Quick Exercises for Important Topics of Module 1 (Modified from Wild, J. J., & Shaw, K. W. (2022).

Fundamental Accounting Principles, 3e (Asia Global Edition). McGraw Hill.

Q1. Indicate whether a debit or credit decreases the normal balance of each of the following
accounts. (10 min)

Haircutting revenue
Utilities payable
Cash
Accounts receivable
Cleaning expense
Ordinary share capital
Retained earnings
Owner, withdrawals
Factory

Q2. Indicate the financial statement on which each of the following items appears. Use I for Income
Statement (also called Statement of Profit or Loss); E for Statement of Changes in Equity, and B for
Balance Sheet (also called Statement of Financial Position). (10 min)

Rent expense
Service revenue
Salaries payable
Merchandise inventory
Prepaid insurance
Tax expense
Supplies
Store equipment
Retained earnings
Owner, withdrawals

Q3. Following are the transactions of Green Company. Prepare journal entries for the above
transactions. (20 min)

May 1 The company billed a customer $2,400 in consulting revenue for sustainable
proposals.
3 The company purchased $500 of energy efficient supplies on credit.
9 The company collected $1,400 cash as partial payment of May 1 consulting revenue.
20 The company paid $500 cash toward the payable for energy efficient supplies.
31 The company paid $300 cash for May’s renewable energy utilities.
Q4. Record adjusting journal entries for each of the following for year ended 31 December. Short
description is not required. (30 min)

Dec 31 (1) The Krug Company collected $13,200 rent in advance on November 1, debiting Cash
and crediting Unearned Rent Revenue. The tenant was paying 12 months’ rent in
advance and occupancy began November 1.
(2) On July 1, the Krug Company paid $2,400 for six months of insurance coverage. No
adjustments have been made to the Prepaid Insurance account, and it is now
December 31.
(3) It purchased $23,000 of equipment on March 1. The equipment was expected to
last five years and be worth $2,600 at the end of that time. Assume it uses straight-
line method to calculate the depreciation expense.
(4) At year-end, salaries expense of $21,000 has been incurred by the company, but is
not yet paid to employees.
(5) At year-end, the company has earned, but not yet recorded, $490 of interest earned
from its investments in government bonds.
(6) The unadjusted trial balance shows accounts receivable of $103,000, allowance for
doubtful accounts for $640 (credit), and sales of $320,000. Uncollectible are
estimated to be 1.5% of accounts receivable.
(7) At year-end, inventory account has a balance of $21,250, but a physical count
reveals that only $21,000 of inventory exists. So, there are $250 inventory loss.

Q5. Merchandise inventory – Journal entries (15 min)

Prepare journal entries to record each of the following transactions of a merchandising company. The
company uses a perpetual inventory system.

Nov. 5 Purchased 500 units of product at a cost of $20 per unit. Terms of the sale are 3/10,
n/60; the invoice is dated November 5.
7 Returned 45 defective units from the November 5 purchase and received full credit.
15 Paid the amount due from the November 5 purchase, minus the return on
November 7.
Dec. 1 Sold merchandise for $5,200, with credit terms 3/15, n/30; invoice dated December
1. The cost of the merchandise is $3,120.
2 The customer in the December 1 sale returned $600 of merchandise for full credit.
The merchandise, which had cost $360, is returned to inventory.
3 Sold merchandise for $2,100, with credit terms of 1/10, n/30; invoice dated
December 3. Cost of the merchandise is $1,470.
15 Received payment for the amount due from the December 1 sale less the return on
December 2.

Q6. Inventory costing (FIFO) (20 min)

A company reports the following beginning inventory and purchases for the month of January. On
January 26, the company sells 360 units.

Units Unit Cost ($)

Beginning inventory on January 1 320 3.10
Purchase on January 9 70 3.30
Purchase on January 25 100 3.40
Required:

What is the cost of the 130 units that remain in the ending inventory at January 31, assuming costs
are assigned based on a perpetual inventory system and use of FIFO? (Round per unit costs to 2
decimal places.)
Q7. Bank reconciliation (30 min)

Nolan Company’s cash account shows a $29,833 debit balance and its bank statement shows $30,002
on deposit at the close of business on June 30.

a. Outstanding checks as of June 30 total $2,426.

b. The June 30 bank statement lists $28 in bank service charges; the company has not yet
recorded the cost of these services.
c. In reviewing the bank statement, a $40 check written by the company was mistakenly
recorded in the company’s books as $49.
d. June 30 cash receipts of $2,261 were placed in the bank’s night depository after banking hours
and were not recorded on the June 30 bank statement.
e. The bank statement included a $23 credit for interest earned on the company’s cash in the
bank. The company has not yet recorded interest earned.

Prepare a bank reconciliation using the above information.

Q8. PPE (Cost of PPE) (10 min)

Strike Bowling installs automatic scorekeeping equipment with an invoice cost of $180,000. The
electrical work required for the installation costs $18,500. Additional costs are $3,700 for delivery and
$12,940 for sales tax. During the installation, a component of the equipment is carelessly left on a lane
and hit by the automatic lane-cleaning machine. The cost of repairing the component is $1,750.

Assume all are paid by cash. What is the total recorded cost of the automatic scorekeeping equipment?
Prepare journal entry.

Q9. Depreciation expense (10 min)

On January 2 of the current year, the Crossover Band acquires sound equipment for concert
performances at a cost of $65,600. The band estimates it will use this equipment for five years, during
which time it anticipates performing about 200 concerts. It estimates that after five years it can sell
the equipment for $2,000. During the current year, the band performs 55 concerts.

Required:

Compute the current year’s depreciation using the units-of-production method.

Q10. Disposal of PPE (20 min)

Horizon Co. owns equipment that cost $82,800, with residual value of $4,000 and useful life of 10
years. Horizon sells the equipment for cash after 2.5 years’ use. Record the sale of the equipment
assuming Horizon sells the equipment for (1) $63,100 cash, (2) $91,500 cash, and (3) $33,900 cash.

Q11. Issuance of shares (10 mins)

Prepare the journal entry to record ABC Company’s issuance of 108,000 shares of ordinary shares for
$540,000 cash, and $800,000 building.
Q12. Declare and payment of cash dividends (10 mins)

Prepare journal entries to record the following transactions for Emerson Corporation. (If no entry is
required for a transaction/event, use "No journal entry required")

Apr. 15 Declared a cash dividend to ordinary shares of $51,000.

Dec. 15 Date of record.
Next Year Feb. 15 Paid the dividends declared on April 15, the previous year.