Question 2 (6 marks)

Provide an explanation for each of the following:

1. Why is an increase in an expense shown as a negative number in the expanded accounting equation?

1. Why is cash received before services are performed not regarded as revenue?

1. Why are dividends declared not recorded as an expense?

Question 3 (10 marks)

The following ledger accounts are used by Clover Race Track:

Accounts Receivable

Prepaid Printing

Prepaid Rent

Unearned Revenue

Printing Expense

Rent Expense

Admissions Revenue

Concessions Revenue

Instructions

For each of the following transactions, prepare the journal entry (if one is required) to record the initial transaction and then prepare the adjusting entry, if any, required on September 30, the end of the fiscal year.

1. On September 1, paid rent on the track facility for three months, $240,000.

1. On September 1, sold season tickets totalling $900,000 for admission to the racetrack. The racing season is year-round with 25 racing days each month.

1. On September 1, borrowed $150,063 from First Provincial Bank by issuing a 12% bank loan payable due in three months.

1. On September 5, schedules for 20 racing days in September, 25 racing days in October, and 15 racing days in November were printed for $3,000.

1. The accountant for the company that operates the concessions (food and drink stands) reported that gross receipts for September were $140,438. Ten percent is due to Clover Race Track and will be paid by October 10.

Question 4 (8 marks)

The following information was taken from the adjusted trial balance of Lucifer Lighting Inc. at December 31, 2024. All accounts have normal balances.

Accounts payable .................................................	$ 52,000
Accounts receivable .............................................	18,700
Accumulated depreciationBuilding ...................	44,900
Advertising expense .............................................	38,500
Building................................................................	600,000
Cash......................................................................	85,063
Common shares ....................................................	417,500
Cost of goods sold ................................................	410,500
Depreciation expense ...........................................	12,000
Freight out ............................................................	22,438
Interest expense ....................................................	5,700
Interest income .....................................................	2,000
Dividends income ................................................	6,000
Retained earnings, Jan. 1 .....................................	154,800
Salaries expense ...................................................	279,500
Salaries payable ...................................................	5,200
Sales .....................................................................	761,300
Utilities expense ...................................................	9,200

Instructions

Use the above information to prepare a multiple-step statement of income for the year ended December 31, 2024.

Question 5 (4 marks)

A company just starting a business purchased three inventory items at the following cost: March 2, $150; March

7, $160; and March 15, $180. If the company sold one unit for $230 on March 10 and one unit for $250 on March 20 and uses the average cost formula in a perpetual inventory system, what is the cost of ending inventory? Show all your calculations.

Question 6 (8 marks)

For its fiscal year ended December 31, 2023, Fruitful Products had credit sales of $750,000. At year end, the unadjusted trial balance shows a debit balance of $1,800 in the Allowance for Doubtful Accounts (AFDA), and $140,000 in Accounts Receivable. The credit manager prepared an aging schedule of accounts receivable and estimates that $5,063 will prove to be uncollectible.

On March 4, 2024, the credit manager authorizes a write off of the $2,438 balance owed by Sand Beach.

Instructions

1. Prepare the adjusting entry to record the estimated bad debt expenses for 2023.
2. Show the statement of financial position presentation of accounts receivable at December 31, 2023. (c) On March 4, 2024, before the write off, assume the balance of Accounts Receivable account is $175,000 and the balance of Allowance for Doubtful Accounts is a credit of $4,500. Record the entry to write off the Sand Beach account. Also, show the statement of financial position presentation of accounts receivable before and after the write off.