Chapter 04 - Accounting Records and Systems

CHAPTER 4
ACCOUNTING RECORDS AND SYSTEMS
Problems
Problem 4-1
Beg. Bal.
(4)
Bal.

Cash
$900
$3,400 (3)
5,350
950 (5)
$1,900

(3)

Accounts Receivable
Beg. Bal.
$3,000
$5,350 (4)
(2)
6,350
Bal.
$4,000

Beg. Bal.
(1)
Bal.

(5)

Accounts Payable
$3,400
$3,600 Beg. Bal.
2,350 (1)
$2,550 Bal.
Notes Payable
$950
$950 Beg. Bal.

Inventory
$5,700
$4,150 (2)
2,350
$3,900

Problem 4-2

1) dr. Prepaid Rent.........................................................................................................................................................

$14,340
cr. Cash................................................................................................................................................................
$14,340
Prepaid rent is an asset.
2)

dr. Sales Discounts and Allowances...........................................................................................................................

$34,150
cr. Provision for Sales Discounts and Allowances...............................................................................................
$34,150
Sales discounts and allowances is a deduction from gross sales to arrive at net sales. The provision is
a liability.

3) dr. Interest Receivable................................................................................................................................................

$35
cr. Interest Income...............................................................................................................................................
$35
Interest receivable is an asset. Interest income would be listed as other income in this periods income
statement.

4) dr. Depreciation Expense...........................................................................................................................................

$13,660
cr. Accumulated Depreciation..............................................................................................................................
$13,660
Depreciation expense is an income statement item. Accumulated depreciation is disclosed as a
deduction from the related depreciable asset.

5) dr. Cash......................................................................................................................................................................
$2,730
cr. Deferred revenue.............................................................................................................................................
$2,730

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Chapter 04 - Accounting Records and Systems

Deferred revenue is a liability.

6) dr. Stamp Expense..................................................................................................................................................................

$100
Stamp Inventory.....................................................................................................................................................................
$72
cr. Cash.............................................................................................................................................................................
$172
Stamps expense is an income statement item. Stamp inventory is an asset.

7) Bad debt expense....................................................................................................................................................................

$1,350
Allowance for doubtful accounts...............................................................................................................................
$1,350
Bad debt expense account is an expense account. Allowance for doubtful accounts is a contra asset
displayed as a deduction from the asset accounts receivable.
Problem 4-3
a.

1) dr. Inventory.....................................................................................................................................................................
$1,300
cr. Accounts payable....................................................................................................................................................
$1,300

2) dr. Wages Expense............................................................................................................................................................

$730
cr. Cash........................................................................................................................................................................
$730

3) dr. Cash............................................................................................................................................................................
$1,940
cr. Sales........................................................................................................................................................................
$1,940

4) dr. Accounts Receivable...................................................................................................................................................

$1,810
cr. Sales........................................................................................................................................................................
$1,810

5) dr. Overhead and Other Expenses.....................................................................................................................................

$900
cr. Cash........................................................................................................................................................................
$900

6) dr. Cash............................................................................................................................................................................
$1,510
cr. Accounts Receivable...............................................................................................................................................
$1,510

7) dr. Accounts Payable........................................................................................................................................................

$1,720
cr. Cash........................................................................................................................................................................
$1,720

8) dr. Cash............................................................................................................................................................................
$650
cr. Deferred Revenue...................................................................................................................................................
$650

9) dr. Cash............................................................................................................................................................................
$200
cr. Note Payable...........................................................................................................................................................
$200

10) dr. Cost of Goods Sold.....................................................................................................................................................

$1,280
cr. Inventory.................................................................................................................................................................
$1,280

+ Beginning inventory....................................................................................................................................................
$1,730
Additions.....................................................................................................................................................................
1,300
Total available.............................................................................................................................................................
$3,030
Ending inventory.........................................................................................................................................................
1,750
Cost of goods sold.......................................................................................................................................................
$1,280

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Chapter 04 - Accounting Records and Systems

11) Dr. Depreciation Expense....................................................................................................................................

$300
Cr. Accumulated Depreciation................................................................................................................
$300
b.
(1)

Accounts Payable
$1,720
$3,070
1,300 (1)

Accounts Receivable
$2,160
1,510 (6)
(4)
1,810

Accumulated Depreciation
$2,800
300 (11)

(2)
(5)
(10)
(11)

(3)
(1)
(8)
(9)

Cash
$1,440
$ 730 (2)
1,940
900 (5)
1,510
1,720 (7)
650
200

(1)

Inventories
$1,730
$1,280 (10)
1,300

Allowance for Doubtful Accounts

$70
Fixed Assets (cost)
$6,200

Notes Payable
$600
200 (9)

Owners Equity
$7308
Wages
$4,990
Overhead
900
1,940 Sales (3)
COGS
1,280
1,810 Sales (4)
Depreciation
300

Deferred Revenue
$650 (8)

See above
d.
LUFT CORPORATION
Balance Sheet

Assets
Liabilities
Cash..............................................................................................................................................................................
$2,390
Accounts payable......................................................................
$2,650
Accounts receivable (net)..............................................................................................................................................
2,390
Deferred revenue.......................................................................
650
Inventories....................................................................................................................................................................
1,750
Current liabilities..................................................................
3,300
Current assets...........................................................................................................................................................
$6,530
Notes payable.......................................................................
800
Total liabilities......................................................................
4,100
Fixed assets...................................................................................................................................................................
$6,200
Owners equity
Accumulated depreciation.............................................................................................................................................
(3,100)
Owners equity..........................................................................
5,530
Total liabilities
Total assets...............................................................................................................................................................
$9,630
and owners equity................................................................
$9,630

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Chapter 04 - Accounting Records and Systems

e.

LUFT CORPORATION
Income Statement
Sales.........................................................................................................................................................
$3,750
Cost of goods sold....................................................................................................................................
1,280
Gross margin............................................................................................................................................
2,470
Wages.......................................................................................................................................................
730
Overhead..................................................................................................................................................
900
Depreciation.............................................................................................................................................
300
Net income...............................................................................................................................................
$ 540
Problem 4-4
a.
Cash and Equivalents
$119,115
$119,115

Accounts Receivable
$162.500
$162,500

Store Equipment
$215,000
$215,000

Merchandise Inventory
$700,680
$302,990
$397,690

Supplies Inventory
$15,475
$10,265 (3)
$5,210

Prepaid Insurance
$38,250
$4,660 (4)
$33,590

Selling Expense
$24,900
24,900 (a)
(6)

(1)

(3)

Cost of Goods Sold

$302,990
$302,990 (h)

Sales Salaries
$105,750
3,575
109,325 (b)

Depreciation Expense
(2)
$12,750
$12,750 (i)

Supplies Expense
$10,265
$10,265 (j)

(4)

Accrued Interest
$3,730 (5)
$3,730

(7)

(1)

Insurance Expense
$4,660
$4,660 (k)
Accrued Sales Salaries
$3,575 (6)
$3,575

Interest Receivable
390
390

(l)

4-4

Interest Income
390
390 (7)

Chapter 04 - Accounting Records and Systems

Miscellaneous General Expenses

$31,000
31,000 (c)

(5)

(d)

Interest Expense
$9,300
3,730
$13,030 (e)

Social Security Taxes

$9, 600
$9,600 (f)

Accumulated Depreciation
$37,300
12,750 (2)
$50,050

Accounts Payable
$118,180
$118,180

Notes Payable
$143,000
$143,000

Common Stock
$300,000
$300,000

Retained Earnings
$122,375
192,585 (m)
$314,960

(a)
(b)
(c)
(d)
(e)
(f)
(h)
(i)
(j)
(k)
(m)

Sales Discounts
6,220
$6,220

(g)

Sales
$716,935
$716,935

Profit and Loss

24,900
716, 935 (g)
109,325
390 (l)
31,000
6,220
13,030
9,600
302,990
12,750
10,265
4,660
192,585

Adjusting entries are:

(1) dr. Cost Of Goods Sold......................................................................................................................................

$302,990
cr. Merchandise Inventory.............................................................................................................................
$302,990

(2) dr. Depreciation Expense...................................................................................................................................

$12,750
cr. Accumulated Depreciation.......................................................................................................................
$12,750

(3) dr. Supplies Expense..........................................................................................................................................

$10,265
cr. Supplies Inventory....................................................................................................................................
$10,265

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Chapter 04 - Accounting Records and Systems

(4) dr. Insurance Expense.....................................................................................................................................................

$4,660
cr. Prepaid Insurance..................................................................................................................................................
$4,660

(5) dr. Interest Expense.........................................................................................................................................................

$3,730
cr. Accrued Interest.....................................................................................................................................................
$3,730

(6) dr. Sales Salaries.............................................................................................................................................................

$3,575
cr. Accrued Sales Salaries...........................................................................................................................................
$3,575

(7) dr. Interest Receivable....................................................................................................................................................

$390
cr. Interest Income......................................................................................................................................................
$390
Closing entries are:

(a) dr. Profit and Loss...........................................................................................................................................................

$24,900
cr. Selling Expense.....................................................................................................................................................
$24,900

(b) dr. Profit and Loss...........................................................................................................................................................

$109,325
cr. Sales Salaries.........................................................................................................................................................
$109,325

(c) dr. Profit and Loss...........................................................................................................................................................

$31,000
cr. Miscellaneous General Expenses..........................................................................................................................
$31,000

(d) dr. Profit and Loss...........................................................................................................................................................

$6,220
cr. Sales Discounts.....................................................................................................................................................
$6,220

(e) dr. Profit and Loss...........................................................................................................................................................

$13,030
cr. Interest Expense....................................................................................................................................................
$13,030

(f) dr. Profit and Loss...........................................................................................................................................................

$9,600
cr. Social Security Taxes............................................................................................................................................
$9,600

(g) dr. Sales..........................................................................................................................................................................

$716,935
cr. Profit and Loss......................................................................................................................................................
$716,935

(h) dr. Profit and Loss...........................................................................................................................................................

$302,990
cr. Cost of Goods Sold...............................................................................................................................................
$302,990

(i) dr. Profit and Loss...........................................................................................................................................................

$12,750
cr. Depreciation Expense............................................................................................................................................
$12,750

(j) dr. Profit and Loss...........................................................................................................................................................

$10,265
cr. Supplies Expense...................................................................................................................................................
$10,265

(k) dr. Profit and Loss...........................................................................................................................................................

$4,660
cr. Insurance Expense.................................................................................................................................................
$4,660

(l) dr. Interest Income..........................................................................................................................................................

$390
cr. Profit and Loss......................................................................................................................................................
$390

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Chapter 04 - Accounting Records and Systems

(m) dr. Profit and Loss..............................................................................................................................................

$192,585
cr. Retained Earnings.....................................................................................................................................
$192,585

DINDORF COMPANY
Income Statement for the year ----.
Sales.........................................................................................................................................................
$716,935
Sales discounts.........................................................................................................................................
(6,220)
Net sales...................................................................................................................................................
710,715
Cost of goods sold....................................................................................................................................
302,990
Depreciation.............................................................................................................................................
12,750
Sales salaries............................................................................................................................................
109,325
Selling expense.........................................................................................................................................
24,900
Supplies expense......................................................................................................................................
10,265
Insurance expense.....................................................................................................................................
4,660
Social Security taxes.................................................................................................................................
9,600
Miscellaneous general expenses...............................................................................................................
31,000
Interest expense........................................................................................................................................
13,030
Interest income.........................................................................................................................................
390
Net income..................................................................................................................................
$192,585
DINDORF COMPANY
Balance Sheet as of January 31, ----.

Assets
Liabilities
Cash and cash equivalent...................................................................................................................................................
$119,115
Accounts payable.....................................................................
$118,180
Accounts receivable...........................................................................................................................................................
162,500
Accrued interest.......................................................................
3,730
Merchandise inventory.......................................................................................................................................................
397,690
Accrued sales salaries..............................................................
3,575
Supplies inventory..............................................................................................................................................................
5,210
Current liabilities.....................................................................
125,485
Prepaid insurance...............................................................................................................................................................
33,590
Interest receivable..............................................................................................................................................................
390
Notes payable..........................................................................
143,000
Current assets.....................................................................................................................................................................
718,495
Total liabilities............................................................
268,485
Owners Equity
Store equipment.................................................................................................................................................................
215,000
Common stock.........................................................................
300,000
Accumulated depreciation..................................................................................................................................................
(50,050)
Retained earnings....................................................................
314,960
Total liabilities
Total assets....................................................................................................................................................................
$883,445
and owners equity..............................................................
$883,445

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