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Content page
Question 1......................................................................4
Question 2…………………………………………………………………….5
Question 3……………………………………………………………………..9
Question 4…………………………………………………………………….11
Question 5……………………………………………………………………..13
Question 6………………………………………………………………………14
Question 7………………………………………………………………………18
Question 8………………………………………………………………………19

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1. Wagner Excavating organized as a corporation on January 18 and engaged in the
following transactions during its first two weeks of operation.
Jan. 18 Issued capital stock in exchange for $400,000 cash.
Jan. 22 Borrowed $100,000 from its bank by issuing a note payable.
Jan. 23 Paid $200 for a radio advertisement aired on January 24.
Jan. 25 Provided $5,000 of services to clients for cash.
Jan. 26 Provided $18,000 of services to clients on account.
Jan. 31 Collected $4,200 cash from clients for the services provided on January 26.
Required:
a. Record each of these transactions.
b. Determine the balance in the Cash account on January 31. Be certain to state whether
the balance is debit or credit
Solution
A) January 18 cash……………….400,000
Capital stock………………………..400,000
January 22 Cash……………….100,000
Note payable………………………100,000
January 23 Advertisement expense
Cash………………………………..200
January 25 Cash……………..5000
Service revenue………………….5000
January 26 Account receivable 18,000
Service revenue…………………..18.000

January 31 Cash………………..4200
Account receivable……………..4200

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 B) Cash Balance
Cash
Jan 18 400,000 Jan 23 200
Jan 22 100,000
Jan 25 5000
Jan 31 4200
509.200 200
509.000

2. Janet Enterprises incorporated on May 3, current year. The company engaged in the
following transactions during its first month of operations.
May 3 Issued capital stock in exchange for $950,000 cash.
May 4 Paid May office rent expense of $1,800.
May 5 Purchased office supplies for $600 cash.
May 15 Purchased office equipment for $12,400 on account.
May 18 Purchased a company car for $45,000. Paid $15,000 cash and issued a note
payable for the remaining amount owed.
May 20 Billed clients $120,000 on account.
May 26 Declared an $8,000 dividend. The entire amount will be distributed to
shareholders on June 26.
May 29 Paid May utilities of $500.
May 30 Received $90,000 from clients billed on May 20.
May 31 Recorded and paid salary expense of $32,000.
Required:
a. Prepare journal entries, including explanations, for these transactions.
b. Post each entry to the appropriate ledger accounts (use the T account format).
c. Prepare a trial balance dated May 31, current year.
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Solution
A) May 3 Cash…………………….950,000
Capital stock……………….950,000
May 4 Rent expense…….1,800
Cash………………………………..1,800
May 5 Office Supplies………………600
Cash………………………………………600
May 15 Office equipment…………12,400
Account Payable……………….…….12,400
May 18 Equipment Car(Vehicle)…….45,000
Cash………………………………….…….15,000
May 20 Account Receivable……..120,000
Service Revenue………….………120,000
May 26 Dividend declared….…….8000
Dividend payable……………………8000
May 29 Utilities expense…………..500
Cash…………………………..….500
May 30 Cash……………….………….90,000
Account receivable…………..90,000
May 31 Salary expense………..32,000
Cash……………………………….32,000

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 B) Cash account receivable
May 30 90,000 May 5 600 May 20 120,000 May 30 90,000
May 18 15,000
May 29 500 30,000
May 31 32,000
1040,000 49,900
Supplies
990,100 May 5 600
Vehicle 600
May 18 45,000
Equipment
45,000 May 15 12,000

12,000

Account payable Note payable

May 15 12,400 May 18 30,000

12,400 30,000

Dividend payable Rete expense

May 26 8000 May 4 1,800
8000 1,800

Utilities expense Salary expense

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 May 29 500 May 31 32,000
500 32.000

Capital stock
May 3 950,000
950,000

JANTE ENTERPRISEs
TRIAL BALANCE
MAY 31 CURRENT YEAR
Cash………………...........................................990,100
Account Receivable………………………………….30,000
Vehicle………………………………………………………45,000
Supplies…………………………………………………….600
Equipment………………………………………………….12,400
C) Account payable……………………………………12,400
Note payable…………………………………………30,000
Capital stock………………………………………….950,000
Dividend payable…………………………………..8000
Service revenue……………………………………..120,000
Dividend declared………………………………….8000
Rent expense………………………………………1,800
Utilities expense………………………………….500
Salary expense…………………………………….32,000

Total 1120,400

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3. Green Lawns, Inc., performs adjusting entries every month, but closes its accounts only at
year end. The following is the company’s year-end adjusted trial balance dated December
31, current year.
GREEN LAWNS, INC.
ADJUSTED TRIAL BALANCE
DECEMBER 31, CURRENT YEAR
Cash $ 218,640
Accounts receivable 10,800
Supplies 720
Equipment 28,800
Accumulated depreciation: equipment $ 12,000
Accounts payable 3,600
Income taxes payable 8,400
Capital stock 60,000
Retained earnings 108,000
Dividends 4,800
Lawn care revenue earned 230,400
Salary expense 124,800
Supply expense 2,880
Advertising expense 720
Depreciation expense: equipment 2,400
Income taxes expense 27,840
$ 422,400 $422,400
Required:
a. Prepare an income statement and statement of retained earnings for the year ended
December 31, current year. Also prepare the company’s balance sheet dated
December 31, current year.

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b. Does the company appear to be liquid? Defend your answer.
c. Has the company been profitable in the past? Explain.

Solution
GREEN LAWNS, INC.
INCOME STATEMENT
FOR MONTH ENDED DECEMBER 31
Revence……………………………………………………….230,400
Expenses
Salary expense……………………………….124,800
Supply expense…………………………….....2,880
Advertising expense………………………….720
Depreciation expense………………………..2,400
Income taxes expense………………………..27,840

Total expense………………………..............158,640
Net Income……………………………………..71,760
GREEN LAWNS INC
STATEMENT OF RETAINED EARNINGS
b) DECEMBER 31
Retained earning……………………………108,000
Ade: Net Income……………………………..71,760

Less Dividend…………………………(4800)
Retaining earning on Dec 31……………….174,960
c) GREEN LAWNS INC
BLANCE SSHEET
DECEMBER 31
Assets

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Current Assets
Cash…………………………………………….218,640
Account Receivable……………………..10,800
Supplies…………………………………………720

Total Current assets………………………230,160

Plant Assets
Equipment…………………………………28,800

Less: Accanulated Depreciation…………(12,000)…….16,800

Total Assets…………………………246,960
Liabilities
Current Liabilities
Account payable…………………..3,600
Income tax payable………………8,400
Total Liabilities…………………….12,000
Owner’s Equity
Capital Stock………………………….60,000
Retaining Earning…………………174,960.
Total Liabilities and owner’s Equity…………..246,960
b) Yes. The Campania’s are liquid because the Campania’s current assets are liquid
C) yes The Campania’s get net income of 71,760
4. Compute trend percentages for the following items taken from the financial statements of
Lopez Plumbing over a five-year period. Treat 2014 as the base year. State whether the
trends are favorable or unfavorable. (Dollar amounts are stated in thousands.)
2018 2017 2016 2015 2014
Sales $81,400 $74,000 $61,500 $59,000 $50,000
Cost of goods sold 58,500 48,000 40,500 37,000 30,000
Solution

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2018 2017 2016 2015 2014
Sales $81,400 $74,000 $61,500 $59,000 $50,000
Cost of goods sold 58,500 48,000 40,500 37,000 30,000
Trend percentage
Sale
2018 81,400×100 =8,140,000 =163%
50,000 50,000
2017 74,000×100 =7,400,000 =148℅
50,000 50,000
2016 61,500×100 = 6,150,000 =123℅
50,000 50,000
2015 59,000×100 =5,900,000 =118℅
50,000 50,000
2014 50,000×100 =5,000,000 =100%
50,000 50,000
Cost of Good Sold 58,500×100 = 5,850,000 =195℅
30,000 30,000
48,000×100 = 4,800,000 =160℅
30,000 30,000
40,500×100 = 4,050,000 =135%
30,000 30,000
37,000×100 = 3,700,000 =123℅
30,000 30,000

30,000×100 = 3,000,000 =100℅

30,000 30,000

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5. Prepare common size income statements (vertical analysis) and a horizontal analysis for
Price Company for the two years shown as follows by converting the dollar amounts into

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percentages. Comment on whether the changes from year 1 to year 2 are favorable or
unfavorable.
Year 2 Year 1
Sales $ 500,000 $400,000
Cost of goods sold 330,000 268,000
Gross profit $ 170,000 $132,000
Operating expenses 125,000 116,000
Net income $ 45,000 $ 16,000

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6. A condensed balance sheet for Bradford Corporation prepared at the end of the year
appears as follows.
Bradford Corporation
Balance sheet
Year end, current year
Assets
Cash $ 105,000
Accounts receivable 145,000
Inventory 270,000
Prepaid expenses 60,000
Plant & equipment (net) 570,000
Other assets 90,000
Total $1,240,000
Liabilities & Stockholders’ Equity
Notes payable (due in 6 months) $ 40,000
Accounts payable 110,000
Long-term liabilities 360,000
Capital stock, $5 par 300,000
Retained earnings 430,000
Total $1,240,000
During the year the company earned a gross profit of $1,116,000 on sales of $2,950,000.
Accounts receivable, inventory, and plant assets remained almost constant in amount
throughout the year, so year-end figures may be used rather than averages.
Compute the following:
a. Current ratio.
b. Quick ratio.
c. Working capital.

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d. Debt ratio.
e. Accounts receivable turnover (all sales were on credit).
f. Inventory turnover.

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7. Porter Corporation fixed costs of $500,000, variable costs of $32 per unit, and a
contribution margin ratio of 20 percent.
Compute the following.
a. Unit sales price and unit contribution margin for the given product.
b. The sales volume in units required for Porter Corporation to earn an operating income
of $900,000.
c. The dollar sales volume required for Porter Corporation to earn an operating income
of $900,000.

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8. Easy Writer manufactures an erasable ballpoint pen, which sells for $1.75 per unit.
Management recently finished analyzing the results of the company’s operations for the
current month. At a break-even point of 40,000 units, the company’s total variable costs
are $50,000 and its total fixed costs amount to $20,000.
a. Calculate the contribution margin per unit.
b. Calculate the company’s margin of safety if monthly sales total 45,000 units.
c. Estimate the company’s monthly operating loss if it sells only 38,000 units.
d. Compute the total cost per unit at a production level of (1) 40,000 pens per month and
(2) 50,000 pens per month. Explain the reason for the change in unit costs.

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e) AIR turn over = Sale on Account = 2,950,000
Average AIR 145,000
= 20.34 times

F) Inventory turn over = Cost of Good sold

Average Inventory
Cost of Good sold = Ns- Gp
= 2,959,000-1,116,000
= 1,834,000
Inventory turn over = 1,834,000
270,000
= 6.8 times

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