Institute of Business Administration

Department of Accounting and Law

Course Title: Principle of Accounting
Midterm Exercise Suggestions
Theory:
1. Define accounting and elements of accounting.
2. Prove A=L+OE
3. Define GAAP, financial statement and it’s types
4. Describe the rules of debit and credit
5. Define the characteristics of account
6. Why ledger is called the books of permanent recording?
7. Define trial balance
8. Why we need to prepare trial balance?
9. Why both sides of trial balance must be equal?
10. Do you believe that both side of trial balance equal means it is mathematically accurate?
11. Explain different types of errors in trial balance.
12. Define accrual and cash basis of accounting.
13. Define fiscal year, account year and calendar year.
14. Why is it required to prepare adjusting entries?
15. Mention the rules of adjusting entries.
16. Suspense account

Exercise: 1
Joan Robinson opens her own law office on July 1, 2020. During the first month of operations, the
following transactions occurred.
1. Joan invested $11,000 in cash in the law practice.
2. Paid $800 for July rent on office space.
3. Purchased equipment on account $3,000.
4. Performed legal services for clients for cash $1,500.
5. Borrowed $700 cash from a bank on a note payable.
6. Performed legal services for client on account $2,000.
7. Paid monthly expenses: salaries and wages $500, utilities $300, and advertising $100.
8. Joan withdrew $1,000 cash for personal use.
Instructions
a. Prepare a tabular summary of the transactions.
b. Financial Statement Prepare the income statement, owner’s equity statement, and balance sheet at July
31, 2023, for Joan Robinson, Attorney.

Exercise: 2
Sonya Jared opened a law office on July 1, 2023. On July 31, the balance sheet showed Cash $5,000,
Accounts Receivable $1,500, Supplies $500, Equipment $6,000, Accounts Payable $4,200, and Owner’s
Capital $8,800. During August, the following transactions occurred.
1. Collected $1,200 of accounts receivable.
2. Paid $2,800 cash on accounts payable.
3. Recognized revenue of $7,500 of which $4,000 is collected in cash and the balance is due in
September.
4. Purchased additional equipment for $2,000, paying $400 in cash and the balance on account.
5. Paid salaries $2,800, rent for August $900, and advertising expenses $400.
6. Withdrew $700 in cash for personal use.
7. Received $2,000 from Standard Federal Bank—money borrowed on a note payable.
8. Incurred utility expenses for month on account $270.
Instructions
a. Prepare a tabular analysis of the August transactions beginning with July 31 balances. The column
headings should be as follows: Cash + Accounts Receivable + Supplies + Equipment = Notes Payable +
Accounts Payable + Owner’s Capital – Owner’s Drawings + Revenues – Expenses.
b. Prepare an income statement for August, an owner’s equity statement for August, and a balance sheet
at August 31.

Exercise: 3
On April 1, Adventures Travel Agency began operations. The following transactions were completed
during the month.
1. Owner invested $24,000 in the business.
2. Obtained a bank loan for $7,000 by issuing a note payable.
3. Paid $11,000 cash to buy equipment.
4. Paid $1,200 cash for April office rent.
5. Paid $1,450 for supplies.
6. Purchased $600 of advertising in the Daily Herald, on account.
7. Performed services for $18,000: cash of $2,000 was received from customers, and the balance of
$16,000 was billed to customers on account.
8. Cash withdrawal of $400 by owner for personal use.
9. Paid the utility bill for the month, $2,000.
10. Paid Daily Herald the amount due in transaction (6).
11. Paid $40 of interest on the bank loan obtained in transaction (2).
12. Paid employees’ salaries and wages, $6,400.
13. Received $12,000 cash from customers billed in transaction (7).
Instructions
a. Journalize the transactions.
b. Prepare relevant ledger
c. Prepare a trial balance
Exercise: 4
From the following accounts prepare a trial balance of Sergei Asbrecht Co. June 30, 2020
Cash $3140
Accounts Receivable 2812
Supplies 1200
Equipment 2600
Accounts Payable 3666
Unearned Service Revenue 1100
Owner’s Capital 8000
Owner’s Drawing 800
Service Revenue 2480
Salaries and Wages Expense 3200
Utilities Expense 810

Exercise: 5
Skolnick Co. was organized on April 1, 2020. The company prepares quarterly financial statements. The
adjusted trial balance amounts at June 30 are shown below.
Accounts Debit Accounts Credit
Cash $ 6700 Accumulated Depreciation—Equipment $ 850
Accounts Receivable 600 Notes Payable 5000
Prepaid Rent 900 Accounts Payable 1510
Supplies 1000 Salaries and Wages Payable 400
Equipment 15000 Interest Payable 50
Owner’s Drawings 600 Unearned Rent Revenue 500
Salaries and Wages Expense 9400 Owner’s Capital 14000
Rent Expense 1500 Service Revenue 14200
Depreciation Expense 850 Rent Revenue 800
Supplies Expense 200
Utilities Expense 510
Interest Expense 50
Total $ 37310 Total $ 37310

a. Determine the net income for the quarter April 1 to June 30.
b. Determine the total assets and total liabilities at June 30, 2020, for Skolnick Co.
c. Determine the amount of owner’s capital at June 30, 2020.

Exercise: 6
Logan Krause started her own consulting firm, Krause Consulting, on May 1, 2020. The trial balance at
May 31 is as follows.
Krause Consulting
Trial Balance
May 31, 2020
Account Number Accounts Debit Credit
101 Cash $4500
112 Accounts Receivable 6,000
126 Supplies 1900
130 Prepaid Insurance 3600
149 Equipment 11400
201 Account Payable $4500
209 Unearned service revenue 2000
301 Owner’s Capital 18700
400 Service Revenue 9500
726 Salaries and Wages Expense 6400
729 Rent Expenses 900
Total $34700 $34700

In addition to those accounts listed on the trial balance, the chart of accounts for Krause Consulting also
contains the following accounts and account numbers: No. 150 Accumulated Depreciation—Equipment,
No. 212 Salaries and Wages Payable, No. 631 Supplies Expense, No. 717 Depreciation Expense, No. 722
Insurance Expense, and No. 732 Utilities Expense.
Other data:
1. $900 of supplies have been used during the month.
2. Utilities expense incurred but not paid on May 31, 2020, $250.
3. The insurance policy is for 2 years.
4. $400 of the balance in the unearned service revenue account remains unearned at the end of the month.
5. May 31 is a Wednesday, and employees are paid on Fridays. Krause Consulting has two employees,
who are paid $920 each for a 5-day work week.
6. The office furniture has a 5-year life with no salvage value. It is being depreciated at $190 per month
for 60 months.
7. Invoices representing $1,700 of services performed during the month have not been recorded as of May
31.
Instructions
a. Prepare the adjusting entries for the month of May. Use J4 as the page number for your journal.
b. Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as beginning
account balances and place a check mark in the posting reference column. c. Prepare an adjusted trial
balance at May 31, 2020.