Dr.

Maddah ENMG 602 Midterm Exam

2 hours 30 minutes - closed book
Return question sheet with answer booklet

Name:

ID #:

Problem 1 (50 points)

(FastForward) On December 1, 2003, Chuck Taylor formed a consulting business
focused on assessing the performance of athletic footwear and accessories, which he
names FastForward. FastForward is owned and managed by Chuck. FastForward
experienced the following during December 2003.

1. Received $35,000 cash investment from Chuck on (Monday) December 1.

2. Purchased supplies for $2,500, paid in Cash, on December 1 .
3. Purchased Equipment for $26,000, paid in Cash, on December 1. The equipment has a
useful life of 4 years and a salvage value of $8,000 at the end of its life.
4. Paid $1,000 (in cash) rent for the month of December on December 1.
5. Hired an employee for a biweekly salary of $700 on December 1.
6. Paid $2,400 (in cash) for a 2-year insurance starting December 1.
7. Earned $5,000 (in cash) from a consulting job, on December 8.
8. Purchased more supplies for $7,100, on credit, on December 10.
9. Paid the employee (in cash) her first salary on Friday, December 12.
10. Billed a customer $1,900 for a consulting service on December 15.
11. Purchased more supplies for $120, paid in cash, on December 21.
12. Received $1,800 from a customer (billed on December 15) on December 25.
13. Paid cash dividend of $200 to Chuck on December 27.
14. Paid the employee (in cash) another salary on December 26.
15. Received $3,000 in advance for a consulting service to be provided between
December 29 and February 24, on December 26.
16. Paid $230 for utilities on December 28.
17. A physical count on December 31 found $8,670 worth of supplies in inventory.

The calendar of December 2003-February 2004 is as follows. All days except Saturdays
and Sundays and January 1 are working days.

December 2003 January 2004 February 2004

1
(a) Prepare journal entries for the preceding transactions and any necessary adjustments.
(15 points)

(b) Post the journal entries to T-accounts. (10 points)

(c) Prepare the December 31, 2003 balance sheet for FastForward. (5 points)

(d) Prepare December 2003 income statement for FastForward. (5 points)

(e) Prepare December 2003 statement of cash flows for FastForward using the
indirect method. (15 points)

Solution

Solution
(a) (1) Cash 35
Common stock 35

(2) Supplies 2.5

Cash 2.5

(3) Equipment 26
Cash 26

(4) Prepaid rent 1

Cash 1

(5) None

(6) Prepaid Insurance 2.4

Cash 2.4

(7) Cash 5
Consulting Revenue 5

(8) Supplies 7.1

Accounts Payable 7.1

(9) Salary Expense 0.7

Cash 0.7

(10) Account Receivable 1.9

Consulting Revenue 1.9

(11) Supplies 0.12

Cash 0.12

2
 (12) Cash 1.8
Accounts Receivable 1.8

(13) Retained earnings 0.2

Cash 0.2

(14) Salary Expense 0.7

Cash 0.7

(15) Cash 3
Unearned Revenue 3

(16) Utilities Expense 0.23

Cash 0.23

(17) Supplies Expense 1.05 (2.5 + 7.1 + 0.12 − 8.67)

Supplies 1.05

Adjustments
Depreciation expense 0.375 ((26 – 8)/48)
Equipment 0.375

Rent Expense 1
Prepaid rent 1

Insurance Expense 0.1 (2.4/24)

Prepaid insurance 0.1

Unearned Revenue 0.22 (3×3/41)

Consulting Revenue 0.22

Salary Expense 0.15 (0.7×3/14)

Prepaid insurance 0.15
(b)

Cash
(Dr.) (Cr.) Supplies
35 2.5 (Dr.) (Cr.) Equipment
5 26 (Dr.) (Cr.)
2.5 1.05
1.8 1
7.1 26 0.375
3 2.4
0.12 25.62
0.7
8.67
0.12
Prepaid Rent Accounts
0.2
Receivable
0.7 (Dr.) (Cr.)
(Dr.) (Cr.)
0.23 1 1
10.95 1.9 1.8
0
0.1 3
 Prepaid Unearned
Accounts
Insurance Revenue
Common Stock Payable
(Dr.) (Cr.) (Dr.) (Cr.)
(Dr.) (Cr.)
2.4 0.1 (Dr.) (Cr.) 0.22 3
7.1
2.3 2.78
35 7.1
35
Salary
Salary Expense Supplies Depreciation Payable
Expense Expense (Dr.) (Cr.)
(Dr.) (Cr.)
(Dr.) (Cr.) (Dr.) (Cr.)
0.7 0.15
1.05 0.375 0.15
0.7
1.05 1.05 0.375 0.375
0.15
Rent Expense
1.55 1.55
(Dr.) (Cr.)
Consulting Retained
Utilities Expense Revenue 1
Earning 1 1
(Dr.) (Cr.) (Dr.) (Cr.) (Dr.) (Cr.)
0.23 5 1.4 7.12
0.23 0.23 1.9 1.05
0.22 0.375
Insurance 7.12 7.12 1
Expense 0.23
(Dr.) (Cr.) 0.2
0.1 0.1
0.1 0.1 2.76

(c) FastForward December 31, 2003 Balance Sheet

Assets Liabilities
Cash 10.95 Accounts Payable 7.1
Supplies 8.67 Unearned revenue 2.78
Salary Payable 0.15
Equipment 25.63 Shareholder’s Equity
Accounts Receivable 0.1 Common stock 35
Prepaid Insurance 2.3 Retained earnings 2.61
Total Assets 47.65 Total Liabilities and Equity 47.64
(d) FastForward December 2003 income statement
Consulting Revenue 7.12
Salary Expense (1.55)
Supplies Expense (1.05)
Depreciation Expense (0.375)
Rent Expense (1)
Utilities Expense (0.23)
Insurance Expense (0.1)
Net Income 2.81