#30 We are Econ3a, Inc.. We purchase stuff and sell it for a profit.

Here is our trial balance at 1/1/2009: Cash Accounts receivable Inventory Prepaid expenses Fixed assets Accounts payable Accrued payroll Debt Common stock Retained earnings DR/ (CR) 100,000 30,000 25,000 5,000 200,000 (50,000) (175,000) (5,000) (130,000) -

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

(11)

We had the following activity during January: Made no new bank borrowings, but the debt already on the trial balance matures at $500/ month Purchased $70,000 of inventory with cash on hand Sold goods for $70,000 on credit which cost $30,000 Made a $1,100 payment on the debt ($600 for interest and $500 for principle) Purchased inventory for $10,000 on account. Collected $65,000 from customers. Paid $40,000 to vendors against outstanding payables. On the last day of the month, paid $10,000 for consulting services for which we have not yet received the benefit.. Paid $12,000 for payroll. Noticed that there was $1,000 of payroll for the last couple days of the month which has not been paid yet , but for which we have received the benefit from our employees. Paid $2,000 for advertising which was completed by January 15th.

BASED ON ALL OF THE ABOVE FOR EACH NUMBER (1-11) ABOVE, RECORD THE JOURNAL ENTY OR STATE NO i. ENTRY IF THERE IS NONE. II. TRACK ACTVITY IN WHATEVER MANNER YOU PREFER, AND SHOW THE BALANCE SHEET AS OF THE END OF THE MONTH AND THE INCOME STATEMENT FOR THE MONTH. NOTE: ALL OF THE BALANCE SHEET ACCOUNT TITLES YOU MAY NEED ARE LISTED IN THE ABOVE TRIAL BALANCE. FOR THE INCOME STATEMENT, CHOOSE FROM THE FOLLOWING ACCOUNT TITLES Revenues Salaries expense Advertising expense Cost of Goods Sold (or COGS) Interest expense Consultant expenses Rent expense

ACCOUNT
(1) NO ENTRY

DEBIT

CREDIT

(2) Inventory Cash (3) Accounts receivable Sales (3a) COGS Inventory (4) Debt Interest expense Cash (5) Inventory Accounts payable (6) Cash Accounts receivable (7) Accounts payable Cash (8) Prepaid expenses Cash (9) Salaries expense Cash (10) Salaries expense Accrued payroll (11) Advertising expense Cash

70,000 70,000 70,000 70,000 30,000 30,000 500 600 1,100 10,000 10,000 65,000 65,000 40,000 40,000 10,000 10,000 12,000 12,000 1,000 1,000 2,000 2,000

Cash 100,000 70,000 1,100 65,000 40,000 10,000 12,000 2,000 29,900 Accounts payable 50,000 10,000 40,000 20,000 Sales 70,000 70,000 Rent Expense -

Accounts Receiv. 30,000 70,000 65,000

Inventory 25,000 70,000 30,000 10,000

Prepaid Expenses 5,000 10,000

Fixed Assets 200,000

35,000 Accrued Payroll 1,000 1,000 COGS 30,000 30,000 Advertising Exp. 2,000 2,000

75,000 Debt 175,000 500 174,500 Interest exp. 600 600 Consult. Exp. -

15,000 Common Stock 5,000

200,000 Retained Earnings 130,000 24,400 154,400 -

5,000 Salaries expense 12,000 1,000 13,000

NET INCOME

24,400

Econ 3a, Inc. Balance Sheet As of January 31, 2008 Assets Current assets Cash Accounts receivable Inventory Prepaid expenses Total Current assets Fixed assets Total Asstes Liabilities & Equity Current liabilities Current portion of notes payable Accounts payable Accrued payroll Total current liabilities Notes payable, exc. Curr. Portion Equity Common stock Retained earnings Total Liabilities & Equity

Econ 3a, Inc. Income Statement For the month ended January 31, 2008 Sales COGS Gross Profit Interest expense Consultant expenses Salaries expense Advertising expense Operating expenses Net income 70,000 30,000 40,000 600 13,000 2,000 15,600 24,400

29,900 35,000 75,000 15,000 154,900 200,000 354,900

6,000 20,000 1,000 27,000 168,500 5,000 154,400 354,900

T-ACCOUNTS FOR YOUR USE, NO POINTS ALLOCATED TO T-ACCOUNTS

31 (1) (2) (3)

Please post the journal entries for #31 in the space provided below. Account name DR. CR.

(4)

(5) (6) (7) (8) (9) (10) (11)

31.

COMPLETE YOUR BALANCE SHEET & INCOME STATEMENT IN THE SPACE PROVIDED. Econ 3a, Inc. Balance Sheet Econ 3a, Inc. Income Statement

ECON 3A SPRING 2009 MIDTERM #1 Name: __________________________ Perm #: _____________

WRITE YOUR VERSION # ON YOUR SCANTRON PLEASE!!! Answer multiple choice questions (#1-25) on green scantron. Answer the remaining questions IN THE SPACE PROVIDED. No need for blue books. Please be sure to write your name on this exam and your scantron. 1. The basic financial statements under GAAP do not include: A) Balance sheet C) Statement of retained earnings B) Management's discussion & analysis D) income statement 2. Which statement below is most accurate A) Accountants should consider whether a GAAP requirement could be easily be misinterpreted and result in over-reaction of financial statement users. B) Accountants should decide ultimately what is in the best interest of the investors, lenders and other users of financial statements. C) Accountants should report exactly as GAAP requires, even if doing so may result in adverse consequences D) Accountants should use their judgment in deciding how to apply GAAP 3. Which of the following would not be considered an internal user of accounting data for the XYZ Company? A) Production manager C) President of the company B) President of the employees' labor D) Merchandise inventory clerk union 4. The right to receive money in the future is called a(n) A) account receivable. B) revenue. C) account payable.

D) liability.

5. Preparation of financial statements in accordance with GAAP is required.... A) For all companies B) For all companies whose users have required it C) For all public companies D) B and C

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6. The statement of cash flows solves which of the following criticisms of the accrual basis of accounting? A) Paper income B) Income C) Operating income D) Net income 7. The statement of cash flows presents the cash flows of an organization from three principal cash activities, which do NOT include A) Accumulating B) Operating C) Investing D) Financing 8. When Bob Anderson in class keeps saying that GAAP "levels the playing field", which attribute of GAAP most closely is associated with this statement? A) Consistency/ Comparability C) Conservatism B) Compatibility D) Completeness 9. Accounting is a process of doing three principal things, which item below is NOT one of them A) Communicating B) Identifying C) Validating D) Measuring 10. The historical cost principal is one which results in: A) Textbooks for students B) More information C) Less information but more consistent reporting D) Inflated balance sheets 11. Which statement is true with respect to compliance with GAAP. A) A company must comply with GAAP only if they are required to by a user of their financial statements, such as public companies B) No company must comply with GAAP C) All companies incorporated in the United States of America must comply with GAAP D) A company need only comply with GAAP if they are a public company governed by the SEC 12. Current assets and current liabilities will be satisfied within: A) The operating cycle B) One year or the operating cycle, whichever is shorter C) One year D) One year or the operating cycle, whichever is longer

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13. The left side of an account is A) the balance of the account. B) the debit side.

C) blank. D) a description of the account.

14. When a company receives a utility bill but will not pay it right away, it should A) make no entry until the bill is paid. B) debit utilities expense and credit accounts receivable. C) debit utilities expense and credit accounts payable. D) debit accounts payable and credit utilities expense. 15. At January 31, 2001, the balance in Prieto Inc,'s supplies account was $250. During February. Prieto purchased supplies of $300 and used supplies of $400. At the end of February, the balance in the supplies account should be A) $950 debit. B) $250 debit. C) $150 debit D) $350 credit. Use the following to answer questions 16-19: Benton Office Supplies Balance Sheet December 31, 2007 Cash Prepaid Insurance Accounts Receivable Inventory Land held for investment Land Building $100,000 Less Accumulated Depreciation (20,000) Trademark Total Assets $ 65,000 30,000 50,000 70,000 75,000 90,000 Accounts Payable Salaries Payable Mortgage Payable Total Liabilities Common Stock Retained Earnings Total stockholders' equity Total Liabilities and Stockholders' Equity $ 70,000 10,000 90,000 $160,000 $120,000 250,000 $370,000 $530,000

80,000 70,000 $530,000

16. The total amount of working capital is A) $60,000. B) $135,000. C) $295,000.

D) $75,000.

17. The total dollar amount of assets to be classified as current assets is A) $215,000. B) $180,000. C) $145,000. D) $290,000.

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18. The current ratio is A) 1.57 : 1. B) 2.69 : 1.

C) 1.94 : 1.

D) 3.14 : 1.

19. The total dollar amount of assets to be classified as property, plant, and equipment is A) $170,000. B) $245,000. C) $190,000. D) $320,000. 20. If a company buys a $700 machine on credit, this transaction will affect the: A) balance sheet only. B) income statement and retained earnings statement only. C) income statement only. D) income statement, retained earnings statement, and balance sheet. 21. The usual sequence of steps in the transaction recording process is: A) post to the ledger journalize analyze. B) journalize analyze post to the ledger. C) analyze journalize post to the ledger. D) journalize post to the ledger analyze. 22. Which of the following is not classified properly as a current asset? A) A receivable from the sale of an asset to be collected in two years B) Supplies C) Marketable securities D) A fund to be used to purchase a building within the next year 23. A debit to an asset account indicates a(n) A) increase in the asset. B) error.

C) credit was made to a liability account. D) decrease in the asset.

24. Which of the following is a limitation of the corporate form of ownership? A) Ease of raising capital C) Dual taxation B) Personal liability D) Ease of ownership transfer 25. The payment of a liability A) increases assets and decreases liabilities. B) decreases assets and increases liabilities. C) decreases assets and liabilities. D) decreases assets and stockholders' equity.

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26. For each of the following items, and in the space provided, state what impact the item should have upon equity (increase/ decrease/ no impact): Revenue: Payment of rent on the 1st of the month The end of the month when you have paid your rent already on the 1st ________________ Receipt of a non-refundable deposit _____________________ Collect an account receivable Dividends . Net income Net loss Pay tuition at the beginning of the quarter _________________. Insurance expense _____________________. 27. Under GAAP (fill in the blanks below in the space provided): Revenue is recorded when it is _____________, Expenses are recorded when they have been __________, Assets are ____________ future economic ___________ as a result of a past transaction or event. Liabilities are ___________ future economic _______________ as a result of a past transaction or event. Collecting an open account receivable should have what impact on income? ________________ Paying an open account payable should have what impact on income? ________________. Recording an expense in the period when the benefit is derived is a fundamental GAAP process of _______________. 28. State the accounting equation: _____________________________________________. The GAAP statement which displays the accounting equation is the __________________________________. If an asset goes up, liabilities are unchanged and no owner transactions took place other than income, what happened to income? __________________ For every debit, there is a _________________.

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Answer Key
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. B C B A D A A A C C A D B C C B A B A A C A A C C For each of the following items, and in the space provided, state what impact the item should have upon equity (increase/ decrease/ no impact): Revenue: INCREASE Payment of rent on the 1st of the month NO IMPACT The end of the month when you have paid your rent already on the 1st __DECREASE______ Receipt of a non-refundable deposit ___NO IMPACT__________________ Collect an account receivable NO IMPACT Dividends DECREASE . Net income INCREASE Net loss DECREASE Pay tuition at the beginning of the quarter ___NO IMPACT______________. Insurance expense ____DECREASE.

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27. Revenue is recorded when it is ___earned__________, Expenses are recorded when they have been _incurred_________, Assets are __probable________ future economic __benefits_________ as a result of a past transaction or event. Liabilities are ___probable________ future economic ____sacrafices___________ as a result of a past transaction or event. Collecting an open account receivable should have what impact on income? ___None_____________ Paying an open account payable should have what impact on income? ____None____________. Recording an expense in the period when the benefit is derived is a fundamental GAAP process of _______________. 28. State the accounting equation: ___ASSETS=LIABILITIES + EQUITY. The GAAP statement which displays the accounting equation is the ____BALANCE SHEET_________________. If an asset goes up, liabilities are unchanged and no owner transactions took place other than income, what happened to income? ____INCREASE_ For every debit, there is a ___CREDIT________.

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ECON 3A SPRING 2009 MIDTERM #1 Name: __________________________ Perm #: _____________

WRITE YOUR VERSION # ON YOUR SCANTRON PLEASE!!! Answer multiple choice questions (#1-25) on green scantron. Answer the remaining questions IN THE SPACE PROVIDED. No need for blue books. Please be sure to write your name on this exam and your scantron. 1. Preparation of financial statements in accordance with GAAP is required.... A) For all companies B) For all companies whose users have required it C) For all public companies D) B and C 2. Which of the following would not be considered an internal user of accounting data for the XYZ Company? A) President of the employees' labor C) President of the company union B) Merchandise inventory clerk D) Production manager 3. Accounting is a process of doing three principal things, which item below is NOT one of them A) Communicating B) Measuring C) Identifying D) Validating 4. Which statement below is most accurate A) Accountants should report exactly as GAAP requires, even if doing so may result in adverse consequences B) Accountants should decide ultimately what is in the best interest of the investors, lenders and other users of financial statements. C) Accountants should use their judgment in deciding how to apply GAAP D) Accountants should consider whether a GAAP requirement could be easily be misinterpreted and result in over-reaction of financial statement users. 5. The historical cost principal is one which results in: A) Inflated balance sheets B) More information C) Textbooks for students D) Less information but more consistent reporting

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6. The statement of cash flows presents the cash flows of an organization from three principal cash activities, which do NOT include A) Investing B) Financing C) Accumulating D) Operating 7. The basic financial statements under GAAP do not include: A) income statement C) Statement of retained earnings B) Balance sheet D) Management's discussion & analysis 8. The statement of cash flows solves which of the following criticisms of the accrual basis of accounting? A) Net income B) Paper income C) Operating income D) Income 9. When Bob Anderson in class keeps saying that GAAP "levels the playing field", which attribute of GAAP most closely is associated with this statement? A) Completeness C) Consistency/ Comparability B) Compatibility D) Conservatism 10. The right to receive money in the future is called a(n) A) revenue. B) account payable. C) account receivable. 11. Current assets and current liabilities will be satisfied within: A) The operating cycle B) One year or the operating cycle, whichever is longer C) One year or the operating cycle, whichever is shorter D) One year 12. Which statement is true with respect to compliance with GAAP. A) A company must comply with GAAP only if they are required to by a user of their financial statements, such as public companies B) No company must comply with GAAP C) All companies incorporated in the United States of America must comply with GAAP D) A company need only comply with GAAP if they are a public company governed by the SEC 13. Which of the following is not classified properly as a current asset? A) A fund to be used to purchase a building within the next year B) Supplies C) A receivable from the sale of an asset to be collected in two years D) Marketable securities

D) liability.

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14. The left side of an account is A) the balance of the account. B) the debit side. 15. A debit to an asset account indicates a(n) A) credit was made to a liability account. B) increase in the asset.

C) blank. D) a description of the account.

C) error. D) decrease in the asset.

16. If a company buys a $700 machine on credit, this transaction will affect the: A) income statement only. B) balance sheet only. C) income statement and retained earnings statement only. D) income statement, retained earnings statement, and balance sheet. Use the following to answer questions 17-20: Benton Office Supplies Balance Sheet December 31, 2007 Cash Prepaid Insurance Accounts Receivable Inventory Land held for investment Land Building $100,000 Less Accumulated Depreciation (20,000) Trademark Total Assets $ 65,000 30,000 50,000 70,000 75,000 90,000 Accounts Payable Salaries Payable Mortgage Payable Total Liabilities Common Stock Retained Earnings Total stockholders' equity Total Liabilities and Stockholders' Equity $ 70,000 10,000 90,000 $160,000 $120,000 250,000 $370,000 $530,000

80,000 70,000 $530,000

17. The current ratio is A) 2.69 : 1. B) 3.14 : 1.

C) 1.94 : 1.

D) 1.57 : 1.

18. The total dollar amount of assets to be classified as property, plant, and equipment is A) $170,000. B) $245,000. C) $190,000. D) $320,000.

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19. The total amount of working capital is A) $295,000. B) $75,000. C) $60,000.

D) $135,000.

20. The total dollar amount of assets to be classified as current assets is A) $145,000. B) $180,000. C) $290,000. D) $215,000. 21. At January 31, 2001, the balance in Prieto Inc,'s supplies account was $250. During February. Prieto purchased supplies of $300 and used supplies of $400. At the end of February, the balance in the supplies account should be A) $150 debit B) $250 debit. C) $350 credit. D) $950 debit. 22. Which of the following is a limitation of the corporate form of ownership? A) Personal liability C) Dual taxation B) Ease of ownership transfer D) Ease of raising capital 23. The payment of a liability A) decreases assets and increases liabilities. B) decreases assets and liabilities. C) increases assets and decreases liabilities. D) decreases assets and stockholders' equity. 24. The usual sequence of steps in the transaction recording process is: A) post to the ledger journalize analyze. B) journalize post to the ledger analyze. C) journalize analyze post to the ledger. D) analyze journalize post to the ledger. 25. When a company receives a utility bill but will not pay it right away, it should A) debit utilities expense and credit accounts payable. B) debit accounts payable and credit utilities expense. C) make no entry until the bill is paid. D) debit utilities expense and credit accounts receivable.

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26. Under GAAP (fill in the blanks below in the space provided): Revenue is recorded when it is _____________, Expenses are recorded when they have been __________, Assets are ____________ future economic ___________ as a result of a past transaction or event. Liabilities are ___________ future economic _______________ as a result of a past transaction or event. Collecting an open account receivable should have what impact on income? ________________ Paying an open account payable should have what impact on income? ________________. Recording an expense in the period when the benefit is derived is a fundamental GAAP process of _______________. 27. State the accounting equation: _____________________________________________. The GAAP statement which displays the accounting equation is the __________________________________. If an asset goes up, liabilities are unchanged and no owner transactions took place other than income, what happened to income? __________________ For every debit, there is a _________________. 28. For each of the following items, and in the space provided, state what impact the item should have upon equity (increase/ decrease/ no impact): Revenue: Payment of rent on the 1st of the month The end of the month when you have paid your rent already on the 1st ________________ Receipt of a non-refundable deposit _____________________ Collect an account receivable Dividends . Net income Net loss Pay tuition at the beginning of the quarter _________________. Insurance expense _____________________.

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Answer Key
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. D A D A D C D B C C B A C B B B A A D D A C B D A Revenue is recorded when it is ___earned__________, Expenses are recorded when they have been _incurred_________, Assets are __probable________ future economic __benefits_________ as a result of a past transaction or event. Liabilities are ___probable________ future economic ____sacrafices___________ as a result of a past transaction or event. Collecting an open account receivable should have what impact on income? ___None_____________ Paying an open account payable should have what impact on income? ____None____________. Recording an expense in the period when the benefit is derived is a fundamental GAAP process of _______________.

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27. State the accounting equation: ___ASSETS=LIABILITIES + EQUITY. The GAAP statement which displays the accounting equation is the ____BALANCE SHEET_________________. If an asset goes up, liabilities are unchanged and no owner transactions took place other than income, what happened to income? ____INCREASE_ For every debit, there is a ___CREDIT________. 28. For each of the following items, and in the space provided, state what impact the item should have upon equity (increase/ decrease/ no impact): Revenue: INCREASE Payment of rent on the 1st of the month NO IMPACT The end of the month when you have paid your rent already on the 1st __DECREASE______ Receipt of a non-refundable deposit ___NO IMPACT__________________ Collect an account receivable NO IMPACT Dividends DECREASE . Net income INCREASE Net loss DECREASE Pay tuition at the beginning of the quarter ___NO IMPACT______________. Insurance expense ____DECREASE.

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