ACTG 4P61 Study Guide - Final Guide: Fixed Asset, Common Stock, Cash Flow Statement
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Required:
1. Correct the recorded activity for Android for Life during July on the attached spreadsheet
2. Correct the balance sheet and income statement for Android for Life in July 2015 on the attached spreadsheet.
3. Is the large decline in cash a concern?
Android for Life Inc.
On July 1, 2015, Andy incorporated her business under the name Android for Life, Inc. Listed below are various transactions that occurred during the remainder of the year:
(a) On July 1, Andy purchased all of Android for Life common stock for $100,000 cash.
(b) On July 1, Android for Life paid $3,000 to an attorney to prepare and file incorporation documents with the State of Texas.
(c) On July 2, Android for Life borrowed $100,000 from a local bank. The bank note required payment of principal in four annual installments of $25,000 beginning on July 1, 2016. In addition, the note specified interest payments of 6%, with the first payment due on July 1, 2016.
(d) On July 3, Android for Life signed a five-year lease on a building to be used as the veterinary clinic. The lease required a payment of $10,000 per month , payable on the first day of each month. Android for Life paid the amount for July on the date the lease was signed.
(e) On July 5, Android for Life paid $150,000 for medical equipment, office furniture, and other equipment.
(f) On July 6, Android for Life purchased various inventory items for $8,500 cash.
(g) Also on July 6, Android for Life purchased $500 worth of office supplies for cash.
(h) On July 28, Android for Life paid employees wages of $8,000 (which included Andyâs salary of $6,000).
(i) During July, Android for Life received $30,000 from clients for office visits and sales of merchandise (food, clothes, etc.).
A review of Android for Life records at July 31, 2015, revealed the following:
(j) Clients still owed Android for Life $3,500 for services performed during July but not yet billed. These amounts are expected to be billed and collected in August.
(k) At the end of July, a physical count of inventory revealed that $1,000 of inventory was still on-hand.
(l) At the end of July, a physical count of office supplies revealed that $100 of supplies were still on-hand.
(m) Depreciation on the equipment for July was estimated to be $1,250.
(n) Interest needs to be recorded on the note payable.
Assets | Liabilities | Stockholders' Equity | ||||||||||||
Accounts | Office | Property, Plant | Intangible | Accumulated | Notes | Interest | Common | Retained | ||||||
Transaction | Cash | Receivable | Inventory | Supplies | & Equipment | Assets | Depreciation | = | Payable | Payable | Stock | Earnings | ||
purchase of Common Stock | (100,000) | (100,000) | ||||||||||||
Payment for Articles of Incorporation | (3,000) | 3,000 | ||||||||||||
Note / Loan (interest expense on income statement?) | 100,000 | 100,000 | ||||||||||||
Long-term Lease (show on income statement $10k?) | (10,000) | (10,000) | ||||||||||||
Long-term Equipment | (150,000) | 150,000 | ||||||||||||
Inventory Items | (8,500) | 8,500 | ||||||||||||
Office Supplies | (500) | 500 | ||||||||||||
Wages | (8,000) | (8,000) | ||||||||||||
Office Visits/ Merchandise | 30,000 | 30,000 | ||||||||||||
Services Performed | 3,500 | 3,500 | ||||||||||||
Inventory Used (income statement expense?) | 7,500 | (7,500) | ||||||||||||
Office Supplies Used (income statement expense?) | (400) | (400) | ||||||||||||
Depreciation on Equipment (income statement expense?) | (1,250) | (1,250) | ||||||||||||
Interest Expense (income statement expense?) | 6,000 | (6,000) | ||||||||||||
Totals | (142,500) | 3,500 | 1,000 | 100 | 150,000 | 3,000 | (1,250) | 100,000 | 6,000 | (100,000) | 7,850 |
Android Inc. | ||
Income Statement | ||
For the month ended July 31st, 2015 | ||
Revenues | ||
Sales and Revenues | 33,500 | |
Less: Cost of goods Sold | (7,500) | |
Gross Profit | 26,000 | |
Expenses | ||
Organizational Expenses | 3,000 | |
Salaries Expense | 8,000 | |
Office Supplies Expense | 400 | |
Depreciation Expense | 1,250 | |
Interest Expense | 500 | |
TOTAL EXPENSE | 13,150 | |
NET INCOME | 12,850 | |
Android Inc. | ||
Balance Sheet | ||
As at July 31st, 2015 | ||
Assets: | ||
Current Assets | ||
Cash | 60,000 | |
Accounts Receivable | 3,500 | |
Inventory | 1,000 | |
Office Supplies | 100 | |
Total Current Assets | 64,600 | |
Plant Property and Equipment | ||
Plant Property and Equipment | 150,000 | |
Less: Accumulated Depreciation | (1,250) | 148,750 |
TOTAL ASSETS | 213,350 | |
LIABILITIES | ||
Notes Paybles | 100,000 | |
Interest Payale | 500 | |
TOTAL LIABILITIES | 100,500 | |
Shareholder's Equity | ||
Common Stock | 100,000 | |
Retained Earnings | 12,850 | |
TOTAL Shareholder's Equity | 112,850 | |
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY | 213,350 | |
1) Which of the following items would be reported net of taxesafter income from continuing operations?
Select one:
a. Gain or loss on the sale of property.
b. Loss due to a factory strike.
c. Interest expense.
d. Gain or loss on the sale of a major segment of theentity.
2)
Given the following list of accounts, calculate TotalAssets:
Accounts Receivable | $ 5,000 |
Capital Stock | 20,000 |
Cash | 14,300 |
Equipment | 15,400 |
Fees Earned | 44,400 |
Miscellaneous Expense | 18,200 |
Rent Expense | 4,150 |
Retained Earnings | 6,550 |
Wages Expense | 13,900 |
Select one:
a. $54,700
b. $26,550
c. $79,100
d. $34,700
3)
Which of the following is NOT associated with accrual basisaccounting?
Select one:
a. Income statement.
b. Matching principle.
c. Statement of cash flows.
d. Revenue recognition principle.
4)
Which of the following is an example of an intangible asset?
Select one:
a. Trademark
b. Timber
c. Equipment
d. Marketable securities
5)
Which of the following would be shown under the financingactivities section on the statement of cash flows?
Select one:
a. Cash received from customers.
b. The payment of cash to retire a long-term note.
c. Depreciation expense.
d. The proceeds from the sale of a building.
6)
A machine was purchased for $32,000 on April 1st. It has auseful life of 5 years and a residual value of $4,000. What is thedepreciation expense for the first fiscal year ending on December31st under the straight-line method?
Select one:
a. $1,400
b. $6,400
c. $4,200
d. $5,600
7)
The entry to record the signing of a contract to receiveinventory and make payment at a future date includes
Select one:
a. No debits or creditsâjust a memorandum.
b. A debit to cost of goods sold.
c. A credit to cash.
d. A debit to inventory.
8)
An inventory cost flow assumption is NOT needed for a productline
Select one:
a. If all of the inventory available for sale was purchased atthe same unit cost.
b. If all of the inventory looks the same.
c. If there is still some inventory on hand at the end of theyear.
d. If there is no beginning inventory carried over from theprevious accounting period.
9)
Fees received this period from customers for services to beperformed in the next accounting period, would be a(n)
Select one:
a. Expense disclosed on the statement of cash flows.
b. Revenue disclosed on the income statement.
c. Liability disclosed on the balance sheet.
d. Item not included on the financial statements until the nextaccounting period.
10)
Which of the following is TRUE of a corporation?
Select one:
a. They are incorporated with a national agency.
b. At least one owner has unlimited liability.
c. They are a separate taxable entity.
d. More than 70% of businesses are organized this way.
11)
The effects on the accounts of recording the cost of merchandisesold for cash using a perpetual inventory system include an
Select one:
a. Increase in Accounts Payable.
b. Increase in Merchandise Inventory.
c. Increase in Sales.
d. Increase in Cost of Goods Sold;
12)
Which of the following is NOT a limitation of externallyreported accounting information?
Select one:
a. The income statement contains atypical data due to the timingof the fiscal year end.
b. Accounting information relies on estimates.
c. Management has some discretion regarding the reportingclassification and choice of accounting measurement methods.
d. There is a hodge-podge of valuation techniques used on thefinancial statements.
13)
Given the following information regarding merchandise inventoryat the end of the fiscal year:
Ending inventory at cost $34,000
Ending inventory at market $33,400
Which of the following is correct?
Select one:
a. No journal entry should be made based upon the informationgiven.
b. Inventory should be reported on the balance sheet at$34,000.
c. Inventory should be reported on the balance sheet at$33,400.
d. A journal entry should be made to recognize a gain of$600.
14)
Which of the following describes the closing process when acompany has net earnings for the period?
Select one:
a. The Dividends account is debited for its balance.
b. The individual asset accounts are credited for theirbalances.
c. The individual expense accounts are debited for theirbalances.
d. The Income Summary account is debited for its balance.