1. Bella’s Beauty Salon’s unadjusted trial balance
for the current year follows:
Additional information:
a. An insurance policy examination showed $1,240 of expired insurance.
b. An inventory count showed $210 of unused shop supplies still available.
c. Depreciation expense on shop equipment, $350.
d. Depreciation expense on the building, $2,220.
e. A beautician is behind on space rental payments and $200 of accrued revenue
was unrecorded at the time the trial balance was prepared.
f. $800 of the Unearned Rent account balance was earned by year-end.
g. The one employee, a receptionist, works a five-day workweek at $50 per day.
The employee was paid last week but has worked four days this week for which
she has not been paid.
h. Three months’ property taxes, totaling $450, have accrued. This additional
amount of property taxes expense has not been recorded.
i. One month’s interest on the note payable, $600, has accrued but is
unrecorded.
Required:
Based on the additional information, prepare the
adjusting journal entries for Bella’s Beauty Salon.
2. The following is the adjusted trial balance for
Rapid Car Services for the most recent year:
Rapid Car Services, Inc.
Adjusted Trial Balance
For the year ended December 31
Cash
$33,000
Accounts receivable
14,200
Office supplies
1,700
Vehicles
100,000
Accumulated depreciation—Vehicles
45,000
Accounts payable
11,500
Common stock
1,000
Retained earnings
70,900
Dividends
40,000
Fees earned
155,000
Rent expense
13,000
Office supplies expense
2,000
Utilities expense
2,500
Depreciation Expense—Vehicles
15,000
Salary expense
50,000
Fuel expense
12,000
Totals
$283,400
$283,400
Required:
Prepare the following financial statements for Rapid Car
Services, Inc. from the adjusted trial balance.
Assume the stockholders did not make any additional investments in the
company during the year.
Income Statement
Statement of Retained
Earnings
Balance Sheet
3. END Company reported the current month purchase and
sales data for its only product as follows:
Date
Activities
Units Acquired at Cost
Units Sold at Retail
April 1
Beginning Inventory
175 units @ $15.00
4
Purchase
150 units @ $16.00
7
Sales
160 units @ $30.00
10
Purchase
200 units @ $17.00
16
Sales
250 units @ $30.00
25
Purchase
160 units @ $18.00
28
Sales
150 units @ $32.00
Required:
Determine the cost assigned to ending inventory and
cost of goods sold using LIFO with the perpetual inventory system.
4. The following information is available for the Edwards
Company for its March 31 bank reconciliation:
From the March 31 bank statement:
NSF: A check from a customer, Cook Co. in payment of their account.
IN: Interest earned on the account.
From the Edwards Company’s accounting records:
Required:
Based on the above information, prepare the 2-column bank
reconciliation for the Edwards Company for March.
5. Information for Jason Metalworks as of December 31 follows.
Administrative salaries expense
$135,000
Depreciation expense—Factory equipment
52,400
Depreciation expense—Delivery vehicles
36,200
Depreciation expense—Office equipment
24,800
Advertising expense
22,350
Direct labor
268,000
Factory supplies used
12,000
Income taxes expense
91,500
Indirect labor
35,000
Indirect material
24,000
Factory insurance
15,500
Factory utilities
14,000
Factory maintenance
7,500
Inventories
Raw materials inventory, January 1
32,000
Raw materials inventory, December 31
28,000
Work in Process inventory, January 1
33,780
Work in Process inventory, December 31
37,460
Finished goods inventory, January 1
56,970
Finished goods inventory, December 31
62,000
Raw materials purchases
325,000
Rent expense—Factory
50,000
Rent expense—Office space
24,000
Rent expense—Selling Space
24,000
Sales salaries expense
97,500
Sales
1,452,000
Sales discounts
29,000
Required:
(a) Prepare
the company’s schedule of cost of goods manufactured for the year ended
December 31
(b) Prepare
the company’s income statement that reports separate categories for selling and
general and administrative expenses.
6. Wagner Company is analyzing two alternative methods of producing its
product. The production manager indicates that variable costs can be reduced
40% by installing a machine that automates production, but fixed costs would increase.
Alternative 1 shows costs before installing the machine; Alternative 2 shows
costs after the machine is installed.
Alternative 1
Alternative 2
Variable costs per unit
$20
?
Fixed costs
$200,000
$274,400
Selling price per unit
$40
$40
Income tax rate
25%
25%
Required:
(a) Compute the break-even point in units and dollars for
both alternatives.
(b) Prepare a forecasted income statement for both
alternatives assuming that 30,000 units will be sold. The statements should
report sales, total variable costs, contribution margin, fixed costs, income
before taxes, income taxes, and net income.
(c) Compute the degree of operating leverage for each
alternative. Which alternative would you recommend and why?
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