Principles of Financial Accounting

Quiz # 2

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2 Please answer all the questions by recording your responses in the yellow highlighted a

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5 Upload the solution on LMS Assignments Tab by the allocated deadline.

6 Solution received after the deadline will be accepted with a 10% mark reduction, eve

Question Advised Time Allocation

1(a) 26
1(b) 11
1 (c) 2
1(d) 8
2(a) 9
2(b) 2
LMS Submission 2

Total Time Allowed 60

Section
Name
ID
udent ID in the yellow space provided below.

s in the yellow highlighted areas.

area provided. DO NOT type anywhere on the sheet except for in the rough work area provided.

and Student ID. Not following this instruction will result in receiving -1.

ated deadline.

10% mark reduction, even if it is late by 1 minute. No responses will be accepted 15 minutes past the deadline.
the deadline.
Question 1

Nationwide News started doing business on 1 January 2019. It performs adjusting entries every two months. The transac

1.       The owners paid £50,000 into the business bank account.
2.       Building was leased starting 1 January 2018 at a rate of £2,000 per month. Rent of £48,000 was paid during
3.       Utility bills during the year are as shown below:
For the period 1 January 2019 to 30 April 2019 £450
For the period 1 May 2019 to 31 December 2020 £1,200
The bills are paid two weeks after they are received.
4.       A delivery van was bought on 1 January 2019 for £12,600 with a useful life of five years.
5.       Advertising fee of £1,200 was paid for the first three quarters of the current year. The last quarter fees bill o
6.       On Monday 26 August, the company received of payment £30000 from RJ Enterprise for an advertisement
7.       The business pays wages every two months. On 20 November, paid wages for the first 25 days of Novembe
8.       As per the records, £2,500 of cash receipts initially recorded as unearned fees had been earned as of Decem
9.       Office supplies on hand at December 31 amount to £400.
10.   On September 1, 2019, Nationwide News signed a £12,000 six-month, 9 % note payable. The accrued intere
11.   Accrued but unrecorded delivery costs at December 31 amount to £2,700.
12.   Revenue for services performed but unbilled as of December 28, totals £250.

An unadjusted trial balance dated December 31, 2019, follows:

Nationwide News
Trial Balance Adjustments
December 31, 2019
Debits Credits Debits
Cash $ 78,125
Account Receivable 250
Prepaid Rent 4,000
Supplies 1,000
Van 12,600
Accumulated Depreciation - Van $ 2,100
Capital 50,000
Utilities Payable 900
Advertising Payable 221
Note Payable 12,000
Interest Payable 180
Unearned Revenue 2,500 2500
Wages Payable
Delivery Payable
Retained Earnings 25,000
Revenues 30,000
Depreciation Expense 2,100 420
Rent Expense 20,000 4000
Utilities Expense 1,350 300
Advertising Expense 1,421 442
Wages Expense 2,125 3060
Interest Expense 180 180
Supplies Expense 600
Delivery Expense 2700
$ 122,901 $ 122,901 $ 14,452

Required
(a)    Identify the adjusting entries from the above transaction and journalize them.

(b)   After making the desired adjustments,

suggest whether each of the following
account has a normal balance of Debit or
Credit. Also determine the amount of
adjusted balance that will be reported in the
company’s 2019 financial statements:
Prepaid Rent
Supplies
Account Receivable
Accumulated Depreciation - Van
Utilities Payable
Advertising Payable
Note Payable
Interest Payable
Unearned Revenue
Wages Payable
Delivery Payable
Revenues
Depreciation Expense
Rent Expense
Utilities Expense
Advertising Expense

Wages Expense
Interest Expense
Supplies Expense
Delivery Expense
(c)    Calculate the net income or loss figure for Nationwide news.
(d)   Show the closing entry for the expense accounts and the Income summary account.
every two months. The transactions that followed during the year are as follows:

ent of £48,000 was paid during the 2018.

f five years.
year. The last quarter fees bill of £663 was received after 31 December 2019, but before the financial statements had been finalized for th
nterprise for an advertisement to be published on the following Monday.
r the first 25 days of November at a rate of £85/day. The next payment of wages will be exactly two months after the current payment.
s had been earned as of December 31.

ote payable. The accrued interest is due on February 1, 2020 along with the principal.

Pakistan Telecom
Adjustments Adjusted Trial Balance Income Statenemt
December 31, 2019
Credits Debits Credits Debits Credits
$ 78,125
250
4000 -
600 400
12,600
420 $ 2,520
50,000
300 1,200
442 663
12,000
180 360
-
3060 3,060
2700 2,700
25,000
2750 32,750 $ 32,750
2,520 $ 2,520
24,000 24,000
1,650 1,650
 1,863 1,863
5,185 5,185
360 360
600 600
2,700 2,700
$ 14,452 $ 130,253 $ 130,253 $ (6,128)
ments had been finalized for the year.

hs after the current payment.

Marks

22 (a) Journalize adjusting entries only.

For each incorrect debit or credit entry, you get -0.5.

GENERAL JOURNAL  J1
Date Account Title Debit Credit

1 1

1  2 Rent Expense 4,000

1 Prepaid Rent 4,000

1  3 Utilities Expense 300

1 Utilities Payable 300

1  4 Depreciation Expense 420

1 Accumulated Depreciation - Van 420

1  5 Advertising Expense 442

1 Advertising Payable 442

1 6

1  7 Wages Expense 3,060

1 Wages Payable 3,060

1 8 Unearned Revenue 2,500

1 Revenue 2,500

1 9 Supplies Expense 600

1 Supplies 600

1 10 Interest Expense 180

1 Interest Payable 180

1 11 Delivery Expense 2,700

1 Delivery Payable 2,700

1 12 Account Receivable 250

1 Revenue 250
FEEDBACK
As part (a) suggests you were suppose to identify which of the transaction are adjusting entries. As taught in lect
an adjusting journal entry is an entry that records any unrecognized income or expenses for the period. In this qu
told that adjusting entries were made every two months. Adjustments entries fall under five categories: accrued
unearned revenues, prepaid expenses, and depreciation. So not all entries were adjusting entries. And not all am
adjusted either, see the second comment to understand this last line.

The adjustments are all made every two months. Therefore, you had to identify which part of the value provided
yet been adjusted, and adjust only that part of the value. For example, in case of transaction "4", the deprecatio
January to October has already been made, since the records are adjusted every two months. You are therefore
remaining two months. Same is the case with the interest expense. Per month interest expense was 90 ([9000*1
months of September and October were already made at the end of October, therefore you were only suppose t
months of November and December for 180 (90*2). Same rule applies to all transactions which required any adju

Some transactions however, did not require an adjustment. For example, transaction no.6. The revenue was earn
when the services, for which cash was received in advance on 26 August, were provided. The adjustment for the
earned was already made at the end of October.

QUIZ END
 Please refer to the completed work sheet in the tab "Question 1
Text" to understand how the values in part (b) are calculated.
Marks

20 (b) Calculate adjusted Values of the given accounts

For each incorrect debit or credit choice in column titled Debit/Credit, you get -0.5.

Account Title Value Debit/Credit

$
1 Prepaid Rent 0 Debit
1 Supplies 400 Debit
1 Account Receivable 250 Debit
1 Accumulated Depreciation - Van 2520 Credit
1 Utilities Payable 1200 Credit
1 Advertising Payable 663 Credit
1 Note Payable 12000 Credit
1 Interest Payable 360 Credit
1 Unearned Revenue 0 Credit
1 Wages Payable 3060 Credit
1 Delivery Payable 2700 Credit
1 Revenue 32750 Credit
1 Depreciation Expense 2520 Debit
1 Rent Expense 24000 Debit
1 Utilities Expense 1650 Debit
1 Advertising Expense 1863 Debit
1 Wages Expense 5185 Debit
1 Interest Expense 360 Debit
1 Supplies Expense 600 Debit
1 Delivery Expense 2700 Debit

2 (c) Calculate Net Income

Net Income/Loss $ -6,128.00

11 (d) Closing entry for the expense accounts and the income summary account
For each incorrect debit or credit entry, you get -0.5.
For closing expense accounts, use the order as provided in part (b) above. Using any other order will result in zer

Account Title Debit Credit

Closing Expenses
1 Income Summary 38,878
1 Depreciation Expense 2,520
1 Rent Expense 24,000
 1 Utilities Expense 1,650
1 Advertising Expense 1,863
1 Wages Expense 5,185
1 Interest Expense 360
1 Supplies Expense 600
1 Delivery Expense 2,700
Closing Income Summary
1 Retained Earnings 6,128
1 Income Summary 6,128

adjusting entries. As taught in lectures and stated in your book,

expenses for the period. In this question you were specifically
fall under five categories: accrued revenues, accrued expenses,
e adjusting entries. And not all amount was suppose to be

y which part of the value provided in each transaction has not

of transaction "4", the deprecation for the 10 months from
ry two months. You are therefore to make adjustment for the
interest expense was 90 ([9000*12%]/12). Adjustment for the
herefore you were only suppose to make adjustments for the
ansactions which required any adjustment.

saction no.6. The revenue was earned on Monday 1 September

provided. The adjustment for the unearned revenue being

QUIZ END
 Account Names
Account Receivable
Accumulated Depreciation - Van
Advertising Expense
Advertising Payable
Delivery Expense
Delivery Payable
Depreciation Expense
Income Summary
Interest Expense
Interest Payable
Note Payable
Prepaid Rent
Rent Expense
Rent Payable
Retained Earnings
Revenue
Supplies
Supplies Expense
Unearned Revenue
Utilities Expense
Utilities Payable
Van
Wages Expense
Wages Payable
Debit
Credit

ny other order will result in zero marks.

Question 2

The accountant of Nationwide News was new and made a mistake of recording the transactions below, based on cash
accounting rather than accrual basis of accounting that the company uses.
The company purchased printing paper (supplies) from Paperwork Inc. for $15,000 on account,
Dec-02 to be paid
debit in the next
to Supplies and aaccounting period. Payable. The new accountant ignores that
credit to Accounts
Dec-10 information.
Dec-28 The company provided broadcasting services to a reality show for $180,000 on account.

Required

(a) Determine the amount by which the following accounts are overstated or understated if the new accountant’
are not corrected.

1 Supplies
2 Account Payable
3 Sales Revenue
4 Account Receivable

(b) Calculate the increase or decrease in the net income after making the correcting entries.
ns below, based on cash basis of

d if the new accountant’s errors

Marks

4 (a) Calculate the amount by which the following accounts are over- or under- stated

Account Title Overstated/Understated Amount

1 1 Supplies Understated by $ 14,400
1 2 Account Payable Understated by $ 14,400
1 3 Sales Revenue Understated by $ 180,000
1 4 Account Receivable Understated by $ 180,000

1 (b) Determine the increase or decrease in the net income

Account Title Increased/Deceased Amount

Net Income Increased by $ 180,000

FEEDBACK
Supplies & A/P are 15,000 Since the accountant wrongly followed cas
understated basis of accounting, he did not record the t

A/P and Supplies are 600 Again due to following cash basis of accoun
overstated when cash exchanges hands, the accounta
Since the business follows accrual basis of
period to reflect the purchase on account,
suppose to reduce the A/P since the busine
So he should have debited A/P and credite
cash basis of accounting. Hence overstatin

A/R and Revenue are 180,000 Following cash basis of accounting the acco
understated understating both A/R and Revenue.
 Options
15000-600 Understated
15000-600 Overstated
Increased
Decreased

e the accountant wrongly followed cash basis of accounting when he was to use accrual
s of accounting, he did not record the transaction by debiting Supplies and crediting A/P.

n due to following cash basis of accounting which states that transaction be recorded
n cash exchanges hands, the accountant wrongly debited supplies and credited cash.
e the business follows accrual basis of accounting and the entry was made in the previous
od to reflect the purchase on account, in the current period the accountant was only
pose to reduce the A/P since the business is now paying for the supplies bought on credit.
e should have debited A/P and credited Cash, but he debited supplies again, following
basis of accounting. Hence overstating supplies and A/P.

owing cash basis of accounting the accountant did not record the transaction at all. Hence
erstating both A/R and Revenue.
Question Marks Marks Obtained Tr # Q1(a)
1(a) 22 0 1
1(b) 20 0 2
1 (c) 2 0
1(d) 11 0 3
2(a) 4 0
2(b) 1 0 4
Total 60 0
5

 6
 7

10

11

12
Q1(a) Q1(b) Q1(c) Q1(d) Q2(a) Q2(b)
Q2(b)