Fundamental Accounting Concepts 2 Edition Practical Experiences3.amazonaws.com/Careertec/Manuals and Texts/Accounting/FAC2EP… · Fundamental Accounting Concepts 2nd Edition Practical

Fundamental Accounting Concepts 2nd Edition Practical Experience

FAC2EPE/0906 Page 1

Welcome to the Fundamental Accounting Concepts Practical Experience. The exercises in this practical experience will challenge you to use the concepts that you learned in the Fundamental Accounting Concepts course. Accounting is an exact science, and therefore, you must plan on how to approach a task and follow the plan. Be sure to read each task thoroughly and carefully record the required detail.

After completing the practical experience, you can check your answers in the solutions section located in the back of this manual.

Part 1 – Assigning Accounts The table below contains typical general ledger account names and your task is to assign each name into their appropriate broad class category, e.g. 1000 Current Assets; 1600 Fixed Assets and so on, as shown on the Chart of Accounts worksheet on the following page. Hint: Write the broad class category number in the page margin along side of each general ledger account name in this table and when satisfied that you have them correctly, assign the account name to a numbered account in the worksheet.

Accounts to be assigned

Bank & Interest Charges Bank Account Cost of Sales Automobile Automobile Expenses Employment Insurance Expense Office Supplies Retained Earnings Accumulated Depreciation -Automobile Pension Payable Equipment Inventory Accounting Fees Wages & Bonuses Pension Expense Sales Income Current Earnings Depreciation Expense Accumulated Depreciation - Equipment Income Tax Payable Accounts Payable Telephone Expense Employment Insurance Payable Accumulated Depreciation - Furniture

& Fixtures Furniture & Fixtures Sales Tax Payable Fixed Assets - Cost Accounts Receivable Advertising Bank Loan Payable Total Accumulated Depreciation Travel Expense

Fundamental Accounting Concepts 2nd Edition

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Chart of Accounts Worksheet Insert Accounts into the appropriate category. ASSETS 1000 CURRENT ASSETS

1100 ________________________ 1200_________________________ 1300_________________________

1500 TOTAL CURRENT ASSETS

1600 FIXED ASSETS

1620_________________________ 1640_________________________ 1660_________________________ 1700_________________________ 1720_________________________ 1740_________________________ 1760_________________________ 1780_________________________

1800 TOTAL FIXED ASSETS

LIABILITIES 2000 CURRENT LIABILITIES

2100_________________________ 2200_________________________ 2310_________________________ 2320_________________________ 2350_________________________ 2400_________________________

2700 TOTAL CURRENT LIABILITIES EQUITY 3000 EARNINGS

3550_________________________ 3600_________________________

3700 TOTAL EARNINGS

Practical Experience

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REVENUE 4000 REVENUE

4100_________________________ 4400 TOTAL REVENUE

EXPENSE 5000 ADMINISTRATION

5020 ___________________________ 5040 ___________________________ 5060 ___________________________ 5080 ___________________________ 5100 ___________________________ 5120 ___________________________ 5140 ___________________________ 5160 ___________________________ 5180 ___________________________ 5200 ___________________________ 5220 ___________________________ 5240 ___________________________

5400 TOTAL ADMINISTRATION


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Part 2 Analyzing and Posting Transactions to the General Journal In this exercise you will analyze a series of source document transactions and enter them into the general journal blank pages provided, using the Chart of Accounts, provided for you on pages 6 and 7, to assign the appropriate general ledger account numbers. Scenario: The company name is; Bathtubs Galore Inc., This company only has one product line being bathtubs. The following transactions are in chronological order and the general journal entry starting number is J77. (Hint: write the journal number along the left side of the transaction. Use the right margin to perform the “T” account analyasis.) Note: not all of the general ledger accounts in the chart of accounts will be put to use. In addition, for simplicity, sales taxes have been omitted from transactions. Source document transactions: Purchase : Various office supplies from Wards Stationery Inc. Date: January 01, 2004 Cost: $ 212.40 Type of purchase: On account Source document: Invoice # 2232 Loan: Loan to the business by principal of Bathtubs Galore Date: January 01, 2004 Amount: $ 10,000.00 Type of loan: 5 year monthly installments Source document: Loan contract #10102 Purchase : 24 bathtubs from Krane Corp of AmericaDate: January 02, 2004 Cost: $ 4,800.00 Type of purchase: Credit Source document: Invoice # 334575 Sale : 3 bathtubs, $ 310.00 each to The Plumbing Works COGS: $ 600.00 Date: January 03, 2004 Payment method: On account Source document: Invoice # SB 7112 Hint: COGS Cost of Goods Sold Purchase : Used deliver van from Auto Auctions Inc.Date: January 11, 2004 Cost: $22,000.00 Type of purchase: Credit Source document: Invoice F22798


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Purchase : Various office supplies from Wards Stationery Inc. Date: January 14, 2004 Cost: $ 33.00 Type of purchase: Cash Source document: Check # 4001 Purchase : Welding equipment from Solder Plus Inc.Date: January 15, 2004 Cost: $ 3,250.00 Type of purchase: Cash Source document: Check # 4002 Purchase : Auto repairs from Southbend MotorsDate: January 22, 2004 Cost: $ 427.60 Type of purchase: Cash Source document: Check # 4003 Sale : 1 standard bathtub, $ 310.00 to Mr. StorkCOGS: $ 200.00 Date: January 23, 2004 Payment method: Cash Source document: Deposit slip Payment : You receive a check from The Plumbing

Works paying their Jan 02/04 purchase in full

Date: January 31, 2004 Payment method: Check Source document: Invoice # 7112 and deposit slip Payment: First monthly installment on loanDate: January 31, 2004 Amount: $ 189.37 principal and interest Interest: $22.71 Source document: Ck. 4004 Hint: apply the difference as principal to Loan Payable account


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Bathtubs Galore Inc.

Chart of Accounts ASSETS 1000 CURRENT ASSETS

1100 Accounts Receivable 1200 Bank Account 1300 Inventory

1500 TOTAL CURRENT ASSETS

1600 FIXED ASSETS 1620 Automobile 1640 Equipment 1700 Furniture and Fixtures 1740 Fixed Assets Cost

1800 TOTAL FIXED ASSETS

LIABILITIES 2000 CURRENT LIABILITIES

2100 Accounts Payable 2200 Loan Payable to Principal 2300 Sales Tax Payable

2700 TOTAL CURRENT LIABILITIES EQUITY 3000 EARNINGS

3500 Current Year Earnings 3600 Prior Years Retained Earnings

3700 TOTAL EARNINGS


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REVENUE 4000 REVENUE

4100 Income on Product Sales 4400 TOTAL REVENUE

EXPENSE 5000 OPERATIONS

5020 Advertising 5040 Automobile expense 5060 Accounting Fees 5080 Loan Interest Charges 5140 Cost of Goods Sold 5160 Travel Expense 5180 Office Supplies 5220 Telephone expense 5240 Wages and Bonuses

5400 TOTAL OPERATIONS


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Journal Date Journal

Number Account Number

Description Debit Credit


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Journal

Date Journal Number

Account Number



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Part 3 Posting from the General Journal to the General Ledger A completed set of general journal transactions follows. In this exercise you are required to post these transactions to the blank general ledger account pages provided immediately following these transactions. In addition, Once the postings are complete, each account must be totaled and a final balance of all accounts must be done and proven to be in balance. (Hint: Check off each amount as you post it to the general ledger to avoid missing or duplicating an entry.)




01/01/03 J1 Bank Deposit 1100 Bank Account 100,000.00 3201 Partner “A” Investment Capital 50,000.00 3202 Partner “B” Investment Capital 50,000.00 Owner Investment in Company 01/03/03 J2 22545, Office Home Place Inc. 1650 Furniture & Fixtures 2,500.00 2300 Sales Tax 1 175.00 2100 Accounts Payable 2,675.00 Purchase of Office Furniture and Equipment 01/11/03 J3 23994, Office Home Place Inc. 1700 Equipment 6,500.00 2300 Sales Tax 1 455.00 2100 Accounts Payable 6,955.00 Purchase of Computer and Server 01/12/03 J4 Ch#001, Office Mart 5240 Office Supplies 420.00 2300 Sales Tax 1 29.40 1100 Bank Account 449.40 Purchase of Office Supplies 01/15/03 J5 F2270, Furniture Palace 1650 Furniture & Fixtures 5,700.00 2300 Sales Tax 1 399.00 2100 Accounts Payable 6,099.00 Purchase of Furniture & Fixtures on Account 01/15/03 J6 Ch#002, Computer How-To 5340 Subscriptions 34.50 2300 Sales Tax 1 2.12 1100 Bank Account 36.62 Magazine Subscription 01/15/03 J7 Ch#003, Satellite Plus 5250 Computer Expense 60.00 2300 Sales Tax 1 4.20 1100 Bank Account 64.20 Service Repair


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01/22/03 J8 1377, Auditorium Dividers Inc. 1400 Inventory 12,225.00 2300 Sales Tax 1 855.75 2100 Accounts Payable 13,080.75 Purchased inventory on account

01/22/03 J9 H4667, Andy’s Hardware Supplies 1400 Inventory 488.00 2300 Sales Tax 1 34.16 2100 Accounts Payable 522.16 Purchased inventory on account

01/14/03 J10 Ch#004, Angela 5360 Wages 816.00 5140 EI Expense 28.56 5260 Pension Expense 14.28 1100 Bank Account 642.60 2440 Income Tax Payable 138.72 2460 EI Payable 48.96 2480 Pension Payable 28.56 Angela pay period ending 01/14/03 01/28/03 J11 Ch#007, Angela 5360 Wages 816.00 5140 EI Expense 28.56 5260 Pension Expense 14.28 1100 Bank Account 642.60 2440 Income Tax Payable 138.72 2460 EI Payable 48.96 2480 Pension Payable 28.56 Angela pay period ending 01/28/03 01/31/03 J12 Ch#008, Partner “A” 3201 Partner “A” Investment Capital 1,000.00 1100 Bank Account 1,000.00 Draw on Investment 01/31/03 J13 Ch#009, Partner “B” 3202 Partner “B” Investment Capital 1,000.00 1100 Bank Account 1,000.00 Draw on Investment 1/31/03 J14 Ch#010, Leasehold Management Inc. 5050 Rent Expense 1,200.00 1100 Bank Account 1,200.00 February rent 1/31/03 J15 Bank Statement 5070 Banking Charges 18.00 1100 Bank Account 18.00 January Bank Fees


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General Ledger account pages

General Ledger Account – Bank Account Account #1100

Date Items Post Ref.

Debit Credit

General Ledger Account -Inventory Account # 1400


Debit Credit

General Ledger Account – Furniture & Fixtures Account # 1650


Debit Credit



General Ledger

Account - Equipment Account # 1700 Date Items Post

Ref. Debit Credit

General Ledger Account –Accounts Payable Account # 2100


Debit Credit

General Ledger Account – Sales Tax 1 Account # 2300


Debit Credit


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General Ledger

Account –Income Tax Payable Account # 2440 Date Items Post

Ref. Debit Credit

General Ledger Account – Employment Insurance Payable Account # 2460


Debit Credit

General Ledger Account – Pensions Payable Account # 2480


Debit Credit

General Ledger Account – Partner “A” Investment Capital Account # 3201


Debit Credit



General Ledger

Account – Partner “B” Investment Capital Account # 3202 Date Items Post

Ref. Debit Credit

General Ledger Account - Rent Account # 5050


Debit Credit

General Ledger Account – Bank Charges Account # 5070


Debit Credit

General Ledger Account – Employment Insurance Expense Account # 5140


Debit Credit


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General Ledger

Account – Office Supplies Account # 5240 Date Items Post

Ref. Debit Credit

General Ledger Account – Computer Expense Account # 5250


Debit Credit

General Ledger Account – Pension Expense Account # 5260


Debit Credit

General Ledger Account - Subscriptions Account # 5340


Debit Credit



General Ledger

Account - Wages Account # 5360 Date Items Post

Ref. Debit Credit

General Ledger Account - Account #_____


Debit Credit


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Part 4 Creating a Trial Balance For this exercise we have provided a set of completed general ledger account pages. The balances shown have been carried forward from the year ending Dec. 31, 2003. Your task is to create a trial balance as of that date. A blank trial balance sheet has been provided for you immediately following these general ledger account pages.

Widget Wise Inc. - General Ledger Account – Bank Account 1 Account # 1101


Debit Credit

Jan 04 01 Bal. Fwd. 12,537.40

Widget Wise Inc. - General Ledger Account – Bank Account 2 Account # 1102


Debit Credit

Jan 04 01 Bal. Fwd. 4,365.19

Widget Wise Inc. - General Ledger Account – Accounts Receivable Account # 1200


Debit Credit

Jan 04 01 Bal. Fwd. 19,210.34



Widget Wise Inc. - General Ledger

Account – Widget Inventory Account # 1400 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 53,627.05


Account – Equipment Account # 1620 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 44,322.50


Account – Furniture & Fixtures Account # 1640 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 8,873.21


Account – Total Accumulated Depreciation Account # 1660 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 18,445.00


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Account – Accounts Payable Account # 2100 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 7,321.21


Account – Employment Insurance Payable Account # 2200 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 47.95


Account – Income Tax Payable Account # 2220 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 175.50


Account – Sales Tax Payable Account # 2300 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 1,372.55




Account – Preferred Shares Account # 3510 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 100.00


Account – Common Shares Account # 3520 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 200.00


Account – Retained Earnings Account # 3600 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 20,263.52


Account – Widget Sales Account # 4200 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 225,470.12


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Account – Cost of Widget Sales Account # 5020 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 94,675.21


Account – Salaries Account # 5220 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 21,113.62


Account – Employment Insurance Expense Account # 5240 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 97.32


Account – Office Expenses Account # 5250 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 1,222.60




Account – Gas and Hydro Account # 5260 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 3,925.70


Account – Telephone Account # 5270 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 1,229.90


Account – Legal and Audit Account # 5280 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 3,425.60


Account – Depletion Expense Account # 5290 Date Items Post

Ref. Debit Credit

Jan 04 01 Bal. Fwd. 4,770.21


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Trial Balance

Account Descriptions Debit Amount

Credit Amount



Part 5 Creating an Income Statement and a Balance Sheet We have provided a completed Trial Balance along with an Income Statement blank and a Balance Sheet blank and your task is to create those two financial statements from the figures in this trial balance. Note: (Drop the cents (units and tens) when creating the financial statements. Also write in the lines, on the financial statements where appropriate, immediately below the table grid line to make it obvious where your penciled line was inserted.)

Student Name Company Trial Balance

As of January 31, 2003 Account Descriptions Debit Amount Credit

Amount Bank 27,500.00Accounts Receivable 17,800.00Inventory 100,600.00Machinery and Equipment 126,600.00Furniture and Fixtures 12,400.00Computer Equipment 4,200.00Accumulated Dep’n.- Mach. & Equip. 46,600.00Accumulated Dep’n.- Furniture & Fix’t. 6,200.00Accounts Payable 10,500.00Employment Insurance Payable 600.00Pension Payable 800.00Income Tax Payable 800.00Sales Tax Payable 3,900.00Common Stock 200.00Retained Earnings 77,200.00Sales 341,000.00Cost of Sales 110,300.00Wages 23,000.00Employment Insurance Expense 1,900.00Pension Expense 2,500.00Office Supplies 8,600.00Travel & Entertainment 12,000.00Utilities 9,600.00Telephone 1,500.00Legal & Accounting 7,700.00Depreciation & Depletion Expense 21,600.00

Totals 487,800.00 487,800.00


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Income Statement



Hint: Combine Accumulated Depreciation accounts for the Fixed Assets category. Also combine the 4 payroll deduction payable amounts and name combined total Federal & Other taxes.

Balance Sheet


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Part 6 Analyzing the Financial Statements After completing the Trial Balance and Income Statement, the final step is to compute the financial ratios listed below using the appropriate dollar amounts from your completed income statement and balance sheet. In your answer, include (a.) the formula for each ratio expressed in words, (b.) the numbers used from the financial statements and (c.) the calculated amount of each ratio. 1. Current Ratio

a.) ____________________________________________________________

b.) ____________________________________________________________

c.) ____________________________________________________________ 2. Quick Ratio (also known as Acid Test Ratio)

a.) ____________________________________________________________ b.) ____________________________________________________________

c.) ____________________________________________________________ 3. Fixed Asset Turnover Ratio

a.) ____________________________________________________________

b.) ____________________________________________________________ c.) ____________________________________________________________

4. Gross Profit Ratio

a.) ____________________________________________________________

b.) ____________________________________________________________

c.) ____________________________________________________________ 5. Net Profit Ratio

a.) ____________________________________________________________

b.) ____________________________________________________________ c.) ____________________________________________________________

6. Return on Assets Ratio

a.) ____________________________________________________________

b.) ____________________________________________________________

c.) ____________________________________________________________



7. Return on Equity Ratio

a.) ____________________________________________________________

b.) ____________________________________________________________

c.) ____________________________________________________________

Documents

Fundamental Accounting Concepts 2 Edition Practical Experiences3.amazonaws.com/Careertec/Manuals and Texts/Accounting/FAC2EP… · Fundamental Accounting Concepts 2nd Edition Practical