equipment Accounts Payable Interest Payable Wages Payable Income Taxes Payable Federal Tax Withholding State Tax Withholding Sales Tax Payable Notes Payable current Mortgage Payable Notes Payable long term Common Stock 10. $50 par cumulative Additional Paid in Capital Preferred Retained Earnings Dividends Treasury Stock 1.000 18.365 .722 53.000 93.664 24.280 75. $26 par Additional Paid in Capital Common Preferred Stock 8%.ProStar USA.000 85.365 880.000 260.800 5.000 40.000 Account No.000 shares Sales Revenue Sales Discounts Interest Revenue Purchases Purchase Discounts Lost Freight In Cost of Goods Sold Wage Expense Interest Expense Income Tax Expense Insurance Expense Supplies Expense Depreciation Expense Buildings Depreciation Expense Machinery & Equipment Amortization Expense Bad Debts Expense Research & Development Expense Payroll Tax Expense Advertising Expense Utilities Expense Acccounting Expense Legal Fees Expense Gain / Loss on Sale of Assets Extraordinary Loss from Fire 6 880.000 13.875 1.550 765 5. 2007 Account Balances 12/31/2007 Debit Credit 175.500 125.113 56.250 115.

TRANSACTIONS 7 .

900 to develop a patent.850. with cash. terms are 2/10. 7/1/2008 ProStar received an interest payment on its long term Note Receivable. 4/30/2008 ProStar paid interest due on the long term Note Payable. 1/28/2008 ProStar purchased.Transactions FYE 12/31/2008 1/1/2008 ProStar received an interest payment on its long term Note Receivable. 1/1/2008 A physical count of office supplies reveals inventory of $280 as of 12/31/07. Payable 5/26/2008 After seeking legal advice. 3/1/2008 ProStar paid cash of $77. 3/20/2008 Prior year sales tax was paid in full. 3/1/2008 ProStar purchased inventory on account worth $276. 9/20/2008 ProStar paid for inventory purchased on account 7/25/08.625 for the current Note Payable (principal & interest). 1/15/2008 ProStar paid accrued wages & taxes from 2007.500.875 on account for inventory purchased in 2007. ProStar also paid $3. 6/30/2008 ProStar sold equipment with a cost of $7.675. 2/1/2008 ProStar issued 19. office supplies of $6. 2/5/2008 ProStar paid $39.000.500 and book value of $5.700 to UPS for shipping costs. Record current year depreciation. 6/30/2008 Record the sale. terms are 1/10.000 @ 6/30/08 for $6. 9/25/2008 ProStar paid preferred dividends to shareholders on record at 9/18/08. 7/25/2008 ProStar purchased inventory on account worth $535. 8 .200.960 was deemed uncollectible. 1/31/2008 Assume the entire premium was paid for on the renewal date. n/30.500 shares of common stock when the market value was $38 per share. 4/27/2008 ProStar paid advertising costs of $15. n/60. 1/31/2008 ProStar's current insurance policy expires 1/31/08 and will automatically renew for 1 year with a 10% increase.875. 3/11/2008 ProStar paid for inventory purchased on account 3/1/08. 8/15/2008 A customer invoice in the amount of $4.625 @ 1/1/08 and $5. 8/1/2008 ProStar received the final payment (interest & principal) on its short term Note Receivable. an invoice was received and paid in the amount of $650. 2/1/2008 ProStar received an interest payment on its short term Note Receivable. 9/18/2008 ProStar incurred internal costs of $32. 4/15/2008 ProStar paid accounting fees of $2.

water $672. 12/31/2008 Sales discounts in the amount of $17.180.700.670 respectively.700. A physical count of office supplies reveals inventory of $345. 12/15/2008 ProStar purchased inventory on account worth $163. n/30. Accrue interest on the long term Note Receivable. Hint: Be sure to account for any adjustments to the inventory account during the year.540.000.785.360. 11/13/2008 A warehouse fire destroyed inventory resulting in a loss of $12. Accrurals and Adjustments Accrue for prepaid insurance used during the year. Accrue interest due on long term Note Payable. electric $9. 12/31/2008 Sales on account for the year totalled $1. Hint: you will need to prepare an amortization schedule.460. 12/31/2008 Net wages in the amount of $295. terms are 2/10. Current depreciation on Machinery & Equipment on record @ 12/31/08 totalled $6. 12/31/2008 Total customer payments for the year amount to $1. Goodwill has an economic life equal to its maximum legal life and was acquired on 7/15/2004.700 and f ederal w/h due to social security and medicare of 7.800. Federal & State w/h was also submitted to the proper authorities in the amount of $52. The tax rate is 35%.200 of merchandise still in stock.600 were paid throughout the year. The patent has a remaining legal life of 18 years and an economic life of 8 years.65% for each the employee and employer portions. 12/31/2008 A 12/31/2008 B 12/31/2008 C 12/31/2008 D 12/31/2008 E 12/31/2008 F 12/31/2008 G 12/31/2008 H 12/31/2008 I 12/31/2008 J 9 . Make the appropriate entry to amortize intangibles. Sales tax of 6% is accrued.900 and $23. Record state w/h of 24.200 were taken advantage of by customers on sales totalling $172.934.10/30/2008 ProStar paid interest due on the long term Note Payable. 12/31/2008 Accrue wages for the year in the amount of $360. Record depreciation for the building.700. 12/31/2008 Prepare an entry to record the net effect of monthly mortgage payments of $534 including principal and interest. 12/31/2008 A physical count of ending inventory revealed a total of $307. An allowance account should be provided equaling 7% of the ending balance of Accounts Receivable. 12/31/2008 ProStar incurred and paid the following expenses: phone $5. gas $3.975.

GENERAL LEDGER 10 .

900 Date 1/1/2008 Balance 1150 Allowance for Doubtful Accounts Explanation Debit Credit Balance 8.1000 Cash Date 1/1/2008 Balance Explanation Debit Credit Balance 175.250 Date 1/1/2008 Balance 1100 Accounts Receivable Explanation Debit Credit Balance 115.113 11 .

550 Date 1/1/2008 Balance 1400 Office Supplies Explanation Debit Credit Balance 765 Date 1/1/2008 Balance 1500 Interest Receivable Explanation Debit Credit Balance 5.000 1600 Patent Date 1/1/2008 Balance Explanation Debit Credit Balance 72.000 Date 1/1/2008 Balance 1650 Goodwill Explanation Debit Credit Balance 26.000 12 .500 Date 1/1/2008 Balance 1550 Notes Receivable Explanation Debit Credit Balance 125.400 Date 1/1/2008 Balance 1300 Prepaid Insurance Explanation Debit Credit Balance 6.Date 1/1/2008 Balance 1200 Inventory Explanation Debit Credit Balance 56.

000 Date 1/1/2008 Balance 1850 Accumulated Depreciation .900 Date 1/1/2008 Balance 2000 Accounts Payable Explanation Debit Credit Balance 44.Machinery & Equipment Date Explanation Debit Credit 1/1/2008 Balance Balance 18.1700 Land Date 1/1/2008 Balance Explanation Debit Credit Balance 93.Building Explanation Debit Credit Balance 32.000 Date 1/1/2008 Balance 1800 Building Explanation Debit Credit Balance 127.000 1950 Accumulated Depreciation .000 13 .800 Date 1/1/2008 Balance 2100 Interest Payable Explanation Debit Credit Balance 5.722 Date 1/1/2008 Balance 1900 Machinery & Equipment Explanation Debit Credit Balance 53.

000 14 .Date 1/1/2008 Balance 2200 Wages Payable Explanation Debit Credit Balance 13.280 2700 Notes Payable Explanation 1/1/2008 Balance Debit Credit Balance 270.061 Date 1/1/2008 Balance 2500 State Tax Withholding Explanation Debit Credit Balance 950 Date 1/1/2008 Balance 2600 Sales Tax P S l T Payable bl Explanation Debit Credit Balance 41.875 Date 1/1/2008 Balance 2300 Income Taxes Payable Explanation Debit Credit Balance - Date 1/1/2008 Balance 2400 Federal Tax Withholding Explanation Debit Credit Balance 1.000 Date 1/1/2008 Balance 2800 Mortgage Payable Explanation Debit Credit Balance 85.

000 Date 1/1/2008 Balance 3200 Preferred Stock Explanation Debit Credit Balance 40.Common Explanation Debit Credit Balance 13.Preferred Explanation Debit Credit Balance 4.000 15 .Date 1/1/2008 Balance 3000 Common Stock Explanation Debit Credit Balance 260.664 Date 1/1/2008 Balance 3500 Dividends Explanation Debit Credit Balance - Date 1/1/2008 Balance 3600 Treasury Stock Explanation Debit Credit Balance 24.000 Date 1/1/2008 Balance 3300 Additional Paid in Capital .000 Date 1/1/2008 Balance 3100 Additional Paid in Capital .000 Date 1/1/2008 Balance 3400 Retained Earnings Explanation Debit Credit Balance 41.

Date 1/1/2008 Balance 4000 Sales Revenue Explanation Debit Credit Balance Date 1/1/2008 Balance 4100 Sales Discounts Explanation Debit Credit Balance Date 1/1/2008 Balance 4200 Interest Revenue Explanation Debit Credit Balance 5000 Purchases Date 1/1/2008 Balance Explanation Debit Credit Balance Date 1/1/2008 Balance 5100 Purchase Discounts Lost Explanation Debit Credit Balance 5200 Freight In Date 1/1/2008 Balance Explanation Debit Credit Balance Date 1/1/2008 Balance 5300 Cost of Goods Sold Explanation Debit Credit Balance Date 1/1/2008 Balance 6000 Wage Expense Explanation Debit Credit Balance 16 .

Machinery & Equipment Explanation Debit Credit Balance Date 1/1/2008 Balance 6350 Amortization Expense Explanation Debit Credit Balance Date 1/1/2008 Balance 6400 Bad Debts Expense Explanation Debit Credit Balance 17 .Date 1/1/2008 Balance 6050 Interest Expense Explanation Debit Credit Balance Date 1/1/2008 Balance 6100 Income Tax Expense Explanation Debit Credit Balance Date 1/1/2008 Balance 6150 Insurance Expense Explanation Debit Credit Balance Date 1/1/2008 Balance 6200 Supplies Expense Explanation Debit Credit Balance Date 1/1/2008 Balance 6250 Depreciation Expense Building Explanation Debit Credit Balance Date 1/1/2008 Balance 6300 Depreciation Exp.

Date 1/1/2008 Balance 6450 Research & Development Expense Explanation Debit Credit Balance Date 1/1/2008 Balance 6500 Payroll Tax Expense Explanation Debit Credit Balance Date 1/1/2008 Balance 6550 Advertising Expense Explanation Debit Credit Balance Date 1/1/2008 Balance 6600 Utilities Expense Explanation Debit Credit Balance Date 1/1/2008 Balance 6650 Accounting Expense Explanation Debit Credit Balance Date 1/1/2008 Balance 6700 Legal Fees Expense Explanation Debit Credit Balance Date 1/1/2008 Balance 6750 Gain/Loss on Sale of Assets Explanation Debit Credit Balance Date 1/1/2008 Balance 6800 Extraordinary Loss Explanation Debit Credit Balance 18 .

TWELVE-COLUMN WORKSHEET 19 .

Account Title Debit Debit Credit Trial Balance Credit Adjustments Adjusted Trial Bal. Debit Credit Income Statement Debit Credit Retained Earnings Debit Credit Balance Sheet Debit Credit 20 Cash Accounts Receivable Allowance for Doubtful Accounts Inventory Prepaid Insurance Office Supplies Interest Receivable Notes Receivable Patent Goodwill Land Building Accumulated Depreciation Building Machinery & Equipment Accumulated Depreciation M & E Accounts Payable Interest Payable Wages Payable Income Taxes Payable Federal Tax Withholding State Tax Withholding Sales Tax Payable Notes Payable Mortgage Payable Common Stock Additional Paid in Capital Common Preferred Stock Additional Paid in Capital Preferred Retained Earnings Dividends Treasury Stock Sales Revenue Sales Discounts Interest Revenue Purchases Purchase Discounts Lost Freight In Cost of Goods Sold Wage Expense g p Interest Expense Income Tax Expense Insurance Expense Supplies Expense Depreciation Expense Buildings Depreciation Expense M & E Amortization Expense Bad Debts Expense Research & Development Expense Payroll Tax Expense Advertising Expense Utilities Expense Acccounting Expense Legal Fees Expense Gain / Loss on Sale of Assets Extraordinary Loss from Fire Totals Net Income Totals .

TRANSACTIONS – SOLVED 21 .

200.875 3/1/2008 ProStar paid cash of $77.000 Common Stock 507.000 Interest Receivable 2.Mach. n/30.000 Interest Receivable 3.500. Accounts Payable 39. Interest Payable 1. Cash 741.000 Interest Expense 875 Cash 77. Depreciation Expense .280 4/15/2008 ProStar paid accounting fees of $2.850 Cash 15.061 State Tax Withholding 950 Cash 15.250 Interest Expense 6. Legal Fees Expense 650 Cash 650 6/30/2008 ProStar sold equipment with a cost of $7. office supplies of $6.875 1/31/2008 ProStar's current insurance policy expires 1/31/08 and will automatically renew for 1 year with a 10% increase. Interest Payable 3.875 Federal Tax Withholding 1.550 1/31/2008 Assume the entire premium was paid for on the renewal date.850 4/30/2008 ProStar paid interest due on the long term Note Payable. Prepaid Insurance 86.Common 234. an invoice was received and paid in the amount of $650. Accounting Expense 2.500 and book value of $5.000 1/1/2008 A physical count of office supplies reveals inventory of $280 as of 12/31/07 resulting in a tax effect due to the missing expense of $160.500 Interest Revenue 500 2/5/2008 ProStar paid $39.970 Cash 270.550 Prepaid Insurance 6.875.current 75.675.000 Additional Paid in Capital .Transactions FYE 12/31/2008 1/1/2008 ProStar received an interest payment on its long-term Note Receivable.M & E 625 22 . Record current year depreciation.675 4/27/2008 ProStar paid advertising costs of $15.675 Cash 2. & Equipment 625 Accumulated Depreciation .875 Cash 39. Insurance Expense 6.750 Notes Payable .875 Cash 6.000 2/1/2008 ProStar received an interest payment on its short-term Note Receivable. with cash.970 Accounts Payable 270.000 @ 6/30/08 for $6.970 3/20/2008 Prior year sales tax was paid in full.500 shares of common stock when the market value was $38 per share. Accounts Payable 270. Wages Payable 13. Office Supplies 6.886 1/28/2008 ProStar purchased.460 2/1/2008 ProStar issued 19.750 5/26/2008 After seeking legal advice. Advertising Expense 15.625 for the current Note Payable (principal & interest).280 Cash 41.460 Cash 86. Prior Period Adjustment 325 Income Taxes Payable 160 Office Supplies 485 1/15/2008 ProStar paid accrued wages & taxes from 2007. Cash 3.625 @ 1/1/08 and $5.875 on account for inventory purchased in 2007.625 3/1/2008 ProStar purchased inventory on account worth $276.850. Purchases 270.500 Cash 9. Cash 3.970 3/11/2008 ProStar paid for inventory purchased on account 3/1/08. Sales Tax Payable 41. terms are 2/10.

$3.600 Wages Payable 308.6/30/2008 Record the sale. Accounts Receivable 1.$672.200 were taken advantage of by customers on sales totalling $172.975.000 Interest Revenue 3. electric . Accounts Payable 529. gas . Utilities Expense 18. Cash 3. Interest Expense 9.500 Machinery & Equipment 7.700 to UPS for shipping costs.900 State Tax Withholding 23.852 7/1/2008 7/25/2008 8/1/2008 8/15/2008 9/18/2008 9/20/2008 9/25/2008 10/30/2008 11/13/2008 12/15/2008 12/31/2008 12/31/2008 12/31/2008 12/31/2008 12/31/2008 12/31/2008 23 . Cash 6.700 Net wages in the amount of $295.000 Interest Revenue 3.650 Accounts Payable 529.975. Wage Expense 360. Freight-In 3.600 Federal Tax Withholding 52.200 State Tax Withholding 24.200 ProStar paid interest due on the long term Note Payable. n/30.000 Note Receivable 50.M & E 2. Research & Development Expense 32.750 A warehouse fire destroyed inventory resulting in a loss of $12.934.360.700.000.960 ProStar incurred internal costs of $32.900 Accrue wages for the year in the amount of $360.900 and $23.360 Sales Revenue 1.650 Purchase Discounts Lost 5.975.170 ProStar incurred and paid the following expenses: phone .900 Cash 32. Extraordinary Loss from Fire 12.785.500 Gain on Sale of Assets 1.426 Sales on account for the year totalled $1.800 Inventory 12.800 Sales Discounts 17. water .852 Cash 18.800 ProStar purchased inventory on account worth $163. Wages Payable 295.350 Cash 535.000.200 Accounts Receivable 172.200 Accumulated Depreciation .600 were paid throughout the year.$5.000 ProStar purchased inventory on account worth $535. Cash 53.000 A customer invoice in the amount of $4.180.200 ProStar received an interest payment on its long-term Note Receivable.750 Payroll Tax Expense 27.900 Accounts Receivable 1.460. Cash 154. Record state w/h of 24.960 was deemed uncollectible.670 Cash 372.200 Cash 3.900 ProStar paid for inventory purchased on account 7/25/08.800.670 respectively. terms are 2/10.65% for each the employee & employer portions.650 ProStar received the final payment (interest & principal) on its short-term Note Receivable.700 and federal w/h due to social security and medicare of 7.700 Purchases 529.960 Accounts Receivable 4.700. Cash 1.360 Sales discounts in the amount of $17.000 Total customer payments for the year amount to $1.779.450 Federal Tax Withholding 55.426 Accounts Payable 160. ProStar also paid $3. terms are 1/10.540. n/60. Allowance for Doubtful Accounts 4. Federal & State w/h was also submitted to the proper authorities in the amount of $52.700 Cash 3.000 ProStar paid preferred dividends to shareholders on record at 9/18/08. Purchases 160.779.750 Cash 9.900 to develop a patent.$9. Dividends 3.

250 12/31/2008 Sales tax of 6% is accrued.046 Freight-In 3. Goodwill has an economic life equal to its maximum legal life and was acquired on 7/15/2004. C Interest Receivable 3. Hint: you will need to prepare an amortization schedule. & Equipment 6. H Sales Revenue 111.063 Mortgage Payable 1.810 12/31/2008 The tax rate is 35%.Mach.250 Interest Payable 3.12/31/2008 A physical count of ending inventory revealed a total of $307.Bldg.000 12/31/2008 Make the appropriate entry to amortize intangibles.810 Office Supplies 6.M & E 6.255 Prepaid Insurance 79.813 12/31/2008 A physical count of office supplies reveals inventory of $345.813 Sales Tax Payable 111. F Depreciation Expense .700 Accumulated Depreciation .408 Accrurals and Adjustments 12/31/2008 Accrue for prepaid insurance used during the year.605 24 .542 12/31/2008 Accrue interest due on long term Note Payable.255 12/31/2008 Accrue interest on the long-term Note Receivable. D Amortization Expense 9. I Supplies Expense 6.700.Building 7. 7. A Insurance Expense 79. B Bad Debts Expense 6.700 12/31/2008 Prepare an entry to record the net effect of monthly mortgage payments of $534 including principal and interest. G Interest Expense 3.200 of merchandise still in stock.700 12/31/2008 Record depreciation for the building.200 Cost of Goods Sold 701. Interest Expense 5.255 12/31/2008 An allowance account should be provided equaling 7% of the ending balance of Accounts Receivable. The patent has a remaining legal life of 18 years and an economic life of 8 years.345 Cash 6.000 Patent 9. E Depreciation Expense .146 Beginning Inventory 56.000 Interest Revenue 3.605 Income Tax Payable 185. Hint: Be sure to account for any adjustments to the inventory account during the year. J Income Tax Expense 185.800 Purchases 961. Ending Inventory 307.000 12/31/2008 Current depreciation on Machinery & Equipment on record @ 12/31/08 totalled $6.400 Inventory (lost in fire) 12.255 Allowance for Doubtful Accounts 6.542 Accumulated Depreciation .

GENERAL LEDGER – SOLVED 25 .

255 Balance 8.408 9.779.559 383.900 110.250 162.534 1.000 39.604 364.682 1.900 535.704 1.750 154.375.854 412.529 424.153 9.004 354.700 53.886 6.850 9.675 15.779.196) 1.554 363.408 Credit Balance 175.246) (167.029 813.408 26 .754 355.914.394.996) (13.279 380.875 77.280 2.000 3.750 650 6.274 Date 1/1/2008 8/15/2008 12/31/2008 12/31/2008 12/31/2008 12/31/2008 Debit Credit 4.960 1.554 359.369.086.200 3.250 178.154 695.800 1.000 1.970 41.960 Credit 6.369.625 270.940 2.854 379.460 741.000 3.000 32.113 3.274 1.766.400 134.900 Balance 115.046) (158.954 (155.875 86.360 172.000 3.400 Date 1/1/2008 8/15/2008 12/31/2008 12/31/2008 1150 Allowance for Doubtful Accounts Explanation Debit Balance Write-Off Uncollectible Account Provision for Bad Debts Balance 4.300 1.300 134.900 372.1000 Cash Date 1/1/2008 1/1/2008 1/15/2008 1/28/2008 1/31/2008 2/1/2008 2/1/2008 2/5/2008 3/1/2008 3/11/2008 3/20/2008 4/15/2008 4/27/2008 4/30/2008 5/26/2008 6/30/2008 7/1/2008 7/25/2008 8/1/2008 9/18/2008 9/20/2008 9/25/2008 10/30/2008 12/31/2008 12/31/2008 12/31/2008 12/31/2008 12/31/2008 12/31/2008 Explanation Balance Received Interest Paid Accrued Wages Purchased Office Supplies Paid for Insurance Renewal Issued Common Stock Received Interest Paid on Account Paid Note & Interest Paid on Account Paid Sales Tax Paid Accounting Fees Paid Advertising Costs Paid Interest Paid Legal Fees Sold Machinery & Equipment Received Interest Paid for Freight on Purchase Received Interest & Note Payment Developed Patent Paid on Account Paid Dividends Paid Interest Customer Payments Customer Payments Paid Accrued Wages Paid for Utilities Paid Mortgage & Interest Balance 1100 Accounts Receivable Explanation Balance Write-Off Uncollectible Account 2008 Sales on Account Customer Payments Customer Payments Balance Debit 3.489 69.000 15.975.029 810.029 773.200 9.852 6.354 360.364 155.170 18.

000 Balance 72.200 307.600 56.500 3.500 2.460 79.000 75.000 3 000 Balance 5.460 7.550 86.000 Debit Credit 9.200 Balance 56.205 7.800 56.875 6.400 307.200 Date 1/1/2008 1/31/2008 1/31/2008 12/31/2008 12/31/2008 Debit Credit 6.800 12.000 Date 1/1/2008 Balance 12/31/2008 Balance 1650 Goodwill Explanation Debit Credit Balance 26.155 345 345 Date 1/1/2008 1/1/2008 2/1/2008 12/31/2008 12/31/2008 Debit Credit 3.000 1550 Notes Receivable Date Explanation 1/1/2008 Balance 8/1/2008 Received Note Payment 12/31/2008 Balance 1600 Patent Date 1/1/2008 Balance 12/31/2008 Amortize Patent 12/31/2008 Balance Explanation Debit Credit 50.000 63.550 86.000 3 000 3.000 75.000 27 .400 307.255 Balance 6.000 Balance 125.400 43.000 26.205 Date 1/1/2008 1/1/2008 1/28/2008 12/31/2008 12/31/2008 Debit Credit 485 6.000 2.000 63.500 3.Date 1/1/2008 11/13/2008 12/31/2008 12/31/2008 12/31/2008 12/31/2008 1200 Inventory Explanation Balance Inventory Destroyed by Fire Inventory Destroyed by Fire Beginning Inventory Ending Inventory Balance 1300 Prepaid Insurance Explanation Balance Insurance Expired Paid for Insurance Renewal Insurance Expired Balance 1400 Office Supplies Explanation Balance Supplies used in 2007 Purchased Office Supplies Supplies used in 2008 Balance 1500 Interest Receivable Explanation Balance Received Interest Received Interest A Accrued Interest dI t t Balance Debit Credit 12.810 Balance 765 280 7.

895 4.750 3.Machinery & Equipment Explanation Debit Credit Balance Current Year Depr.725 Date 1/1/2008 2/5/2008 3/1/2008 3/11/2008 7/25/2008 9/20/2008 12/15/2008 12/31/2008 Debit 39.500 Balance 53.970 529.250 28 .722 40.000 3.000 Date 1/1/2008 Balance 12/31/2008 Balance 1800 Building Explanation Debit Credit Balance 127.925 275.000 127.650 529.Building Date Explanation Debit 1/1/2008 Balance 12/31/2008 Record Depreciation 12/31/2008 Balance 1900 Machinery & Equipment Date Explanation Debit 1/1/2008 Balance 6/30/2008 Sold Machinery & Equipment 12/31/2008 Balance Credit 7.250 3.1700 Land Date 1/1/2008 Balance 12/31/2008 Balance Explanation Debit Credit Balance 93.800 4.875 Credit 270.525 17.264 40.250 Credit 3.575 4.500 Record Depreciation 6.650 160.542 Balance 32.725 23.426 Balance 44.025 23.700 Balance 2000 Accounts Payable Explanation Balance Paid on Account Purchased Inventory on Account Paid on Account Purchased Inventory on Account Paid on Account Purchased Inventory on Account Balance 2100 Interest Payable Explanation Balance Paid Interest Paid Interest Accrue Interest Balance Balance 18.264 Credit 7. On M &E Sold 625 Sold Machinery & Equipment 2.500 45.500 Date 1/1/2008 6/30/2008 6/30/2008 12/31/2008 12/31/2008 1950 Accumulated Depreciation .970 270.000 1850 Accumulated Depreciation .250 Balance 5.000 93.000 45.351 Date 1/1/2008 3/1/2008 4/30/2008 12/31/2008 12/31/2008 Debit 1.925 534.250 3.925 165.900 19.351 165.

000 83.700 1.813 Balance 41.450 295.850 12.030 Date 1/1/2008 3/20/2008 12/31/2008 12/31/2008 Debit 41.700 23.000 195.600 Balance 13.300 Date 1/1/2008 1/15/2008 12/31/2008 12/31/2008 12/31/2008 Debit 950 Credit 24.030 1.280 111.000 195.655 83.875 308.280 Credit 111.875 Credit 308.445 185.813 111.850 Date 1/1/2008 1/1/2008 12/31/2008 12/31/2008 Debit 160 Credit 185.300 2.200 52.061 55.200 2.450 12.900 Balance 1.813 Debit 75.445 Date 1/1/2008 1/15/2008 12/31/2008 12/31/2008 12/31/2008 2400 Federal Tax Withholding Explanation Debit Balance Paid Accrued Wages 2008 Accrued Wages Paid Accrued Wages Balance 2500 State Tax Withholding Explanation Balance Paid Accrued Wages 2008 Accrued Wages Paid Accrued Wages Balance 2600 Sales Tax Payable Explanation Balance Paid Sales Tax Sales Tax Accrual Balance 2700 Notes Payable Explanation 1.670 Balance 950 24.000 Date 1/1/2008 Balance 12/31/2008 Paid Mortgage 12/31/2008 Balance Debit 1.000 Credit 1/1/2008 Balance 3/1/2008 Paid Note 12/31/2008 Balance 2800 Mortgage Payable Explanation Balance 270.605 Balance (160) 185.345 Credit Balance 85.655 29 .Date 1/1/2008 1/15/2008 12/31/2008 12/31/2008 12/31/2008 2200 Wages Payable Explanation Balance Paid Accrued Wages 2008 Accrued Wages Paid Accrued Wages Balance 2300 Income Taxes Payable Explanation Balance Prior Period Adjustment Income Tax 2008 Balance Debit 13.061 Credit 55.

000 40.000 Date 1/1/2008 Balance 2/1/2008 Issued Common Stock 12/31/2008 Balance 3100 Additional Paid in Capital .000 767.000 Balance 13.000 247.Common Explanation Debit Credit 234.Preferred Explanation Debit Credit Balance 4.200 Date 1/1/2008 Balance 12/31/2008 Balance 3600 Treasury Stock Explanation Debit Credit Balance 24.Supplies Expense 12/31/2008 Balance 3500 Dividends Explanation Debit 325 Credit Balance 41.000 3400 Retained Earnings Date Explanation 1/1/2008 Balance 1/1/2008 Prior Period Adjustment .000 Date 1/1/2008 Balance 12/31/2008 Balance 3200 Preferred Stock Explanation Debit Credit Balance 40.3000 Common Stock Date Explanation 1/1/2008 Balance 2/1/2008 Issued Common Stock 12/31/2008 Balance Debit Credit 507.000 Date 1/1/2008 Balance 12/31/2008 Balance 3300 Additional Paid in Capital .200 3.339 41.000 24.000 247.000 Balance 260.664 41.000 4.000 30 .000 767.339 Date 1/1/2008 Balance 9/25/2008 Paid Dividends 12/31/2008 Balance Debit 3.200 Credit Balance 3.

200 17.700 5300 Cost of Goods Sold Date Explanation 1/1/2008 Balance 12/31/2008 Cost of Goods Sold 12/31/2008 Balance 6000 Wage Expense Date Explanation 1/1/2008 Balance 12/31/2008 2008 Accrued Wages 12/31/2008 Balance 31 Debit 701.360 1.970 800.200 Credit Balance 17.200 Date 1/1/2008 2/1/2008 7/1/2008 8/1/2008 12/31/2008 12/31/2008 Debit Credit 500 3.975.350 5.650 160.750 .547 111.146 Credit Balance 701.750 Credit Balance 360.750 360.350 Credit Balance 3.970 529.146 701.547 1.863.146 Debit 360.Date 1/1/2008 12/31/2008 12/31/2008 12/31/2008 4000 Sales Revenue Explanation Balance Sales on Account Sales Tax Accrual Balance Debit Credit 1.000 3.360 Balance 1.000 Balance 500 3.426 Credit Balance 270.500 9.700 Credit Balance 5.975.350 12/31/2008 Balance 5200 Freight In Date 1/1/2008 7/25/2008 12/31/2008 12/31/2008 Explanation Balance Paid for Freight on Purchase Cost of Goods Sold Balance Debit 3.863.700 3.046 961.620 961.046 5100 Purchase Discounts Lost Date Explanation Debit 1/1/2008 Balance 9/20/2008 Paid for Inventory Purchased on Account 5.500 6.500 Debit 270.500 9.813 4100 Sales Discounts Date Explanation 1/1/2008 Balance 12/31/2008 Customer Discounts 12/31/2008 Balance 4200 Interest Revenue Explanation Balance Received Interest Payment Received Interest Payment Received Interest Payment Accrued Interest Balance 5000 Purchases Date 1/1/2008 3/1/2008 7/25/2008 12/15/2008 12/31/2008 12/31/2008 Explanation Balance Purchased Inventory on Account Purchased Inventory on Account Purchased Inventory on Account Cost of Goods Sold Balance Debit 17.000 3.

255 32 .542 7 542 7.000 9.125 22.810 Credit Balance 6.750 5.Date 1/1/2008 3/1/2008 4/30/2008 10/30/2008 12/31/2008 12/31/2008 12/31/2008 6050 Interest Expense Explanation Balance Paid Interest Paid Interest Paid Interest Paid Interest Accrue Interest Balance 6100 Income Tax Expense Explanation Debit 875 6.550 85.500 9.250 Credit Balance 875 7.255 Credit Balance 6.438 25.550 79.375 17.255 Credit Balance 6.810 6250 Depreciation Expense Building Date Explanation Debit 1/1/2008 Balance 12/31/2008 Record Depreciation 7.605 185.000 Credit Balance 9.325 7.000 6400 Bad Debts Expense Date Explanation 1/1/2008 Balance 12/31/2008 Provision for Bad Debts 12/31/2008 Balance Debit 6.542 Date 1/1/2008 6/30/2008 12/31/2008 12/31/2008 Credit Balance 625 7.700 Credit Balance 7.063 3.810 6.542 7 542 12/31/2008 Balance 6300 Depreciation Exp.805 85.605 Date 1/1/2008 1/31/2008 12/31/2008 12/31/2008 6150 Insurance Expense Explanation Balance Insurance Expired Insurance Expired Balance Debit 6.325 Date 1/1/2008 Balance 12/31/2008 Amortize Patent 12/31/2008 Balance Debit 9. Machinery & Equipment Explanation Debit Balance Current Year Dep.605 Credit Balance 185.805 6200 Supplies Expense Date Explanation 1/1/2008 Balance 12/31/2008 Supplies used in 2008 12/31/2008 Balance Debit 6. On M&E Sold Record Depreciation Balance 6350 Amortization Expense Explanation 625 6.255 6.438 Date 1/1/2008 Balance 12/31/2008 Income Tax 2008 12/31/2008 Balance Debit 185.188 25.

852 6650 Accounting Expense Date Explanation 1/1/2008 Balance 4/15/2008 Paid Accounting Fees 12/31/2008 Balance 6700 Legal Fees Expense Explanation Debit 2.200) (1.675 Date 1/1/2008 Balance 5/26/2008 Paid Legal Fees 12/31/2008 Balance Debit 650 Credit Balance 650 650 6750 Gain/Loss on Sale of Assets Date Explanation Debit 1/1/2008 Balance 6/30/2008 Sold Machinery & Equipment 12/31/2008 Balance 6800 Extraordinary Loss Date Explanation 1/1/2008 Balance 11/13/2008 Inventory Destroyed by Fire 12/31/2008 Balance Credit 1.600 Debit 15.600 27.900 32.800 12.800 33 .675 2.850 Credit Balance 15.Date 1/1/2008 Balance 9/18/2008 Developed Patent 12/31/2008 Balance 6450 Research & Development Expense Explanation Debit 32.850 Date 1/1/2008 Balance 12/31/2008 Paid for Utilities 12/31/2008 Balance Debit 18.850 15.900 Credit Balance 32.800 Credit Balance 12.675 Credit Balance 2.600 Credit Balance 27.200 Balance (1.852 18.900 6500 Payroll Tax Expense Date Explanation 1/1/2008 Balance 12/31/2008 SS & Medicare 2008 12/31/2008 Balance 6550 Advertising Expense Date Explanation 1/1/2008 Balance 4/27/2008 Paid Advertising Costs 12/31/2008 Balance 6600 Utilities Expense Explanation Debit 27.200) Debit 12.852 Credit Balance 18.

TWELVE-COLUMN WORKSHEET – SOLVED 34 .

351 3.542 3.000 40.852 2.500 23.255 6.850 18.300 1.274.400 9.553 344.542 7.874.833 3.675 650 1.274 134.807.030 111.438 185.146 360.360 17.863.200 1.000 H 111.339 3.833 24.000 26.813 J 185605 3.460 7.264 45.350 701.200 382.550 5.153 307.408 307.000 93.900 27.033 41.000 247.000 D 9.547 17.725 165.000 41.445 2.000 4.694 386.250 12.000 72.400 3.255 32.000 63.247 1.274.300 1.000 41.030 H 195.750 .351 G 12.000 32.146 360.700 F 7.000 127.500 17.205 345 3.350 701.025 165.595.810 6.675 650 1.924 2.300 1.000 93.750 .000 127.000 75.485 419.000 6.255 32.200 6.485 3.975.000 40.274.600 15.000 Cash Accounts Receivable Allowance for Doubtful Accounts Inventory Prepaid Insurance Office Supplies Interest Receivable Notes Receivable Patent Goodwill Land Building Accumulated Depreciation Building Machinery & Equipment Accumulated Depreciation M & E Accounts Payable Interest Payable Wages Payable Income Taxes Payable Federal Tax Withholding State Tax Withholding Sales Tax Payable Notes Payable Mortgage Payable Common Stock Additional Paid in Capital Common Preferred Stock Additional Paid in Capital Preferred Retained Earnings Dividends Treasury Stock Sales Revenue Sales Discounts Interest Revenue Purchases Purchase Discounts Lost Freight In Cost of Goods Sold Wage Expense g p Interest Expense Income Tax Expense Insurance Expense Supplies Expense Depreciation Expense Buildings Depreciation Expense M & E Amortization Expense Bad Debts Expense Research & Development Expense Payroll Tax Expense Advertising Expense Utilities Expense Acccounting Expense Legal Fees Expense Gain / Loss on Sale of Assets Extraordinary Loss from Fire 41.677 701.255 35 625 G J A I F E D B 3.655 767.813 195.000 40.850 185.000 4.595.200 24.205 345 3.542 7.033 Adjusted Trial Bal.900 27.874.230 419.000 26.000 247.000 40. Debit Credit 1.500 Totals Net Income Totals 2.200 9.600 15.264 45.438 185.000 83.805 6.339 3.813 195.339 344.700 9.274 134.000 40.000 63.810 7.547 17.369.255 6.000 127.500 23.146 360.600 15.200 24.000 1.230 12.725 165.408 307.350 C 3.924 .750 . 25.813 111.247 386.250 185605 79.655 767.000 247.351 3.000 26.605 85.000 93.000 382.155 B A I C 75.369. 22.500 5.924 2.200 9. 25.033 386.852 2.900 27.369.200 7.800 3.675 650 1.874.000 83.850 185.542 6.500 5.325 9.255 32.694 1.924 2.200 86.250 E 6.529.000 6.200 7.800 1.000 6.030 111.Account Title Debit Credit Adjustments Income Statement Debit Credit Retained Earnings Debit Credit Trial Balance Debit Credit 1.677 3.850 18.000 83.325 9.863.000 4.200 12.339 Balance Sheet Debit Credit 1.810 7.852 2.274 134.605 85.200 12.807.805 6.250 12.000 1.247 1.274.655 767.800 3.000 75.850 160 2.000 79.188 6.722 45.810 7.400 9.850 18.445 2.

FINANCIAL STATEMENTS 36 .

600 32.146 1.014 563. Inc.438) (5.325 85.852 360.201 2.02 (0. Income Statement For the Year Ended December 31.31) 12.500 (25.900 6. 2008 Revenue Sales Revenue Sales Discounts Net Sales Cost of Goods Sold Gross Profit Operating Expenses Accounting Expense Advertising Expense Amortization Expense Bad Debts Expense Depreciation Expense Buildings Depreciation Expense Machinery & Equipment Insurance Expense Legal Fees Expense Payroll Tax Expense Research & Development Expense Supplies Expense Utilities Expense Wage Expense Operating Income Other Revenue / Expense Interest Revenue Interest Expense Purchase Discounts Lost Gain on Sale of Assets Income Before Tax Tax (35%) Income Before Extraordinary Item Extraordinary Loss from Fire Tax (35%) Net Income Earnings Per Share: Income Before Extraordinary Item Extraordinary Loss from Fire Net Income 1.088) 543.810 18.71 37 .800) (4.750 582.694 (12.675 15.099 190.200 (20.846.863.ProStar.014 (8.547 (17.480) 13.187 9.320) 344.350) 1.347 701.542 7.000 6.850 9.085 353.200) 1.805 650 27.255 7.145.

694 (3. 2008 Retained Earnings.ProStar USA. Inc.200) 382. 1/1/2007 Plus: Net Income Less: Dividends Retained Earnings. 12/31/2008 41.664 325 41. 1/1/2007 Less: Prior Period Adjustment Adjusted Retained Earnings.339 344.833 38 . Statement of Retained Earnings December 31.

833 1.369.000 82.000 89.850 185.000 (40.400 (9.200 7. Inc.250 12.274 134.736 21.228 760.300 1.511 63. Plant.416.775 201. and Equipment Intangible Assets Patent Goodwill Total Intangible Assets Total Assets 1.228 277.694 767.000 2.351 3. and Equipment Land Building Accumulated Depreciation Building Machinery and Equipment Accumulated Depreciation Machinery & Equipment Total Property.000 127.000 247.000 40. Plant.030 111.177.527 39 .016 93.000 (24.264) 45.000 26.527 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable Interest Payable Wages Payable Income Taxes Payable Federal Tax Withholding State Tax Withholding Sales Tax Payable Mortgage Payable Total Current Liabilities Long Term Liabilities Notes Payable Mortgage Payable Total Long Term Liabilities Total Liabilities Stockholders' Equity Common Stock Additional Paid in Capital Common Preferred Stock Additional Paid in Capital Preferred Treasury Stock Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity 165.887.725) 86.445 2.000) 382. 2008 ASSETS Current Assets Cash Accounts Receivable Allowance for Doubtful Accountants Interest Receivable Notes Receivable Inventory Prepaid Insurance Office Supplies Total Current Assets Property.177.205 345 1.000 75.833 2.992 3.ProStar USA.000 4.466 195.427 483. Balance Sheet December 31.000 307.813 1.500 (23.408) 124.

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