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UNIVERSITY OF THE WEST INDIES

Mona School of Business & Management
ACCT 1005 - FINANCIAL ACCOUNTING
Worksheet 2 - Financial Accounting Cycle

Lecture Questions
Question 1
The trial balance of Rawna Gourde Financial Service does not balance.

Rawna Gourde Financial Services

Trial Balance as at December 31, 2006
Cash $ 3,800
Accounts Receivable 2,000
Supplies 500
Office Furniture 2,300
Land 46,000
Accounts Payable $ 2,800
Note Payable 18,300
Rawna Gourde, Capital 29,500
Rawna Gourde, Withdrawals 3,700
Service Revenue 4,900
Salary Expense 1,300
Rent Expense 600
Advertising Expense 400
Utilities Expense 200 _____
Total 60,800 55,500

The following errors were detected:

i) The cash balance is understated by $400.
ii) Rent Expense of $200 was erroneously posted as a credit rather than a debit.
iii) The balance of Advertising Expense is $300, but it is listed as $400 on the trial balance.
iv) A $600 debit to Accounts Receivable was posted $ 60.
v) The balance of Utilities Expense is understated by $60.
vi) A $1,300 debit to the withdrawal account was posted as a debit to Rawna Gourde’s,
Capital.
vii) A $100 purchase of supplies on account was neither journalized nor posted.
viii) A $5 600 credit to Service Revenue was not posted.
ix) Office Furniture should be listed in the amount of $1,300.
Required:

a) State the journal entries necessary to correct the errors made.

b) Prepare the correct trial balance as at December 31, 2006.
c) Determine whether a loss or a profit was made.
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Question 2
Justin Park is a lawyer specializing in corporate tax law. He began his practice on January 1,
20X8. The following is the unadjusted trial balance which was extracted from the books of the
business on December 31, 20X8.
Justin Park Legal Services
Trial Balance
December 31, 20X8
Account Title Account # Dr Cr
Cash 101 $56,000
Accounts Receivable 104 14,000
Office Supplies 142 8,000
Prepaid Insurance 145 12,000
Office Equipment 181 162,000
Accumulated Depreciation: Office Equipment 181.1
Computer Equipment 187 60,000
Accumulated Depreciation: Computer Equipment 187.1
Accounts Payable 201 $30,000
Salaries Payable 202
Unearned Client Fees 219 25,000
Justin Park, Capital 311 126,000
Justin Park, Withdrawals 312 50,000
Client Fees Earned 401 400,000
Salaries Expense 511 120,000
Rent Expense 521 50,000
Office Supplies Expense 523
Telephone Expense 525 10,000
Utilities Expense 533 39,000
Insurance Expense 535
Depreciation Expense – Office Equipment 541
Depreciation Expense – Computer Equipment 542 _______ _______
581,000 581,000
Information for year-end adjustments:
a) Office supplies on hand at year end amounted to $3,000.
b) The office equipment, which was purchased on January 2, 20X8, is being depreciated
over 5 years on the straight-line method of depreciation, down to a residue of $22,000.
c) Computer equipment costing $60,000 with an expected life of three years and no residual
value was acquired on April 1, 20X8, and is being depreciated on the straight-line method.
d) A premium of $12,000 for a 1-year insurance policy was paid on September 1, 20X8.
e) Employees earned $3,000 of unpaid and unrecorded salaries as of December 31, 20X8
f) At December 31, 20X8, $12,000 of previously unearned client fees had been earned.
Required:
i) Journalize the adjusting entries
ii) Prepare the worksheet for the year ended December 31, 20X8 (See page 9).
iii) Prepare the Income Statement & the Statement of Owner’s Equity for the year
ended December 31, 20X8
iv) Prepare the Balance Sheet for Justin Park Legal Services at December 31, 20X8
v) Journalize the closing entries & prepare a post-closing trial balance
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Tutorial Questions

Question 1
Maury Wills started an environmental consulting business & during the first month of
operations (June 2008) completed the following transactions:

a) Wills began the business with an investment of $25,000 cash and a building valued at
$30,000. The business gave Wills the owner’s equity in the firm.
b) Purchased office supplies on account, $2,100
c) Paid $18,000 for office furniture
d) Paid employee’s salary, $2,200
e) Performed consulting service on account, $5,100
f) Paid $800 on the account payable created in transaction (b)
g) Received a $600 bill for advertising expense that will be paid in the near future
h) Performed consulting service for customers and received cash, $1,600
i) Received cash on account, $1,200
j) Paid the following cash expenses and made a single compound entry:
i) Rent on equipment, $700
ii) Utilities, $400
k) Withdrew $3,000 for personal use
Required:
1. Record each transaction in the journal. Use the letters to identify the transactions.
2. Post the entries to the ledger accounts.
3. Prepare the trial balance of Wills Environmental Consulting at June 30, 2008
4. Prepare the income statement and statement of owner’s equity for Wills Environmental
Consulting for the month ended June 30, 2008 and a balance sheet as at that date.

Question 2
The trial balance of Missing Link Exploration Company does not balance.
MISSING LINK EXPLORATION COMPANY
Trial Balance
March 31, 2007
Cash $ 6,200
Accounts Receivable 2,000
Supplies 500
Exploration Equipment 22,300
Computer Equipment 46,000
Accounts Payable $ 2,700
Note Payable 18,300
Jack Ballard, Capital 50,800
Jack Ballard, Withdrawals 5,000
Service Revenue 4,900
Salary Expense 1,300
Rent Expense 500
Advertising Expense 300
Utilities Expense 200 _____
Total 84,300 84,300
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The following errors were detected:

a) The cash balance is overstated by $1,000.
b) Rent Expense of $350 was erroneously posted as a credit rather than a debit.
c) A $6,900 credit to Service Revenue was not posted.
d) A $600 debit to Accounts Receivable was posted $ 60.
e) The balance of Utilities Expense is understated by $60.
f) A $100 purchase of supplies on account was neither journalized nor posted.
g) Exploration Equipment should be listed in the amount of $21,300
Required:
i) State the journal entries necessary to correct the errors made.
ii) Prepare the correct trial balance as at December 31, 2006.
Question 3
Patella Art Studio provides quality instruction to aspiring artists. The business adjusts its
accounts monthly, but performs closing entries annually on December 31. This is the studio’s
unadjusted trial balance dated December 31, 2002.
PATELLA ART STUDIO
Unadjusted Trial Balance
December 31, 2002
Cash $22,380
Client Fees Receivable 71,250
Supplies 6,000
Prepaid Studio Rent 2,500
Studio Equipment 96,000
Accumulated Depreciation: Studio Equipment $52,000
Accounts Payable 11,420
Interest Payable 480
Note Payable 24,000
Unearned Client Fees 8,000
Pat Patella, Capital 70,000
Pat Patella, Withdrawals 5,000
Client Fees Earned 82,310
Supplies Expense 4,000
Salary Expense 17,250
Interest Expense 480
Studio Rent Expense 11,250
Utilities Expense 3,300
Depreciation Expense: Studio Equipment 8,800 _ ____
Total $248,210 $248,210
Other Data:
i) Supplies on hand at December 31, 2002, total $1,000.
ii) The studio pays rent quarterly (every three months) in advance. The last payment was
made November 1, 2002. The next payment will be made in February 2003.
iii) Studio equipment is being depreciated over 120 months (10 years).
iv) On October 1, 2002, the Patella borrowed $24,000 by signing a 12-month, 12% note
payable. The entire amount, plus interest, is due on September 30, 2003.
v) At December 31, 2002, $3,000 of previously unearned client fees had been earned.
vi) Accrued, but unrecorded and uncollected client fees earned total $690 at December 31,
2002
vii) Accrued, but unrecorded and unpaid salary expense totals $750 at December 31, 2002.
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Required:

a) Prepare the necessary adjusting journal entries on December 13, 2002. Prepare the accountant’s
worksheet dated December 31, 2002 (See page 10)
b) From the adjusted trial balance, prepare an income statement and statement of owner’s equity for
the year ended December 31, 2002. Also prepare the entity’s classified balance sheet dated
December 31, 2002.
c) Prepare the necessary year-end closing entries.
d) Prepare a post-closing trial balance.

Practice Questions
Question 1
Linblad Company provides the following information about its first year of operation:
Linblad provides fly-fishing lessons. During the year, 6,000 hours of instruction at $8.00 per
hour were offered to clients. Half of the amounts had been collected by the end of the period; the
remaining balance is still outstanding.
Linblad provides clients with a packet of fishing supplies. During the year, 800 packets were
purchased at $10.00 per packet. All of the packets have been distributed, and payment has been
made for 90% of the packets. The remaining unpaid amounts are to be paid in the following
year.
Linblad paid employees, advertising, and other similar operating costs of $17,000 during the
year. In addition, another $2,000 of operating costs were incurred but not yet paid.

a. Compute Linblad's accrual basis net income for the year.

b. Compute Linblad's cash basis net income for the year.

Question 2
Selected accounts of Noteworthy Communications at December 31, 20X6, follow:
Accounts payable $15,100 Lori Stone, capital $67,100
Accounts receivable 6,600 Note payable, long-term 27,800
Accumulated depreciation - equipment 37,800 Other assets 3,600
Accumulated depreciation- computers 11,600 Other current liabilities 4,700
Equipment 114,400 Prepaid insurance 1,100
Cash 16,500 Prepaid rent 6,600
Service revenue 93,500 Salary expense 24,600
Computers 22,700 Salary payable 3,900
Interest payable 600 Supplies 2,500
Unearned service revenue 5,400
Required:
i) Prepare Note worthy’s classified balance sheet in report form at December 31, 20X6.
Show totals for total assets, total liabilities and total liabilities and owner’s equity.

ii) Compute Note worthy’s current ratio and debt ratio at December 31, 20X6. At December
31, 20X5, the current ratio was 1.52 and debt ratio was 0.39. Did the company’s ability to
pay improve or deteriorate during 20X6?
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Question 3

The trial balance of Lane’s Interiors at May 31, 20X8, follows.

Lane’s Interiors
Trial Balance
May 31, 20X8
Cash $ 4,300
Notes Receivable 10,300
Interest Receivable
Supplies 500
Prepaid Insurance 1,700
Furniture 27,400
Accumulated Depreciation: Furniture 1,400
Building 53,900
Accumulated Depreciation: Building 34,500
Land 18,700
Accounts Payable 14,700
Interest Payable
Salary Payable
Unearned Service Revenue 8,800
Note Payable, Long-Term 18,700
K. Lane, Capital 29,900
K. Lane, Withdrawals 3,800
Service Revenue 16,800
Interest Revenue
Salary Expense 2,100
Insurance Expense
Interest Expense
Utilities Expense 1,100
Advertising Expense 1,000
Supplies Expense
Depreciation Expense – Furniture
Depreciation Expense – Building _ _____ _ _____
Total $124,800 $124,800

Additional data at May 31, 20X8:

a. Depreciation: furniture, $500; building, $400.

b. Accrued salary expense, $600
c. Supplies on hand, $400.
d. Prepaid insurance expired, $300.
e. Accrued interest expense, $200.
f. Unearned service revenue earned during May, $4,400.
g. Accrued advertising expense, $100 (credit Accounts Payable).
h. Accrued interest revenue, $200.

Required: Complete the Lane’s work sheet for May. Key adjusting entries by letter (See page
11).
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Question 4

Wells Technical Institute, a school own by June Wells, provides training to individuals who pay
tuition directly to the school. The following is the unadjusted trial balance which was extracted
from the books of the business at the end of its 2012 fiscal year.

WELLS TECHNICAL INSTITUTE

Trial Balance as at June 30, 2012
Dr $ Cr $
Cash 77,700
Tuition Fees Receivable 18,100
Teaching Supplies 10,000
Prepaid Insurance 24,000
Prepaid Rent 9,000
Office Equipment 54,000
Accumulated Depreciation: Office Equipment
Computer Equipment 160,000
Accumulated Depreciation: Computer Equipment 20,000
Accounts Payable 26,000
Salaries Payable
Interest Payable 3,600
Unearned Tuition Fees 12,500
Long-Term Note Payable 40,000
June Wells, Capital 156,000
June Wells, Withdrawals 42,000
Tuition Fees Earned 235,700
Rent Expense 33,000
Salaries Expense 51,000
Insurance Expense
Advertising Expense 5,000
Teaching Supplies Expense
Interest Expense 3,600
Utilities Expense 6,400
Depreciation Expense – Office Equipment
Depreciation Expense – Computer Equipment ______ ______
Total 493,800 493,800

Additional data at June 30, 2012:

a) An inventory count shows that teaching supplies costing $3,000 are on hand at June 30,
2012.
b) Rent was paid on June 1, 2012 for the 3-months to August 31, 2012.
c) Insurance premium of $24,000 for a one-year insurance policy was paid on February 1,
2012
d) The computer equipment is being depreciated over 5 years on the straight-line method of
depreciation, down to a residue of $10,000.
e) Office equipment costing $54,000 with an expected life of 3 years and no residual value
was acquired on November 1, 2011 and is being depreciated on the straight-line method
of depreciation.
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f) On April 15, 2012 the Institute agreed to offer a special four-month course (beginning
immediately), for an individual, for a tuition fee of $3,000 per month, payable at the end
of the class. The services are being provided as agreed and no payment has yet been
received.
g) The long-term note payable bears interest of 12% per year. The unadjusted Interest
Expense account equals to the amount accrued for the first three quarters of the 2012
fiscal year. The accrued interest for the last quarter has not yet been paid nor recorded.
(Note that the business is expected to make a $14,000 payment toward the note payable
during the 2013 fiscal year.)
h) On May 1, 2012 the Institute agreed to offer a special six-month course (starting
immediately) for a client. The contract calls for a monthly fee of $2,500 and the client
paid the first five months fees in advance. When the cash was received, the Unearned
Tuition Fees was credited
i) Employees earned $4,000 of unpaid and unrecorded salaries as of June 30, 2012.

Required:

i) Prepare the necessary year-end adjusting journal entries for Wells Institute on June 30,
2012. [Narrations are not required]
ii) Fill in the adjustments and adjusted trial balance columns in the Partial Work Sheet
provided, (identifying each adjustment by letter). (See page 12).
iii) From the adjusted trial balance prepared in part (ii) above, prepare an income
statement and a statement of owner’s equity for the year ended June 30, 2012 and a
classified balance sheet as at that date. [List expenses in decreasing order of their
amount, starting with the largest]
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Justin Park Legal Services

Accounting Worksheet for Year Ended December 31, 20X8
Account Title Unadjusted Adjustments Adjusted Income Balance Sheet
Trial Balance Trial Balance Statement
Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Accounts $ $ $ $ $ $ $ $ $ $
Cash 56,000
Accounts Receivable 14,000
Office Supplies 8,000
Prepaid Insurance 12,000
Office Equipment 162,000
Accumulated Dep. - Office Equipment
Computer Equipment 60,000
Accumulated Dep.- Computer Equipment
Accounts Payable $30,000
Salaries Payable
Unearned Client Fees 25,000
Justin Park, Capital 126,000
Justin Park, Drawings 50,000
Client Fees Earned 400,000
Salaries Expense 120,000
Rent Expense 50,000
Office Supplies Expense
Telephone Expense 10,000
Utilities Expense 39,000
Insurance Expense
Depreciation Expense - Office Equip.
Depreciation Expense – Computer Equip. ______ ______
TOTAL 581,000 581,000
Net Income
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PAT PATELLA
ACCOUNTING WORKSHEET FOR THE YEAR ENDED DECEMBER 31 2002

Account Title Unadjusted Adjustments Adjusted Trial Income Balance Sheet

Trial Balance Balance Statement
Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Accounts $ $ $ $ $ $ $ $ $ $
Cash 22,380
Client Fees Receivable 71,250
Supplies 6,000
Prepaid Studio Rent 2,500
Studio Equipment 96,000
Accumulated Dep.: Studio Equipment 52,000
Accounts Payable 11,420
Interest Payable 480
Salary Payable
Notes Payable 24,000
Unearned Client Fees 8,000
Pat Patella, Capital 70,000
Pat Patella, Withdrawals 5,000
Client Fees Earned 82,310

Supplies Expense 4,000

Salary Expense 17,250
Interest Expense 480
Studio Rent Expense 11,250
Utilities Expense 3,300
Depreciation Expense - Studio Equip. 8,800 ______
248,210 248,210
Net Income
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Lane Interiors Accounting Worksheet for the year ended May 31, 20X8
Account Title Unadjusted Adjustments Adjusted Trial Income Balance Sheet
Trial Balance Balance Statement
Accounts Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
$ $ $ $ $ $ $ $ $ $
Cash 4,300
Notes receivable 10,300
Interest receivable
Supplies 500
Prepaid insurance 1,700
Furniture 27,400
Accum. Dep. – Furniture 1,400
Building 53,900
Accumulated Dep. – Building 34,500
Land 18,700
Accounts payable 14,700
Interest payable
Salary payable
Unearned service revenue 8,800
Note payable, long-term 18,700
K. Lane, capital 29,900
K. Lane, withdrawals 3,800
Service revenue 16,800
Interest revenue
Dep. expense – Furniture
Dep. expense – Building
Salary expense 2,100
Insurance expense
Interest expense
Utilities expense 1,100
Advertising expense 1,000
Supplies expense ______ ______
Total 124,800 124,800
Net Income
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Wells Technical Institute

Worksheet (Partial) for the year ended June 30, 2008
Account Title Unadjusted Adjustments Adjusted
Trial Balance Trial Balance
Dr Cr Dr Cr Dr Cr
Accounts $ $ $ $ $ $
Cash 77,700
Tuition Fees Receivable 18,100
Teaching Supplies 10,000
Prepaid Insurance 24,000
Prepaid Rent 9,000
Office Equipment 54,000
Accumulated Dep. - Office Equipment
Computer Equipment 160,000
Accumulated Dep.- Computer Equipment 20,000
Accounts Payable 26,000
Salaries Payable
Interest Payable 3,600
Unearned Tuition Fees 12,500
Long-Term Note Payable 40,000
June Wells, Capital 156,000
June Wells, Withdrawals 42,000
Tuition Fees Earned 235,700

Rent Expense 33,000

Salaries Expense 51,000
Insurance Expense
Advertising Expense 5,000
Teaching Supplies Expense
Interest Expense 3,600
Utilities Expense 6,400
Depreciation Expense - Office Equip.
Depreciation Expense – Computer Equip. ______ ______
TOTAL 493,800 493,800