Davis Company

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Journalize closing entries.

On December 31,2013, the ledger of Davis Company contained the following account balance:

Cash $ 32,000

Accounts Receivable$2,400

Mesia Davis, Drawing $25,000

Fees Income $48,750

Supplies $1,600

Depreciation Expense $2,250

Equipment $25,000

Accumulated Payable $2,000

Mesia Davis, Capital $47,250

Salaries Expense $16,000

Supplies Expense $2,500

Telephone Expense $2,100

Utilities Expense $4,150

All the accounts have normal balance. Journalize the closing entries. Use 4 as the general journal page number.

1. An officer of Carson Company recently commented that when he receives the firm’s financial statements, he looks at just the bottom line of the income statement- the line that shows the net income or net loss for the period. He said that he does not bother with the rest of the income statement because “it’s only the bottom line that counts.” He also does not read the balance sheet. Do you think this manager is correct in the way he uses the financial statements? Why or why not?

2. The president of Henderson Corporation is concerned about the firm’s ability to pay its debts on time. What items on the balance sheet would help her assess the firm’s debt-paying ability?

3. Why is it important that a firm’s financial records be kept up-to-date and that management receive the financial statements promptly after the end of each accounting period?

4. What kinds of operating and general policy decisions might be influenced by data on the financial statements?

Jim Arnolds

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Comprehensive Review Problem I Jim Arnold’s Photography Studio
Jim Arnold’s Photography Studio – CRP1 – Comprehensive Review Problem I
Jim Arnold has been a photographer since his graduation from high school several years ago. On February 1, 2011, he decided to open his own photography firm called Arnold’s Photos. To start his accounting system, Jim developed the chart of accounts shown below.
Comprehensive Review Problem I – Jim Arnold’s Photography Studio
20X1
JUL. 1. Jim invested 40,000 cash and photography equipment valued at 20,000 in the business
1 Purchased office supplies for cash, 1300
1 Purchased photography supplies on account, 6700
1 Paid july rent, 1700
1 Paid for a newspaper ad, 500
2 Purchased office equipment on account, 6750
2 Paid property insurance for the upcoming year, 3600
3 Purchased a computer system and software, 3200, by issuing a note payable
5 Paid for promotional handouts, 150
6 Paid miscellaneous expenses, 175
7 Paid salaries of employees, 1400
7 Recorded week’s cash receipts for photo work, 1350
8 Paid for carpet cleaning (a miscellaneous expense), 75
9 Recorded photo work done for a customer on account, 855
9Purchased additional photography supplies on account, 3200
10 Purchased additional photography equipment for cash, 3500
10 Entered into a contract with Southside Food Vendors to place vending machines in the waiting room. Jim is to receive 10% of all sales, with a minimum payment of 200 monthly. Received 200 as an advance payment
11 Purchased furniture for the lobby area, 1700. Paid cash in full
12 Paid cash for the installation of overhead lighting fixtures, 900
15 recorded second week’s cash receipts for photo work, 2170
15 Paid weekly salaries, 1400
17 Jim withdrew cash for personal use, 800
18 Paid for TV ad, 710
19 Paid for repair to equipment, 80
19 Collected 500 for the photo work done on account on July 9
22 Recorded third weeks cash receipts for photo work, 2045
22 Paid weekly salaries, 1400
23 Did a special wedding photo session for a customer on credit, 550
28 Recorded fourth week’s cash receipts for photo work, 1995
29 Paid salaries of employees, 1400
30 Paid water bill for July, 75
30 Paid electric bill for July, 1095
31 Made a 500 payment on the note for the computer purchased on July 3
31 Made a payment for the office equipment purchased on account, 2000
31 Made a payment on the photography supplies purchased on account, 1000
31 Wrote a business check to pay for Jim’s home phone bill, 310

31 Southside Food Vendors reported a total of 2800 of vending machines sales for July. Ten percent of these sales is 280. Since 200 had already been received and recorded in July, Jim was owed 80. Received the 80 check
1. Open an account in the ledger for each account shown in the chart of accounts.
2. Journalize each of the transactions for July, beginning on page 1 of the general journal.
3. Post the journal entries to the ledger
4. Prepare a trial balance of the ledger in the first two columns of a 10-column work sheet
5. Complete the 10-column work sheet. Assume for the purposes of this problem that Jim has a one-month accounting period. Data for adjustments are as follows:
a. Office supplies on hand, 850
b. Photography supplies on hand, 5550
c. Insurance expired, 300
d. Salaries unpaid, two days of a five-day week, weekly salaries are 1400
e. Depreciation of office equipment, 190
f. Depreciation of photography equipment, 275
g. Depreciation of furniture and fixtures, 75
6. Prepare an income statement for the month ended July 31
7. Prepare a statement of owners equity for the month ended July 31
8. Prepare a balance sheet as of July 31
9. Journalize adjusting entries from the completed work sheet
10. Journalize closing entries
11. Post adjusting and closing entries to the ledger
12. Prepare a post-closing trial balance

Work Shown

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1)  The work-in-process inventory account of a manufacturing company shows a balance of $3,000 at the end of an accounting period. The job-cost sheets of the two incomplete jobs show charges of $500 and $300 for direct materials, and charges of $400 and $600 for direct labor. From this information, it appears that the company is using a predetermined overhead rate as a percentage of direct labor costs. What percentage is the rate? The break-even point in dollar sales for Rice Company is $480,000 and the company’s contribution margin ratio is 40 percent. If Rice Company desires a profit of $84,000, how much would sales have to total? 3. Williams Company’s direct labor cost is 25 percent of its conversion cost. If the manufacturing overhead for the last period was $45,000 and the direct material cost was $25,000, how much is the direct labor cost? 4. Grading Company’s cash and cash equivalents consist of cash and marketable securities. Last year the company’s cash account decreased by $16,000 and its marketable securities account increased by $22,000. Cash provided by operating activities was $24,000. Net cash used for financing activities was $20,000. Based on this information, was the net cash flow from investing activities on the statement of cash flows a net increase or decrease? By how much? 5. Gladstone Footwear Corporation’s flexible budget cost formula for supplies, a variable cost, is $2.82 per unit of output. The company’s flexible budget performance report for last month showed an $8,140 unfavorable spending variance for supplies. During that month, 21,250 units were produced. Budgeted activity for the month had been 20,900 units. What is the actual cost per unit for indirect materials? 6. Lyons Company consists of two divisions, A and B. Lyons Company reported a contribution margin of $60,000 for Division A, and had a contribution margin ratio of 30 percent in Division B, when sales in Division B were $240,000. Net operating income for the company was $22,000 and traceable fixed expenses were $45,000. How much were Lyons Company’s common fixed expenses?  7. Atlantic Company produces a single product. For the most recent year, the company’s net operating income computed by the absorption costing method was $7,800, and its net operating income computed by the variable costing method was $10,500. The company’s unit product cost was $15 under variable costing and $24 under absorption costing. If the ending inventory consisted of 1,460 units, how many units must have been in the beginning inventory? 8. Black Company uses the weighted-average method in its process costing system. The company’s ending work-in- process inventory consists of 6,000 units, 75 percent complete with respect to materials and 50 percent complete with respect to labor and overhead. If the total dollar value of the inventory is $80,000 and the cost per equivalent unit for labor and overhead is $6.00, what is the cost per equivalent unit for materials? 9. At Overland Company, maintenance cost is exclusively a variable cost that varies directly with machine-hours. The performance report for July showed that actual maintenance costs totaled $11,315 and that the associated rate variance was $146 unfavorable. If 7,300 machine-hours were actually worked during July, what is the budgeted maintenance cost per machine-hour? 10. The cost of goods sold in a retail store totaled $650,000. Fixed selling and administrative expenses totaled $115,000 and variable selling and administrative expenses were $420,000. If the store’s contribution margin totaled $590,000, how much were the sales? 11. Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $600,000 and would have a 10-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $20,000 per year to operate and maintain, but would save $125,000 per year in labor and other costs. The old machine can be sold now for scrap for $50,000. What percentage is the simple rate of return on the new machine rounded to the nearest tenth of a percent? (Ignore income taxes in this problem.) 12. Lounsberry Inc. regularly uses material O55P and currently has in stock 375 liters of the material, for which it paid $2,700 several weeks ago. If this were to be sold as is on the open market as surplus material, it would fetch $6.35 per liter. New stocks of the material can be purchased on the open market for $7.20 per liter, but it must be purchased in lots of 1,000 liters. You’ve been asked to determine the relevant cost of 900 liters of the material to be used in a job for a customer. What is the relevant cost of the 900 liters of material O55P? 13. Harwichport Company has a current ratio of 3.0 and an acid-test ratio of 2.8. Current assets equal $210,000, of which $5,000 consists of prepaid expenses. The remainder of current assets consists of cash, accounts receivable, marketable securities, and inventory. What is the amount of Harwichport Company’s inventory? 14. Tolla Company is estimating the following sales for the first six months of next year: January $350,000 February $300,000 March $320,000 April $410,000 May $450,000 June $470,000   Sales at Tolla are normally collected as 70 percent in the month of sale, 25 percent in the month following the sale, and the remaining 5 percent being uncollectible. Also, customers paying in the month of sale are given a 2 percent discount. Based on this information, how much cash should Tolla expect to collect during the month of April? 15. Trauscht Corporation has provided the following data from its activity-based costing system:   The company makes 360 units of product P23F a year, requiring a total of 725 machine-hours, 85 orders, and 45 inspection-hours per year. The product’s direct materials cost is $42.30 per unit and its direct labor cost is $14.55 per unit. The product sells for $132.10 per unit. According to the activity-based costing system, what is the product margin for product P23F? 16. Williams Company’s direct labor cost is 30 percent of its conversion cost. If the manufacturing overhead for the last period was $59,500 and the direct materials cost was $37,000, what is the direct labor cost? 17. In a recent period, 13,000 units were produced, and there was a favorable labor efficiency variance of $23,000.  If 40,000 labor-hours were worked and the standard wage rate was $13 per labor-hour, what would be the standard hours allowed per unit of output? 18. The balance in White Company’s work-in-process inventory account was $15,000 on August 1 and $18,000 on August 31. The company incurred $30,000 in direct labor cost during August and requisitioned $25,000 in raw materials (all direct material). If the sum of the debits to the manufacturing overhead account total $28,000 for the month, and if the sum of the credits totaled $30,000, then was Finished Goods debited or credited? By how much? 19. A company has provided the following data: Sales 4,000 units Sales price $80 per unit Variable cost $50 per unit Fixed cost $30,000 If the dollar contribution margin per unit is increased by 10 percent, total fixed cost is decreased by 15 percent, and all other factors remain the same, will net operating income increase or decrease? By how much? 20. For the current year, Paxman Company incurred $175,000 in actual manufacturing overhead cost. The manufacturing overhead account showed that overhead was overapplied in the amount of $9,000 for the year.  If the predetermined overhead rate was $8.00 per direct labor-hour, how many hours were worked during the year?

Expert Answers

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This is a two part written project that will focus on the financial aspects of your start up business. This project also includes the use of Excel spreadsheets containing financial data and required reports.
In part 1:
In three to four pages, using Microsoft Word, along with accompanying Excel spreadsheet data, address the following areas:
• Discuss and show the cost associated with starting your company and show a pricing model for your products or services (create a table in Excel).
• Create income statements and balance sheets for three years using Excel spreadsheets.
• Create a break-even analysis (create in Excel).
Use Microsoft Word to create a financial summary containing needed start-up funds and how you will obtain the start-up funds, pricing model, and summarize your financial spreadsheet data. Develop a detailed Excel spreadsheet for the financial data (use separate worksheets in Excel for more organization).
In part 2:
In three to four pages using Microsoft Word address the flowing areas:
• Identify the components needed in cash flow statements.
• Explain the benefits of cash-flow analysis and any problems that could arise if it is not conducted.
• Last, use Excel or other spreadsheet software to create cash flow statements for three years. Please include this information in your Part 1 Excel file.

Expert Answers

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Which of the following refers to all institutions and procedures that provide for transactions in short-term debt instruments generally issued by borrowers with very high credit ratings?

A) Capital market
B) Commercial banks
C) Money market
D) Stock market
Li Retailing reported the following items for the current year: Sales = $3,000,000;
Cost of Goods Sold = $1,500,000; Depreciation Expense = $170,000; Administrative
Expenses = $150,000; Interest Expense = $30,000; Marketing Expenses = $80,000;
and Taxes = $300,000. Li’s gross profit is equal to
A) $770,000.
B) $1,070,000.
C) $1,100,000.
D) $1,500,000.
You have been depositing money at the end of each year into an account drawing 8% interest. What is the balance in the account at the end of year four if you deposited the following amounts?
Year End of Year Deposit
1 $350
2 $500
3 $725
4 $400
Given the following financial statements for ACME Corporation, and assuming that ACME paid a common dividend of $80,000 in 2010, what is the company’s financing cash flow for 2010?
Income Statement Balance Sheet
Year Ended 12/31/10 12/31/2010 12/31/2009
Sales $1,300,000 Current Assets $50,000 $45,000
Cost of Goods Sold 750,000 Gross Fixed Assets 880,000 650,000 Operating Expenses 200,000 Less Accum. Depr. 450,000 350,000
Depreciation Expense 100,000 Fixed Assets 430,000 350,000 EBIT 250,000 Total Assets $480,000 $395,000
Interest Expense 50,000 EBT 200,000 Current Liabilities $35,000 $50,000 Taxes 80,000 Long-term Debt 330,000 270,000 Net Income $120,000 Common Stock 5,000 5,000
Retained Earnings 110,00070,000
Total Liabilities & Equity $480,000 $395,000
A) -$10,000
B) -$15,000
C) -$65,000
D) -$70,000
The balance sheet and income statement for Becker, Becker & Becker is presented below.

Balance Sheet (000)
Cash $500
Accounts receivable 1,500
Inventories 500
Current assets 2,500
Net fixed assets 5,000
Total Assets 7,500

Accounts payable 1,200
Bank note 300
Total current liabilities 1,500
Long term debt 4,000
Common stock 300
Retained earnings 1,700
Total liabilities and owners’ equity $7,500

Income Statement (000)
Net sales $8,500
Cost of goods sold (3,400)
Gross profit 5,100
Operating expenses (2,900)
Net operating income 2,200
Interest expense (580)
Earnings before taxes 1,620
Income tax (34%) (551)
Net income $1,069

a. Compute the following ratios:
b. All other things equal, compute the dollar amount of sales needed to achieve an 18% return on total assets for the coming year.
c. Given Becker’s inventory turnover ratio, find a way of computing the current level of inventory given this ratio and assuming the current level of inventories is unknown.
11. A bond matures in 20 years, at which time it pays the owner $1,000. It also pays $70 at the end of each of the next 20 years. If similar bonds are currently yielding 8%, what is the market value of the bond?
A) Over $1,000
B) Under $1,000
C) Exactly $1,000
D) Cannot be determined from the information given
12. You have just purchased a share of preferred stock for $50.00. The preferred stock pays an annual dividend of $5.50 per share forever. What is the rate of return on your investment?
A) 0.055
B) 0.010
C) 0.110
D) 0.220
13. You have $25,000 in an investment account today. How much will be in the account in 30 years if the account earns:
(a) 8% per year,
(b) 8% compounded semiannually
(c) 8% compounded quarterly,
(d) 8% compounded monthly, and
(e) 8% compounded daily?
14. You are considering an investment in First Allegiance Corp. The firm has a beta of 1.6. Currently, U.S. Treasury bills are yielding 2.75% and the expected return for the S & P 500 is 14%. What rate of return should you expect for your investment in First Allegiance?
A) 11.15%
B) 15.39%
C) 16.75%
D) 20.75%
15. Answer the questions below using the following information on stocks A, B, and C.

A B C
Expected Return 20% 21% 10%
Standard Deviation 12% 10% 10%
Beta 1.8 2.2 0.8

Assume the risk-free rate of return is 3% and the expected market return is 12% Calculate the required return for stocks A, B, and C.
b. Assuming an investor with a well-diversified portfolio, which stock would the investor want to add to his portfolio?

c. Assuming an investor who will invest all of his money into one security, which stock will the investor choose?