Humber College

Test # 3 Review Material

BACC 152
Larson, Dieckmann
16th Edition

Exercise 3-8 (20 minutes)

2020
a) Dec. 31 Unearned Revenue............................................................ 15,450
Revenue...................................................................... 15,450
To record earned revenue;
$18,500 - $3,050 = $15,450.

b) 31 Depreciation Expense, Building...................................... 14,600

Accumulated Depreciation, Building....................... 14,600
To record depreciation expense.

c) 31 Spare Parts Expense........................................................ 220

Spare Parts Inventory................................................ 220
To record the use of spare parts inventory;
$1200 - $980 = $220.

d) 31 Accounts Receivable........................................................ 14,600

Revenue...................................................................... 14,600
To record accrued revenue.

e) 31 Utilities Expense............................................................... 2,100

Utilities Payable (or Accounts Payable).................. 2,100
To record accrued utilities.

2021
f) Jan. 4 Cash................................................................................... 14,600
Accounts Receivable................................................ 14,600
To record collection of accrued revenues.

g) 14 Utilities Payable (or Accounts Payable)......................... 2,100

Cash........................................................................... 2,100
To record payment of accrued utilities.
Exercise 3-10 (20 minutes)

Date Account Title and Explanation Debit Credit

2020
a. Sept. 30 Interest expense 250
Interest payable ($60,000 x 5% x 1/12) 250
To record accrued interest expense.

b. Sept. 30 Unearned revenue................................................. 10,000

Teaching revenue.............................................. 10,000
To record revenue earned.

c. Sept. 30 Supplies expense.................................................. 4,000

Supplies.............................................................. 4,000
To record supplies used.

d. Sept. 30 Depreciation expense............................................ 40

Accumulated depreciation, Refrigerator ........ 40
To record depreciation expense ($2,400 / 5 years x
1/12 = $40)

e. Sept. 30 Accounts receivable.............................................. 9,350

Teaching revenue ............................................. 9,350
To record accrued revenue earned.

f. Sept. 30 Salaries expense.................................................... 2,160

Salaries payable................................................. 2,160
To record accrued wages expense ($3,360 / 14
days x 9 days = $2,160).
Exercise 4-5 (30 minutes)

Debit Credit
Rent revenue............................................................................. 97,000
Salaries expense...................................................................... 35,000
Insurance expense................................................................... 4,100
Dock rental expense................................................................ 11,700
Boat supplies expense............................................................ 5,920
Depreciation expense, boats................................................... 21,200
Totals......................................................................................... 77,920 97,000
Profit................................................................................... 19,080
Totals......................................................................................... 97,000 97,000

2020 Closing entries:

Dec. 31 Rent Revenue........................................................................... 97,000
Income Summary.............................................................. 97,000
To close the revenue account.

31 Income Summary..................................................................... 77,920

Salaries Expense............................................................... 35,000
Insurance Expense........................................................... 41400
Dock Rental Expense........................................................ 11,700
Boat Supplies Expense.................................................... 5,920
Depreciation Expense, Boats........................................... 21,200
To close the expense accounts.

31 Income Summary..................................................................... 19,080

Carl Winston, Capital........................................................ 19,080
To close Income Summary.

31 Carl Winston, Capital............................................................... 17,700

Carl Winston, Withdrawals............................................... 17,700
To close the withdrawals account.
Exercise 4-6 (20 minutes)

2020 Closing entries:

Apr. 30 Plumbing Revenue................................................ 41,050
Income Summary............................................. 41,050
To close revenue to the income summary.

30 Income Summary.................................................. 31,800

Depreciation Expense, Trucks........................ 4,700
Salaries Expense.............................................. 17,600
Rent Expense.................................................... 2,800
Advertising Expense........................................ 6,700
To close expense accounts to income
summary.

30 Income Summary.................................................. 9,250

Angel Zhang, Capital........................................ 9,250
To close income summary to capital.

30 Angel Zhang, Capital............................................. 9,400

Angel Zhang, Withdrawals.............................. 9,400
To close withdrawals to capital.

Zhang Co.
Post-Closing Trial Balance
April 30, 2020
Acct.
No. Account Debit Credit
101 Cash $ 3,400
106 Accounts receivable................................................... 8,300
153 Trucks........................................................................... 25,000
154 Accumulated depreciation, trucks............................. $ 8,050
193 Franchise..................................................................... 13,000
201 Accounts payable........................................................ 9,400
209 Salaries payable.......................................................... 3,000
233 Unearned revenue....................................................... 1,300
301 Angel Zhang, capital................................................... 27,950*
Totals............................................................................ $49,700 $49,700

Angel Zhang, Capital

*Calculated as:
28,100 (Adj. Bal, Apr. 30)
28,100 + 9,250 – 9,400 = 27,950 (Withdrawals) 9,400 9,250 (Profit)
27,950 (Post-closing Bal., Apr. 30)
Exercise 4-7 (20 minutes)

2020 Closing entries:

January 31 Subscription Revenues.......................................... 71,400
Interest Income........................................................ 490
Income Summary............................................... 71,890
To close revenues to the income summary.

31 Income Summary.................................................... 81,000

Depreciation Expense, Equipment................... 1,700
Rent Expense...................................................... 17,900
Salaries Expense................................................ 61,400
...................................................................................
To close expense accounts to income
summary.

31 Trish Norris, Capital................................................ 9,110

Income Summary............................................... 9,110
To close income summary to capital.

31 Trish Norris, Capital................................................ 19,800

Trish Norris, Withdrawals.................................. 19,800
To close withdrawals to capital.
Exercise 4-14 (20 minutes)
Sunshine Sushi
Balance Sheet
December 31, 2020
Assets
Current assets:
Cash $ 115,000
Merchandise inventory 34,250
Notes receivable, current 41,500
Total current assets $ 190,750
Non-current investments:
Notes receivable, non-current $ 74,000
Property, plant and equipment:
Equipment $373,875
Less: Accumulated depreciation 99,700 $274,175
Furniture $102,000
Less: Accumulated depreciation 38,250 63,750
Total property, plant and equipment $ 337,925
Total assets $602,675
Liabilities
Current liabilities:
Accounts payable $ 41,625
Wages payable $ 30,250
Bank loan, current $ 60,550
Total current liabilities $ 132,425
Non-current liabilities:
Bank loan, non-current 440,450
Total liabilities $572,875
Equity
Natsuki Miyakawa, capital 29,800*
Total liabilities and equity $602,675
*$28,500+($50,750-$38,150)-11,300 = $29,800
Exercise 4-15 (30 minutes)

DOVER PACIFIC TOURS

Balance Sheet
November 30, 2020
Assets
Current assets:
Cash...................................................................................... $ 7,200
Accounts receivable............................................................ 19,000
Prepaid insurance................................................................ 4,600
Prepaid rent.......................................................................... 9,000
Supplies................................................................................ 2,250
Current portion of notes receivable................................... 7,500
Total current assets............................................................. $ 49,550
Non-current investments:
Notes receivable, less $7,500 current portion.................. 13,000
Property, plant and equipment:
Vehicles................................................................................ $64,000
Less: Accumulated depreciation.................................... 15,800 $48,200
Office furniture..................................................................... $ 6,500
Less: Accumulated depreciation.................................... 4,100 2,400
Total property, plant and equipment................................. 50,600
Intangible assets:
Copyright.............................................................................. 9,000
Total assets................................................................................. $122,150

Liabilities
Current liabilities:
Accounts payable............................................................ $ 41,000
Salaries payable.............................................................. 12,100
Unearned touring revenue.............................................. 23,000
Notes payable.................................................................. 14,000
Current portion of long-term notes payable................. 10,000
Total current liabilities..................................................... $100,100
Non-current liabilities:
Long-term notes payable, less $10,000 current 11,600
portion...............................................................................
Total liabilities...................................................................... $111,700

Equity
Pat Dover, capital*............................................................... 10,450
Total liabilities and equity.......................................................... $122,150

*Calculated as Total assets of $122,150 less Total liabilities of $111,700 = $10,450.

Exercise 4-16 (20 minutes)
HANSON TRUCKING COMPANY
Balance Sheet
December 31, 2020
Assets
Current assets:
Cash.......................................................................... $ 13,000
Accounts receivable................................................ 29,600
Office supplies......................................................... 3,100
Total current assets................................................. $ 45,700
Property, plant and equipment:
Land.......................................................................... $275,000
Trucks....................................................................... $170,000
Less: Accumulated depreciation........................ 46,000 124,000
Total property, plant and equipment..................... $399,000
Total assets..................................................................... $444,700

Liabilities
Current liabilities:
Accounts payable.................................................... $ 31,000
Interest payable....................................................... 400
Total current liabilities............................................ $ 31,400
Long-term notes payable............................................ 152,000
Total liabilities............................................................. $183,400

Equity
Stanley Hanson, capital ............................................. 261,300*
Total liabilities and equity.............................................. $444,700

*Calculation:

$206,200 - $19,000 + $168,000 - $22,500 - $58,000 - $6,500 - $6,900 = $261,300

OR

Total assets – Total liabilities = $444,700 - $183,400 = $261,300

Exercise 4-19 (15 minutes)

Current Current Current

Assets Liabilities Ratio F/U
Case 1 .............. $ 78,000 / $31,000 = 2.52 F
Case 2 .............. 104,000 / 75,000 = 1.39 F
Case 3 .............. 44,000 / 48,000 = 0.92 U
Case 4 .............. 84,500 / 80,600 = 1.05 U

Exercise 4-20 (15 minutes)

(Numbers in thousands) 2021 2020

Current assets:
Cash ............................................................. $6,501 $3,880
Accounts Receivable ................................. 4,616
Notes Receivable (current) ........................ 265
Inventories .................................................. 137
Prepaid expenses and other current assets 695
Total ................................................................. $11,402 $9,593

2021 2020
Current Ratio =$11,402 / $11,061 =$9,593 / $10,649
=1.03 =0.90
Quick Ratio =($6,501 + $4,368) / $11,061 =($3,880 + $4,616) / $10,649
=0.98 =0.80
Comments In 2020, Organic Catering’s current ratio was low, indicating that the
company did not have sufficient liquid assets to cover their current
obligations. In 2021, the current ratio increased slightly to above 1.
This increase is favourable as it indicates that for every dollar of
current liabilities, Organic Catering has slightly more current assets
to pay for these current liabilities.

Organic Catering’s quick ratio is below one for 2020 and 2021,
which is unfavourable. The quick ratio did increase from 2020 to
2021, from 0.80 to 0.98 respectively. This increase is favourable as
it indicates that Organic Catering has more liquid assets to cover its
current laibilties.

The increase in current ratio and quick ratio is due primarily to a

large increase in cash. Overall, Organic Catering’s liquidity is
satisfactory. However, the company may face challenges in paying
their current obligations in the future.
Exercise 4-21 (5 minutes)

2021 2020
Debt to equity ratio =$31,376 / $45,964 =$31,980 / $56,700
=0.68 =0.56
Comments Organic Catering’s debt to equity ratio increased slightly from
2020 to 2021. An increase in debt to equity is generally
unfavourable as it indicates that the company has more debt,
which is associated with more risk. However, overall the ratio is
significantly below 1, which means that Organic Catering
finances its operations more with equity than debt. Overall, the
ratio indicates that Organic Catering has a healthy balance of
debt and equity.

Final Test Review BACC 152 Page | 10

Exercise 5-2 (25 minutes)
Feb. 1 Merchandise Inventory................................................. 17,100
Accounts Payable.................................................. 17,100
To record purchase of merchandise; terms 2/10,
n/30.

5 Merchandise Inventory................................................. 8,300

Cash........................................................................ 8,300
To record purchase of merchandise for cash.

6 Merchandise Inventory................................................. 22,100

Accounts Payable.................................................. 22,100
To record purchase of merchandise; terms 3/15,
n/45.

9 Office Supplies.............................................................. 1,950

Accounts Payable.................................................. 1,950
To record purchase; n/15.

10 No entry.

11 Accounts Payable......................................................... 17,100

Cash........................................................................ 16,758
Merchandise Inventory.......................................... 342
To record payment within discount period;
$17,100 x 2% = $342 discount.

24 Accounts Payable......................................................... 1,950

Cash........................................................................ 1,950
To record payment.

Mar. 23 Accounts Payable......................................................... 22,100

Cash........................................................................ 22,100
To record payment.

Final Test Review BACC 152 Page | 11

Exercise 5-3 (30 minutes)

2020
Mar. 2 Merchandise Inventory .......................................... 4,200
Accounts Payable — Paige Denim................ 4,200
Purchased merchandise on credit; terms 2/15, n/60, FOB shipping.

3 Merchandise Inventory .......................................... 350

Cash................................................................. 350

Paid shipping charges for purchased merchandise.

4 Accounts Payable — Paige Denim....................... 400

Merchandise Inventory .................................. 400
Returned unacceptable merchandise.

17 Accounts Payable — Paige Denim........................ 3,800

Merchandise Inventory................................... 76
Cash................................................................. 3,724
Paid balance within the discount period;
4,200 – 400 = 3,800; 3,800 x 2% = 76.

18 Merchandise Inventory .......................................... 9,600

Accounts Payable — J Brand........................ 9,600
Purchased merchandise; terms 2/10, n/30, FOB destination.

21 Accounts Payable — J Brand................................ 2,100

Merchandise Inventory .................................. 2,100
Received an allowance on purchase.

28 Accounts Payable —J Brand................................. 7,500

Merchandise Inventory................................... 150
Cash................................................................. 7,350
Paid balance within the discount period;
9,600 – 2,100 = 7,500; 7,500 x 2% = 150.

Final Test Review BACC 152 Page | 12

Exercise 5-4 (25 minutes)

Apr. 5 Accounts Receivable.................................................... 6,400

Sales........................................................................ 6,400
To record sale; terms 3/10, n/30.

5 Cost of Goods Sold....................................................... 3,680

Merchandise Inventory.......................................... 3,680
To record cost of sales.

7 Cash............................................................................... 4,700
Sales........................................................................ 4,700
To record cash sale.

7 Cost of Goods Sold....................................................... 2,660

Merchandise Inventory.......................................... 2,660
To record cost of sales.

8 Accounts Receivable.................................................... 12,000

Sales........................................................................ 12,000
To record sale; terms 3/10, n/30.

8 Cost of Goods Sold....................................................... 7,040

Merchandise Inventory.......................................... 7,040
To record cost of sales.

15 Cash............................................................................... 6,208
Sales Discounts............................................................ 192
Accounts Receivable............................................. 6,400
To record collection within discount period;
$6,400 x 3% = $192 discount.

May 4 Cash............................................................................... 12,000

Accounts Receivable............................................. 12,000
To record collection.

Final Test Review BACC 152 Page | 13

Exercise 5-5 (30 minutes)

Feb. 1 Accounts Receivable.................................................... 2,100

Sales........................................................................ 2,100
To record sale; terms 2/10, n/30, FOB destination.

1 Cost of Goods Sold....................................................... 1,500

Merchandise Inventory.......................................... 1,500
To record cost of sales.

2 Delivery Expense or Freight-Out................................. 225

Cash........................................................................ 225
To record delivery expenses for goods sold.

3 Sales Returns and Allowances.................................... 1,050

Accounts Receivable............................................. 1,050
To record return of merchandise.

3 Merchandise Inventory................................................. 750

Cost of Goods Sold................................................ 750
To return merchandise to inventory.

4 Accounts Receivable.................................................... 3,800

Sales........................................................................ 3,800
To record sale; terms 2/10, n/30, FOB destination.

4 Cost of Goods Sold....................................................... 2,280

Merchandise Inventory.......................................... 2,280
To record cost of sales.

11 Cash............................................................................... 1,029
Sales Discounts............................................................ 21
Accounts Receivable............................................. 1,050
To record collection, less return and discount;
$2,100 - $1,050 = $1,050 x 2% = $21 discount.

23 Cash............................................................................... 1,200
Sales........................................................................ 1,200
To record cash sale.

23 Cost of Goods Sold....................................................... 720

Merchandise Inventory.......................................... 720
To record cost of sales.

28 Cash............................................................................... 3,800
Accounts Receivable............................................. 3,800
To record collection.

Final Test Review BACC 152 Page | 14

Exercise 5-11 (30 minutes)

Company A Company B
2020 2019 2020 2019
Sales $263,000 $187,000 $114,200 $48,500
Sales discounts 2,630 1,350 1,200 570
Sales returns and allowances 51,570 16,700 6,200 2,430
Net sales $208,800 $168,950 $106,800 $45,500
Cost of goods sold 157,100 106,450 57,700 23,400
Gross profit from sales $ 51,700 $ 62,500 $ 49,100 $22,100
Selling expenses 18,620 19,700 25,700 9,700
Administrative expenses 26,300 27,700 30,400 9,700
Total operating expenses $ 44,920 $ 47,400 $ 56,100 $19,400
Profit (loss) $ 6,780 $ 15,100 $ (7,000) $ 2,700
Gross profit ratio
............................................................. 24.761 36.992 45.973 48.574

Calculations:
1. (51,700/208,800) × 100 = 24.76%
2. (62,500/168,950) × 100 = 36.99%
3. (49,100/106,800) × 100 = 45.97%
4. (22,100/45,500) × 100 = 48.57%

Final Test Review BACC 152 Page | 15

Exercise 5-12 (30 minutes)

Multiple-step income statement:

COMPU-SOFT
Income Statement
For Month Ended November 30, 2020

Net sales........................................................................ $28,635*

Cost of goods sold....................................................... 14,800
Gross profit................................................................... $13,835
Operating expenses:
Wages expense...................................................... $6,300
Utilities expense.................................................... 2,100
Depreciation expense, store equipment............. 120
Total operating expenses.................................. 8,520
Profit from operations.................................................. $ 5,315
Other revenues and expenses:
Rent revenue..........................................................
2,500
Profit............................................................................... $ 7,815
*Calculated as: 29,400 – 45 – 720 = 28,635

Analysis component:
The gross profit ratio for October is 40% ($32,000 - $19,200 = $12,800 gross profit;
$12,800/$32,000 × 100 = 40%). The gross profit ratio for November is 48%
($13,835/$28,635 × 100 = 48.31%). Compu-Soft generated a higher gross profit per sales
dollar in November than in October which is favourable because this represents a greater
contribution towards the coverage of operating expenses.

Final Test Review BACC 152 Page | 16

Problem 5-8A (concluded)

2. Multiple-step income statement

Bell Servicing
Income Statement
For Year Ended December 31, 2020

Net sales................................................................... $289,800

Cost of goods sold.................................................. 74,800
Gross profit from sales............................................ $215,000
Operating expenses:
Salaries expense.................................................. $78,000
Rent expense........................................................ 30,000
Advertising expense............................................ 17,600
Depreciation expense, equipment...................... 9,000
Insurance expense............................................... 3,600
Supplies expense................................................. 3,600
Total operating expenses................................. 141,800
Profit......................................................................... $ 73,200

3. Single-step income statement

Bell Servicing
Income Statement
For Year Ended December 31, 2020

Revenues:
Net sales............................................................... $289,800
Expenses:
Cost of goods sold............................................... $74,800
Selling expenses.................................................. 90,200
General and administrative expenses................. 51,600
Total expenses.................................................. 216,600
Profit......................................................................... $ 73,200

Analysis component:

Final Test Review BACC 152 Page | 17