Financial Statements & Accounting Cycle Overview – Practice Problems

Problem #1

Brown is a licensed CPA. During the first month of operations of her business (a sole proprietorship), the
following events and transactions occurred.
April 2 Invested $73,600 cash and equipment valued at $32,200 in the business.
2 Hired a secretary-receptionist at a salary of $667 per week, payable monthly.
3 Purchased supplies on account $1,610. (Debit an asset account.)
7 Paid office rent of $1,380 for the month of April.
11 Completed a tax assignment and billed client $2,530 for services rendered. (Use
Service Revenue account.)
12 Received $7,360 advance on a management consulting engagement.
17 Received cash of $5,290 for services completed for Calunga Co.
21 Paid insurance expense $253.
30 Paid secretary-receptionist $2,668 for the month.
30 A count of supplies indicated that $276 of supplies had been used.
30 Purchased a new computer for $14,030 with cash.
Journalize the transactions in the general journal. (Omit explanations.)

Problem #2

Presented below are selected account balances for Kirby Co. as of December 31, 20X4.
Merchandise Inventory 12 ⁄ 31 ⁄ X4 $24,000
Sales 164,000
Common Stock 30,000
Cost of Goods Sold 90,280
Retained Earnings 18,000
Selling Expenses 6,400
Dividends 7,200
Administrative Expenses 15,200
Sales Returns and Allowances 10,800
Income Tax Expense 12,000

Prepare closing entries for Kirby Co. on December 31, 20X4.

When the accounts of David Nguyen Inc. are examined, the adjusting data listed below are uncovered on
December 31, the end of an annual fiscal period.
1. The prepaid insurance account shows a debit of $7,200, representing the cost of a 2-
year fire insurance policy dated August 1 of the current year.
2. On November 1, Rent Revenue was credited for $1,500, representing revenue from a
sub-rental for a 3-month period beginning on that date.
3. Purchase of supplies for $1,000 on September 1 was recorded in the Supplies
account. On December 31, supplies $300 are on hand.
4. Interest of $850 has accrued on notes payable.
Prepare the adjusting entry in general journal form.
 ANSWERS

Problem #1

Brown is a licensed CPA. During the first month of operations of her business (a sole proprietorship), the
following events and transactions occurred.
April 2 Invested $73,600 cash and equipment valued at $32,200 in the business.
2 Hired a secretary-receptionist at a salary of $667 per week, payable monthly.
3 Purchased supplies on account $1,610. (Debit an asset account.)
7 Paid office rent of $1,380 for the month of April.
11 Completed a tax assignment and billed client $2,530 for services rendered. (Use
Service Revenue account.)
12 Received $7,360 advance on a management consulting engagement.
17 Received cash of $5,290 for services completed for Calunga Co.
21 Paid insurance expense $253.
30 Paid secretary-receptionist $2,668 for the month.
30 A count of supplies indicated that $276 of supplies had been used.
30 Purchased a new computer for $14,030 with cash.
Journalize the transactions in the general journal. (Omit explanations.)

2 Cash 73,600

Equipment 32,200

Owner's Equity 105,800

2 No entry—not a transaction.

3 Supplies 1,610

Accounts Payable 1,610

7 Rent Expense 1,380

Cash 1,380

11 Accounts Receivable 2,530

Service Revenue 2,530

12 Cash 7,360

Unearned Service Revenue 7,360

17 Cash 5,290

Service Revenue 5,290

Cash 253

30 Salaries and Wages Expense 2,668

Cash 2,668

30 Supplies Expense 276

Supplies 276

30 Equipment 14,030

Cash……… 14,030

Problem #2

Presented below are selected account balances for Kirby Co. as of December 31, 20X4.
Merchandise Inventory 12 ⁄ 31 ⁄ X4 $24,000
Sales 164,000
Common Stock 30,000
Cost of Goods Sold 90,280
Retained Earnings 18,000
Selling Expenses 6,400
Dividends 7,200
Administrative Expenses 15,200
Sales Returns and Allowances 10,800
Income Tax Expense 12,000

Prepare closing entries for Kirby Co. on December 31, 20X4.

Sales 164,000

Cost of Goods Sold 90,280

Sales Returns and Allowances 10,800

Selling Expense 6,400

Administrative Expense 15,200

Income Tax Expense 12,000

Retained Earnings 29,320

Dividends 7,200

Problem #3

When the accounts of David Nguyen Inc. are examined, the adjusting data listed below are uncovered on
December 31, the end of an annual fiscal period.
1. The prepaid insurance account shows a debit of $7,200, representing the cost of a 2-
year fire insurance policy dated August 1 of the current year.
2. On November 1, Rent Revenue was credited for $1,500, representing revenue from a
sub-rental for a 3-month period beginning on that date.
3. Purchase of supplies for $1,000 on September 1 was recorded in the Supplies
account. On December 31, supplies $300 are on hand.
4. Interest of $850 has accrued on notes payable.
Prepare the adjusting entry in general journal form.

1. Insurance Expense 1,500

Prepaid Insurance 1,500

2. Rent Revenue 500

Unearned Rent Revenue 500

3. Supplies Expense 700

Supplies 700

4. Interest Expense 850

Interest Payable 850