Questions

1. A service business has the following financial information as of the end of the year prior to recording closing entries:

Revenues $12,000

Expenses $7,000

Owner's capital $10,000 (credit balance)

Owner's withdrawals $2,000

Assets $28,000

Liabilities $15,000

1. Determine the balance of the income summary account after closing all other accounts EXCEPT income summary. Be sure to label the balance as DEBIT or CREDIT.

2. Determine the balance of the owner's capital account after closing ALL accounts including income summary. Be sure to label the balance as DEBIT or CREDIT.

2. A service business has the following financial information as of December 31 prior to recording closing entries:

Service revenue $8,000

Rent expense $1,000

Salary expense $3,500

Depreciation expense $1,500

Owner's withdrawals $750

Prepare all the necessary closing journal entries required at December 31.

3. A business has the following financial information at the end of the year:

Cash $2,000

Accounts receivable $14,000

Long term debt $10,000

Inventory $12,000

Total equity $62,000

Accounts payable $8,000

Wages payable $1,500

Total plant assets $25,000

Accumulated depreciation $6,000

Determine the current ratio as of the end of the year.

4. On January 15, a business purchases $11,000 of merchandise inventory on credit from a vendor. The terms of the sale are 2%/10, net 30. The business uses the perpetual inventory system.

1. Prepare any necessary journal entries to record the purchase on January 15.

2. On January 17, the business returns $1,000 of merchandise inventory from the January 15 purchase to the vendor. Prepare any necessary journal entries to record the return on January 17.

3. On January 22, the business pays the entire amount due on the January 15 purchase. Prepare any necessary journal entries to record the payment on January 22.

5. On January 15, a business sells merchandise inventory on credit to a customer for $11,000. The terms of the sale are 2%/10, net 30. The cost of the inventory to the business was $8,000. The business uses the perpetual inventory system.

1. Prepare any necessary journal entries to record the sale January 15.

2. On January 17, the customer returns $1,000 of merchandise inventory from the January 15 sale. The cost of the inventory to the business was $727. Prepare any necessary journal entries to record the return on January 17.

3. On January 22, the business receives payment from the customer for the entire amount due on the January 15 sale. Prepare any necessary journal entries to record the receipt on January 22.

6. A merchandising business has the following financial data for the month of January:

$15,000 Merchandise inventory balance on January 1

$50,000 Purchases

$3,000 Purchase discounts

$2,000 Purchase returns & allowances

$1,000 Incoming freight costs

$10,000 Merchandise inventory balance on January 31

$65,000 Sales revenue

$1,500 Sales returns and allowances

$5,000 Operating expenses

1. Determine cost of goods sold for January.

2. Determine gross profit for January.

7. A service business has the following financial data at the end of January:

$10,000 Cash $52,000 John smith, capital-January 1

$25,000 Accounts receivable ?? John smith, capital-January 31

$15,000 Prepaid rent $10,000 John smith, drawings

$20,000 Land $5,000 Net income

$42,000 Building $50,000 Service revenue

$20,000 Accumulated depreciation $8,000 Consulting revenue

?? Accounts payable $15,000 Rent expense

$20,000 Wages payable $20,000 Wage expense

$5,000 Depreciation expense

?? Insurance expense

1. Using the basic equation for an income statement, determine insurance expense for January (you do NOT need to prepare a formal income statement).

2. Using the basic equation for a statement of owner's equity, determine John smith, capital at January 31 (you do NOT need to prepare a formal statement of owner's equity).

3. Using the basic equation for a balance sheet, determine accounts payable at January 31 (you do NOT need to prepare a formal balance sheet).

Bonus questions

1. What do the letters "FOB" stand for?

2. Rent expense is classified as an operating expense. True or false.

3. Cost of goods sold is classified as an operating expense. True or false.

4. Name two intangible assets.

5. How should land be classified on a classified balance sheet if it is held as a speculative investment?