Review Problems Part 1 - Journal Entries 1. Prepare in good form journal entries for the following transactions. 2. For al adjusting entries prepare the journal entries in good form and state whether the adjusting entry is a deferral or accrual. Michelo Martinez started a part-time consulting practice on January 1, 20xx. Martinez's business incurred the following transactions during the 200% accounting period. Business Transactions 20xx 1. Martinez invested 1.000 cash in the business along with a machine equipment valued at $2.000 2. Purchased $125 worth of supplies with cash 3. Borrowed $3,000 from a local bank and signed a promissory note, promising to pay the money back at a specified date. 4. Martinez decided to increase her consulting fee from $40.00 per hour to $50.00 per hour. 5. Recognized revenue for services provided on account in the amount of $4,700 6. Collected $4,200 from the customers for the services provided on account 7. Recognized accrued operating expenses in the amount of $3,300 to be paid at a later date. 8. July 1, Martinez collected 10,000 in advance for services to be performed over a one year period. 9. Distributed $1.800 cash to the owner Adjusting Entries (Assume the date is December 31, 20xx): 10. Recognized depreciation expense on the computer in the amount of $600 11. After performing a manual count of supplies, it was discovered that only $35 worth of supplies remained 12. Recognized the accrued interest in the note in event 3 amounted to $30 13. Recognized the income earned from event 8. 14. Billed clients for revenue earned $10,000. General Journal Debit Date Credit Part 2 - Preparation of Financial Statements Prepare the monthly income statement, statement of owner's equity, and balance sheet for Sparkly Bright Services based on the data from the adjusted trial balance below. No Investments were made throughout the year. When preparing the balance sheet make a classified balance sheet $320 Sparkly Bright Services Adjusted Trail Balance August 31, 20xx Cash $4,590 Accounts Receivable 2.592 Copyright 380 Prepaid Rent - 200 Note Receivable-due four years . 3,152 Cleaning Equipment 3,200 Accumulated Depreciation, Cleaning Equipment Truck 7,200 Accumulated Depreciation Truck Notes Payable - due in 6 years Wages Payable Jnearned Revenue Martinez, Capital -beginning balance Martinez Withdrawal 2,000 Service Revenue Wage Expense I 5.680 Rent Expense 1.200 Gas and Oil Expense 580 Insurance Expense 380 Supplies Expense 2.920 Depreciation Expense, Cleaning Equipment 320 Depreciation Expense, Truck 720 720 3,420 80 920 15,034 14.620 $35.114 $35.114 Part 3 - Questions 1. The following journal entry was recorded in the books of Martinez Company: Accounts Payable 1000 Cash 1000 Based on this entry: a. Liabilities increased b. Assets Increased c. Equity Decreased d. Net Income was unaffected 2. True or False....... Expense Accounts normally have debit balances immediately before the closing entries are performed 3. True or False ....Revenue accounts are also called Permanent Accounts 4. True or False ........The Income Summary Account appears on the Balance Sheet under the assets 5. Martinez Company bought a computer for $5000 July 1, 2005. It has been calculated that annual depreciation expense is $100. Prepare the adjusting entry necessary to record depreciation expense for the year 2005 and show how the computer would be represented on the Dec. 31. 2010 Balance Sheet Description Debit Credit Date Dec. 31 2005 Martinez Company Balance Sheet 6. When cash is received in payment of an account receivable which of the following occurs a. Total assets increase b. Total assets remain the same c. Total assets decrease d. Total assets and liabilities decrease 7. True or False... Recognizing expenses incurred but not yet recorded is an example of a deferral 8. True or False... Cash Basis accounting involves recording revenue only when cash is received. 9. True or False....In the adjusting entry for Prepaid Insurance, prepaid insurance is credited for the amount leftover at the end of the accounting period. 10. True or False....Uneamed Revenue appears on the Income Statement. 11. Sephora Company pays its employees weekly for a total amount of $10,000. The employees work a five-day (Monday - Friday) workweek. Prepare the entry to record the accrual of wages if December 31st falls on a Tuesday and prepare the entry to record the payment of wages on Friday. Debit Credit Description Date Dec. 31 Jan. 3 F 12. Receivables are not classified as current assets if collection requires more than one year but less than the operation cycle. F 13. Employing an acceptable accounting procedure primarily to produce favorable financial results is an example of fraudulent financial reporting. F 14. Natural resources, such as coal mines and oil wells, are classified as intangible assets. F 15. The Martinez, Drawings account will appear on the balance sheet of a sole proprietorship. 19. The following account balances were drawn from the adjusted trial balance of Martinez Make-Up Company: Make-up Bag Revenue $800 Perfume Revenue 5000 Operating Expense 300 Utilities Expense 800 Withdrawal 450 Account Payable 250 Account Receivable Martinez Capital 8,000 Prepare all the necessary closing entries, posting entries, and calculate the ending balance of Martinez Capital using the provided T-Accounts. Martinez, Capital Income Summary 135 16. Which of the following accounting conventions discourages the use of procedures that tend to overstate assets or income a. Materiality b. Consistency c. Cost-benefit d. Full disclosure e. Conservatism 17. Corporate books would not contain which of the following accounts a. Dividends b. Richard Arlen, Capital c. Retained Earnings d. Pald-in Capital in Excess of Par Value e. Common Stock 18. Presenting all important information to the users of financial statements most clearly follows the convention of a. cost-benefit. b. conservatism. c. full disclosure. d. materiality e. consistency