Unity University

Fundamentals of Accounting I

Assignment II

1) Daniel Abera is the owner and operator of Dan Abe, a motivational

consulting business. At the end of its accounting period, December 31,
2009, Dan Abe has assets of $475,000 and liabilities of $115,000.Using
the accounting equation, determine the following amounts:
a) Total Equity, as of December 31, 2009.
b) Total Equity, as of December 31, 2010, assuming that assets
increased by $90,000 and liabilities increased by $28,000 during
2010.
2) What does the following assumptions or principles states?
i. Monetary unit assumption?
ii. Economic entity assumption?
iii. Cost Principle?
iv. Fair value principle
3) At the beginning of the year, Danks Company had total assets of
$800,000 and total liabilities of $300,000. Answer the following
questions.
i. (a) If total assets increased $150,000 during the year and total
liabilities decreased $80,000, what is the amount of Total equity at
the end of the year?
ii. (b) During the year, total liabilities increased $100,000 and Equity
decreased $70,000. What is the amount of total assets at the end
of the year?
iii. If total assets decreased $80,000 and Equity increased $120,000
during the year, what is the amount of total liabilities at the end of
the year?
 4) Thomas Computer Timeshare Company entered into the following
transactions during May 2012.

_________1. Purchased computer terminals for $20,000 from Digital

Equipment on account.

_________2. Paid $4,000 cash for May rent on storage space.

_________3. Received $17,000 cash from customers for contracts billed in

April.

_________4. Provided computer services to Fisher Construction Company

for $3,000 cash.

_________5. Paid Northern States Power Co. $11,000 cash for energy
usage in May.

_________6. Thornton invested an additional $29,000 in the business.

_________7. Paid Digital Equipment for the terminals purchased in (1)

above.

_________8. Incurred advertising expense for May of $1,200 on account.

Instructions

Indicate with the appropriate letter whether each of the transactions above
results in:

(a) An increase in assets and a decrease in assets.

(b) An increase in assets and an increase in equity.

(c) An increase in assets and an increase in liabilities.

(d) A decrease in assets and a decrease in equity.

(e) A decrease in assets and a decrease in liabilities.

(f) An increase in liabilities and a decrease in equity.

 (g) An increase in equity and a decrease in liabilities.

5) State the rules of debit and credit as applied to (a) asset accounts, (b)
liability accounts, and (c) the equity accounts (revenue, expenses,
Drawing, and Owner’s capital).
6) What is the normal balance for each of the following accounts? (a)
Accounts Receivable. (b) Cash. (c) Dividend (Owner’s Drawing). (d)
Accounts Payable. (e) Service Revenue. (f) Salaries and Wages Expense.
(g) Share Capital-Ordinary.
7) The prepaid insurance account had a beginning balance of $6,000 and
was debited for $7,200 of premiums paid during the year. Journalize the
adjusting entry required at the end of the year assuming the amount of
unexpired insurance related to future periods is $4,200.
8) The balance in the prepaid insurance account, before adjustment at the
end of the year, is $11,500. Journalize the adjusting entry required
under each of the following alternatives for determining the amount of
the adjustment:
a) the amount of insurance expired during the year is $8,750;
b) the amount of unexpired insurance applicable to future periods is
$2,750.
9) On August 31, 2010, the following data were accumulated to assist the
accountant in preparing the adjusting entries for Cobalt Realty:
a. Fees accrued but unbilled at August 31 are $9,560.
b. Purchase of supplies was initially recorded as an Expense
and the supplies Expense account balance on August 31 is
$3,150 before adjustment. The supplies on hand at August
31 are $900.
c. Wages accrued but not paid at August 31 are $1,200.
d. The unearned rent account balance at August 31 is $9,375,
representing the receipt of an advance payment on August 1
of three months’ rent from tenants.
 e. Depreciation of office equipment is $1,600.
Instructions
i. Journalize the adjusting entries required at August 31,
2010.
ii. Briefly explain the difference between adjusting entries
and entries that would be made to correct errors
(Correcting entries.)
10) The supplies account had a beginning balance of $1,815 and was
debited for $3,790 for supplies purchased during the year. Journalize
the adjusting entry required at the end of the year assuming the
amount of supplies on hand is $1,675.
11) On October 1, 2009, Nautilus Co. received $15,300 for the rent of
land for 12 months. Journalize the adjusting entry required for
unearned rent on December 31, 2009.
12) The balance in Fees Revenue account, before adjustment at the end of
the year, is $31,850. Journalize the adjusting entry required
assuming the amount of unearned fees at the end of the year is
$6,195. (Assume Unearned Fees Revenue is initially recorded as
revenue.)
13) What distinguishes a merchandising business from a service
business?
14) In computing the cost of merchandise sold, does each of the following
items increase or decrease that cost? (a) Freight, (b) beginning
merchandise inventory, (c) purchase discounts, (d) ending
merchandise inventory.
15) What type of revenue is reported in the other income section of the
multiple-step income statement?
16) What is the nature of (a) a credit memo issued by the seller of
merchandise, (b) a debit memo issued by the buyer of merchandise?
17) Who bears the freight when the terms of sale are (a) FOB shipping
point, (b) FOB destination?
18) The following selected transactions were completed by Artic Company
during February of the current year. Artic Company uses the periodic
inventory system.
 Feb. 2. Purchased $17,500 of merchandise on account, FOB
shipping point, terms 2/15, n/30.
 Feb. 5. Paid freight of $300 on the February 2 purchase.
 Feb. 6. Returned $2,000 of the merchandise purchased on
February 2.
 Feb. 13. Sold merchandise on account, $9,000, FOB destination,
2/10, n/30. The cost of merchandise sold was $6,600.
 Feb. 15. Paid freight of $100 for the merchandise sold on February
13.
 Feb. 17. Paid for the purchase of February 2 less the return and
discount.
 Feb. 23. Received payment on account for the sale of February 13
less the discount.

Required: Journalize the entries to record the transactions of Artic

Company

19) Aladdin Company is a small rug retailer owned and operated by Lin
Endsley. After the accounts have been adjusted on October 31, the
following account balances were taken from the ledger:
 Freight –out……………………………………………………..$ 1,000
 Advertising Expense . . . . . . . . . . . . . . . . . . . . . . . . . . 16,500
 Depreciation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
 Freight In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
 Lin Endsley, Drawing . . . . . . . . . . . . . . . . . . . . . . . . . .30,000
 Merchandise Inventory, October 1. . . . . . . . . . . . . . . . 43,800
  Merchandise Inventory, October 31. . . . . . . . . . . . . . .. 35,750
 Miscellaneous Expense . . . . . . . . . . . . . . . . . . . . . . . . . . 1,750
 Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 560,000
 Purchases Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . .12,000
 Purchases Returns and Allowances . . . . . . . . . . . . . . . . . 6,000
 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 890,000
 Sales Discounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
 Sales Returns and Allowances . . . . . . .. . . . . . . . . . . . . . 10,000
 Salaries Expense . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 80,000
Required: Journalize all the closing entries on October 31. (Including
Merchandise inventory and Income Summary account)
20) Based on the following data, determine the cost of merchandise sold
for August:
 Merchandise inventory, August 1 ……………………$120,000
 Merchandise inventory, August 31 ………………….. .150,000
 Purchases ……………………………………………....780,000
 Purchases returns and allowances ………………………20,000
 Purchases discounts ……………………………………..10,000
 Freight in ………………………………………………… 5,000
21) For (a) through (d), identify the items designated by ―X‖ and ―Y.‖
a. Purchases - (X + Y) = Net purchases.
b. Net purchases + X = Cost of merchandise purchased.
c. Merchandise inventory (beginning) + Cost of merchandise
purchased = X.
d. Merchandise available for sale - X = Cost of merchandise
sold.
22) The following data were extracted from the accounting records of
Wedgeforth Company for the year ended November 30, 2010:
 Merchandise inventory, December 1, 2009…………… $ 210,000
 Merchandise inventory, November 30, 2010……………… 185,000
  Purchases ……………………………………………………….1,400,000
 Purchases returns and allowances …………………………….. 20,000
 Purchases discounts …………………………………………………18,500
 Sales …………………………………………………………….2,250,000
 Freight in ………………………………………………………… 14,100
a) Prepare the cost of merchandise sold section of the income
statement for the year ended November 30, 2010, using the
periodic inventory system.
b) Determine the gross profit to be reported on the income statement
for the year ended November 30, 2010.
23) Below is a series of cost of goods sold sections for companies B, F,
L, and R.