Practice problems for the mid-term (Key)(2)

Study Package for MGMT 2101 Mid-term Examination 1Time: Feb 11, 2015 in classPlease note, if it is a snow day (i.e., if university is closed on Feb 11), the midterm will be written on Feb 23rd). Please check BbLearn for announcement in case we have a snowstorm on Feb 11.Location: class room ROWE 1014∙Coverage: up to material covered in Class 1 – Class 9∙Closed book, closed notes, closed computer∙Calculator:only Sharp EL 243SB calculator is allowed (please strictly follow this rule.It is your responsibility to make sure you are using the appropriate calculator.) ∙Present value tables will be provided if needed.∙I do not answer questions during the exam; Sometimes things are judgemental, and YOU have to make judgements, not asking me to make them for you.∙Partial mark may be awarded for work if calculations are shown.∙Material to study for the exam:o Go over class slides and handouts very very very carefully and make sure you fully understand the concepts;o Work on the suggested practice problems listed on the class schedule;o If you have time, go over the study notes posted on BbLearn.Advance warning-I don’t throw lots of tricks at students but I expect you to know the core concepts well enough to address them in a fairly efficient manner. Time will be an issue if you do not have a good grasp of the material.Here are my advice for preparing, along with some practice problems. All of these practice problems are taken from previous exams. Please be aware that the exam questions are NOT necessarily “clones” of these practice questions. However, you should expect the difficulty level to be somewhat comparable.Things you must know:-Accounting equations-Accounting assumptions, principles, qualitative characteristics-Journal entries, their impact on net income-Adjusting entries-All steps within the accounting cycles-Construct financial statementso Classified balance sheeto Single-step and multi-step income statemento Statement of retained earning-Accrual vs. cash accounting[Practice 1] Required: record the journal entries and adjusting entries (if needed) for the following transactions:1.On Jan 1, 2010, the company borrowed $12,500 from the bank.2.On Jan 1, 2010, the company bought equipment for $8,000 cash.3.On December 31, 2010, the company recorded amortization on the equipment, using thestraight-line method. The equipment has an estimated useful life of six years and an estimated residual value of $800 (refer to transaction 2).4.Purchases of inventory on account during the year totaled $25,000.5.Sales for the year totaled $37,500, of which $7,500 was on account.6.The cost of the products sold from inventory during the year was $22,500.7.Payments to suppliers totaled $23,100 during the year.8.Collections on account from customers totaled $7,000.9.Employees earned wages of $8,400 during the year, which were recorded as wages payable.10.Dividends were declared and paid in the amount of $600.11.Purchased $31,400 of inventory on account12.Made sales for the period totaling $60,000, of which $24,000 were cash sales.13.Paid cash to suppliers totaling $36,000 for inventory purchased earlier.14.Collected cash on customer accounts totaling $34,000.15.Signed a contract to purchase a piece of equipment that cost $2,000, and made a downpayment of $200 on the purchase.16.Paid an insurance premium of $600 on June 30 that provides coverage for the 12-monthperiod starting July 1. On December 31, the company recognized the amount of insurance expense incurred during the period.17.Recorded amortization of $3,600 on the company’s capital assets.18.Determined that the cost of the inventory that had been sold during the year was $39,000.19.Issued common shares for $60,000.20.Purchased inventory, on account, for $15,000.21.Sold, for $500 on account, a unit of inventory which had cost $300.22.Purchased equipment for $10,000 cash.23.Made a payment on accounts payable for $900.24.Declared (but did not pay) a dividend for $2,000.25.Paid the $2,000 dividend that had been declared earlier (refer to transaction 24).26.Inventory costing $3,000 is purchased on account.27.Inventory costing $3,000 is purchased.28.Inventory costing $1,800 is sold on account for $2,700 (two journal entries are required)29.Accounts receivable of $2,000 are collected.30.The company borrows $12,000 from a bank.31.The company issues common shares for $20,000.32.New equipment costing $7,500 is purchased with cash.33.Wages totaling $6,300 were earned by employees and paid to them.34.A payment of $3,000 was made on accounts payable.nd costing $23,000 was purchased. The company paid $3,000 in cash and the remainderwas financed with a mortgage.36.The company paid $2,500 for the monthly rent on its office.37.Office supplies costing $1,400 were purchased on account.38.Office supplies costing $500 were consumed.39.Purchased supplies on account for $7,500.40.Purchased material on account for $7,500.ed $6,000 of the material for the cleaning process.42.Paid $56,000 for wages to employees.43.Paid $32,000 for utilities including telephone, electricity, and water.44.Paid an insurance premium of $1,200 on April 1 that provides coverage for the 12-monthperiod starting April 1.45.Sales recorded for the period totaled $95,000, all on credit.46.Recorded amortization of $1,500 on the equipment.47.Dividends of $3,000 were declared but not yet paid.48.Payments to suppliers for inventory purchased totaled $54,000.49.Sales for the year totaled $47,500, of which $19,000 were on account. The cost of theproducts sold was $24,300.50.Wages in the amount of $400 were owed to employees at the end of the year. These willbe paid early in the next year.Solution:1.Dr. cash $12,500Cr. Bank loan $12,5002.Dr. Equipment $8,000Cr. Cash $8,0003.Dr. Amortization expense $1,200Cr. Accumulated Amortization $1,2004.Dr. Inventory $25,000Cr. A/P $25,0005.Dr. A/R $7,500Dr. Cash $30,000Cr. Sales revenue $37,5006.Dr. Cost of goods sold $22,500Cr. Inventory $22,5007.Dr. Accounts payable $23,100Cr. Cash $23,1008.Dr. Cash $7,000Cr. Accounts receivable $7,0009.Dr. Wages expense $8,400Cr. Wages payable $8,40010.Dr. Dividends $600Cr. Cash $60011.Dr. Inventory $31,400Cr. Accounts payable $31,40012.Dr. Cash $24,000Dr. Accounts receivable $36,000Cr. Sales revenue $60,00013.Dr. Accounts payable $36,000Cr. Cash $36,00014.Dr. Cash $34,000Cr. Accounts receivable $34,00015.Dr. Equipment 2,000Cr. Cash 200Cr. Accounts payable 1,80016.June 30 Dr. Prepaid insurance $600Cr. Cash $600 Dec 31 Dr. Insurance expense $300Cr. Prepaid insurance $300 17.Dr. Amortization expense $3,600Cr. Accumulated amortization $3,600 18.Dr. Cost of goods sold $39,000Cr. Inventory $39,000 19.Dr. Cash $60,000Cr. Common Share $60,00020.Dr. Inventory $15,000Cr. Accounts payable $15,000 21.Dr. Accounts receivable $500Cr. Sales revenue $500 Dr. Cost of goods sold $300Cr. Inventory $30022.Dr. Equipment $10,000Cr. Cash $10,00023.Dr. Accounts payable $900Cr. Cash $90024.Dr. Dividend $2,000Cr. Dividend payable $2,00025.Dr. Dividend payable $2,000Cr. Cash $2,00026.Dr. Inventory $3,000Cr. Accounts payable $3,00027.Dr. Inventory $3,000Cr. Cash $3,00028.Dr. Accounts receivable $2,700Cr. Sales revenue $2,700 Dr. Cost of goods sold $1,800Cr. Inventory $1,80029.Dr. Cash $2,000Cr. Accounts receivable $2,00030.Dr. Cash $12,000Cr. Bank loan $12,00031.Dr. Cash $20,000Cr. Common Share $20,00032.Dr. Equipment $7,500Cr. Cash $7,50033.Dr. Wages expense $6,300Cr. Cash $6,30034.Dr. Accounts payable $3,000Cr. Cash $3,00035.Dr. Land $23,000Cr. Cash $3,000Cr. Mortgage payable $20,000 36.Dr. Rent expense $2,500Cr. Cash $2,50037.Dr. Office supplies $1,400Cr. Accounts payable $1,40038.Dr. Supplies expense $500Cr. Office supplies $50039.Dr. office supplies $7,500Cr. Accounts payable $7,50040.Dr. Material $7,500Cr. Accounts payable $7,50041.Dr. Material expense $6,000Cr. Material $6,00042.Dr. Wages expense $56,000Cr. Cash $56,00043.Dr. Utilities expense $32,000Cr. Cash $32,00044.April 1 Dr. Prepaid insurance $1,200Cr. Cash $1,200 Dec 31 Dr. Insurance expense $900Cr. Prepaid insurance $900 45.Dr. Accounts receivable $95,000Cr. Sales revenue $95,000 46.Dr. Amortization expense $1,500Cr. Accumulated amortization $1,500 47.Dr. Dividend $3,000Cr. Dividend payable $3,00048.Dr. Accounts payable $54,000Cr. Cash $54,000 49.Dr. Accounts receivable $19,000Dr. Cash $28,500Cr. Sales revenue $47,500 Dr. Cost of goods sold $24,300Cr. Inventory $24,300 50.Dr. Wages expense $400Cr. Wages payable $400[Practice 2] The following information was available on December 31, 2008, the end of ABC Company’s annual accounting period. For each of the items below, make all necessary journal entries AND adjusting entries.1.During the year, the company agreed to provide certain consulting services to a client fora fee of $10,000, which was received in advance on Jan 1, 2008. At the end of the year, itwas estimated that 80% of the services has been provided.Jan 1: Dr. Cash $10,000Cr. Unearned revenue $10,000Dec 31: Dr. Unearned revenue $8,000Cr. Sales revenue $8,0002.The office supplies account had a balance of $250 at the beginning of the year andadditional supplies costing $950 were purchased on June 30th. At the end of the year, an inventory count of the office supplies indicated that supplies costing $350 were still on hand.June 30: Dr. Office supplies $950Cr. Cash $950Dec 31: Dr. Supplies expense $850Cr. Office supplies $8503. A new “business occupancy” tax was introduced by the municipal government in 2008,and the company was required to pay $1,200 on March 31st to cover the period from April 1, 2008 to March 31, 2009. The accountant needs to make an adjusting entry at the end of 2008.Mar 31: Dr. Prepaid tax expense $1,200Cr. Cash $1,200Dec 31: Dr. Business occupancy tax expense $900Cr. Prepaid tax expense $9004.The company rents some surplus space on its building on a tenant for $1,500 per quarter,payable in advance. The agreement began on August 1, 2008, and the tenant paid $1,500 on that date and an additional $1,500 on November 1.Aug 1: Dr. Cash 1,500Cr. Unearned rental 1,500Oct 31: Dr. Unearned rental 1,500Cr. Rental revenue 1,500Nov 1: Dr. Cash 1,500Cr. Unearned rental 1,5005.Another tenant rents space in the company’s building for $600 per month, due on the firstday of each month. The agreement began two years ago (on Jan 1, 2007) and the tenant has paid the rent as scheduled every month, except for the most recent one. At the year end, the rent for December 2008 was still outstanding.Dec 31: Dr. Rent receivable $600Cr. Rent revenue $6006.During the year, the company engaged an advertising agency and paid $2,000 for itsservices. In addition to this, there were unpaid advertising bills at year end totaling $400;these are due in January 2009.Dec 31: Dr. Advertising expense $2,000Cr. Cash $2,000Dr. Advertising Expense $400Cr. Accounts payable $400[Practice 3] The following information allows you to make adjustments that should be made for ABC company at December 31, 2010. Please record all NECESSARY journal entries and adjusting entries.1.On February 1, 2010, the company purchased a three-year fire insurance policy for $3,600. Feb 1: Dr. Prepaid insurance $3,600Cr. Cash $3,600Dec 31: Dr. Insurance expense $1,100Cr. Prepaid insurance $1,1002.On April 1, 2010, the company paid $2,400 to the local newspaper for advertising space.The newspaper agreed to publish ads each month for one year, beginning in April 2010. April 1: Dr. Prepaid advertising expense $2,400Cr. Cash $2,400Dec 31: Dr. Advertising expense $1,800Cr. Prepaid advertising expense $1,8003.On June 1, 2010, the company received $12,000 in advance for a special order which wasto be delivered in 2 equal but separate shipments one prior to the end of the current year and the other one to be delivered early in the next year.June 1: Dr. Cash $12,000Cr. Unearned revenue $12,000Dec 31: Dr. Unearned revenue $6,000Cr. Sales revenue $6,0004.On August 1, 2010, the company borrowed $10,000 from a bank and signed a one-year,12% note. No interest has been paid or recorded yet.Aug 1: Dr. Cash $10,000Cr. Bank loan $10,000Dec 31: Dr. Interest expense $500Cr. Interest payable $500 (10,000 X 12% X 5/12)5.On October 1, 2010, the company received $6,000 of rent in advance for one year, forstorage space that it leases to another company. Rental starts from Nov 1, 2010.Oct 1: Dr. Cash $6,000Cr. Unearned rental revenue $6,000Dec 31: Dr. Unearned rental revenue $1,000Cr. Rental revenue $1,0006.As of December 31, 2010, employees have earned wages of $775 that the company has notyet paid or recorded.Dec 31: Dr. Wages expense $775Cr. Wages payable $7757.As of December 31, 2010, additional revenue was earned, but not yet collected or recordedtotaling $1,300.Dec 31: Dr. Accounts receivable $1,300Cr. Sales revenue $1,300[Practice 4] Far Reaches Travels Ltd. is a travel agency that arranges group and private tours to faraway places like Tahiti, Tibet, Nepal, Burma and Thailand. The following information was obtained prior to completing the company’s financial statements for the year e nded December 31, 2006. For each of the above transactions, prepare the necessary journal entries and adjusting entries.1.The company had some excess space that it rented to a flower shop. The flower shop paid$12,000 on November 1, 2006 representing six months rent in advance. Rental service starts on Dec 1, 2006.2.On Jan 1, the company paid $17,100 to an advertising firm to provide marketing services ontwo separate contracts. One contract cost $6,900 for a 12-month advertising program commencing on May 1, 2006. The second contract was $10,200 for a 24-month advertising program commencing on September 1, 2006.3.The company received $25,850 from customers for tours that were either completed in the fallof 2006 or would be completed in 2007. The entire $25,850 was received on March 3rd, 2006.Three tours for which $12,250 in fees were charged to customers would be completed in 2007.(1) Nov. 1 Dr. Cash 12,000Cr. Unearned rent revenue 12,000 Dec 31 Dr. Unearned rent revenue 2,000Cr. Rental revenue 2,000(2) Jan 1. Dr. Prepaid advertising expense 17,100Cr. Cash 17,100 Dec 31. Dr. Advertising expense $6,300 ($575X8months +$425*4months)Cr. Prepaid advertising expense $6,300(3) March 3. Dr. Cash $25,850Cr. Unearned tour revenue $25,850Dec 31. Dr. Unearned tour revenue $13,600 (25,850 – 12,250)Cr. Tour revenue $13,600[Practice 5] Weisse Bros Co. operates a paper mill in near Halifax. The company’s year-end is December 31, 2006. Assume that the financial statements were correctly prepared in prior years. For each of the following items identify whether the item requires an adjustment at year-end. If an adjusting entry is required, prepare the entry. If no adjusting entry is required, explain why. (a). Prepaid insurance at the beginning of the year was $145,000 and covered the period to April 30, 2006. The insurance policy for the current year runs May 1, 2006 – April 30, 2007 and totaled $600,000. The current balance in the prepaid insurance account is $745,000.Yes, Adj Entry required: 145,000 + 600000*8/12 =545,000Dr Insurance expense 545,000Cr Prepaid Insurance 545,000(b). The paper-milling machine was bought 5 years ago at a cost of $800,000 and has a useful life of 10 years. And a salvage value (residual value) of $100,000.Yes, Adj Entry required: (800,000-100,000)/10 = 70,000Dr Amortization Expense 70,000Cr Accum amortization 70,000(c). On December 28, 2006, the company signed a lease agreeing to lease some office space in downtown Halifax for $2,450 per month starting next Feb 1, 2007.No entry required. No transaction has occurred as the lease commences next Feb.(d). Employee wages were paid to December 15, 2006. Wages earned for Dec 16-31, 2006 totaled $137,000 and will be paid on January 3, 2007.Yes, Adj Entry required:Dr Wages expense 137,000Cr wages payable 137,000[Practice 6] Renew Computer Corporation is a public company founded in January 2000. The company sells refurbished laptops.The unadjusted trial balance follows as of December 31, 2007. The books are closed annually on December 31.Renew Computer CorporationUnadjusted Trial BalanceDecember 31, 2007Dr. Cr.Accounts Payable 220,000Accounts Receivable 170,000Accumulated Amortization - Buildings 154,000Accumulated Amortization - Printing equipment 68,600Allowance for Doubtful Accounts 10,200Amortization Expense 29,150Bad debt Expense 5,350Building 550,000Cash 500,000Common Shares 350,000Income Tax Expense 101,333Salary Expense 8,100Interest Payable 15,000Notes Payable 38,000Prepaid expense 9,000Printing Equipment 98,000Interest Expense 12,800Retained Earnings 15,700Cost of Goods Sold 214,000Salaries Payable 190,000Sales Revenue 529,333Supplies 6,500Supplies Expense 6,600Unearned Service Revenue 120,0001,710,833 1,710,833The company is using straight-line method amortization method for both building and printing equipment, and the adjusting amortization entries are made at the end of each month. The managers determined that the useful economic life to be 25 years for the building and 10 years for the printing equipment. No salvage values are estimated for the building and the printing equipment. Required:(a)Prepare the adjusting journal entries to account for amortization expenses for Building andPrinting Equipment on December 31, 2007. Please complete the following work sheet (partial). Record the amortization expenses into one account called Amortization expense.(b)Using your adjusted trial balance, prepare a multi-step format income statement for yearended December 31, 2007. Assume that the firm has 100,000 common shares outstanding.The income tax expense is now $88,613 after adjusting amortization expenses.Renew Computer CorporationIncome StatementFor the year ended at December 31, 2007Sales Revenue 529,333Cost of goods sold 214,000Gross Profit 315,333Operating ExpensesSalaries Expense 8,100Bad debt Expense 5,350Amortization Expense 31,800Supplies Expense 6,600Operating Income 263,483Interest Expense 12,800Income before tax 250,703Income tax Expense 88,613Net income $162,070(c)Prepare closing entries.Dr. Retained Earnings $367,223Cr. Salaries Expense 8,100Cr. Bad debt Expense 5,350Cr. Amortization Expense 31,800Cr. Supplies Expense 6,600Cr. Interest Expense 12,800Cr. Income tax Expense 88,613Cr. Cost of goods sold 214,000Dr. Sales Revenue 529,333Cr. Retained earnings 529,333[Practice 7] Prepare any necessary adjusting journal entries on December 31, 2010 for each of items (1) through (e).(a). Donald company purchased inventory on August 1,2010. Payment was made with a note payable with a face value of $100,000. Interest on the note is payable every July 31st at an annual rate of 10%. No journal entries have been made with respect to this note since August 1,2010. Solution: dr. interest expense $4,167 [100,000 x 10% x 5/12]Cr. Interest payable 4,167(b). Sax Ltd started 2010 with $14,000 reported as supplies inventory and no adjustments were made to the account during the year. During the year, $98,000 worth of supplies was purchased by Sax and recorded as supplies expense. A count of the supplies at year-end showed that $6,000 worth of supplies inventory remained on hand.Solution: dr. Supplies expense 8,000Cr. Supplies inventory 8,000(c). As of the end of 2010, Finley Fun Corp owned $165,000 to its employees for work performed during December. Payment will not be made to employees until Jan 5th, 2011.Solution: Dr. wages expense 165,000Cr. Wages payable 165,000(d). On September 30,2010, Cross Ltd received advance rent payments from a customer which totalled $30,000. The payment represented the customer’s next 4 months’ rent (Oct 2010 to Jan 2011). On September 30th, Cross Ltd recorded the entire $30,000 as rent revenue.Solution: Dr. Rent revenue 7,500Cr. Unearned rent 7,500(e). Stamp Ltd had an opening balance in the allowance for doubtful account of $17,000. An analysis at the end of the year showed that an allowance of $30,000 was needed.Solution: Dr. Bad debt expense 13,000Cr. Allowance for doubtful account 13,000[Practice 8] The accountant for Tom’s Landscaping Inc. obtained the following information about each of the following material transactions prior to completing the financial statements for the year ended December 31, 2006.1.On January 1, 2006, the company’s inventory account had a balance of $12,500. During theyear, purchases totaling $68,500 were debited to the purchases account. On December 31, 2006, it was determined that inventory of $24,000 was on hand.2.On January 1, 2006, the company’s prepaid rent account had a balance of $12,000 representingtwo years rent for its office. On November 1, 2006, the company paid $8,100 for 18 months rent on a storage shed and debited rent expense.3.On January 1, 2006, the allowance for doubtful accounts had a credit balance of $20,000. Basedon an estimate that 5% of sales or $5,125 was uncollectible, the company debited bad debts expense and credited the allowance for doubtful accounts. At year-end, it was determined that 8% of accounts receivable were actually uncollectible. At that time, accounts receivable totaled $82,500.REQUIRED:For each of the above transactions, prepare the necessary year-end adjusting entry.(1) Dr. Inventory 11,500Dr. Cost of goods sold 57,000Cr. Purchases 68,500(2) Dr. Rent expense ($500 x 12) 6,000Cr. Prepaid rent 6,000 Dr. Prepaid rent ($450 x 16) 7,200Cr. Rent expense 7,200(3) D r. Allowance for doubtful accounts 18,525Cr. Bad debts expense 18,525[$82,500 x 8% = $6,600; $20,000 + $5,125 - $6,600 = $18,525][Practice 9] Prepare adjusting entries dated December 31, 2010, based on the following data.a. A two-year insurance policy costing $6,000 was purchased on October 31, 2010.b.Salaries owed to employees on December 31, 2010, amount to $4,600.c.The opening balance in Supplies was $2,800 on Jan 1, 2010. During 2010, $600 supplieswas purchased. A physical count reveals $900 of supplies on hand on December 31, 2010.d.Amortization on office equipment for the year is $1,869.[Practice 10]List the assumption, principle, concept, or convention that best supports each of the following statements. List one only. NO EXPLANATION IS NEEDED OR WILL BE MARKED. If more than one is provided, only the first one will be marked.(a)A company should always report the important details about the accounting principles thatare used.Solution: Representational faithfulness (complete)(b)When a company prepares financial statements according to GAAP, it ignores the effects ofinflation.Solution: stable currency(c)The amounts reported in financial statements should not ordinarily reflect a liquidation of thebusiness.Solution: going-concern (continuity)(d)A company ordinarily does not allocate the cost of pencil sharpeners over the periodsbenefiting from their use.Solution: materiality(e)Legal fees received in advance by a lawyer are considered liabilities by the law firm untilservices are performed.Solution: representational faithfulness[Practice 10] The unadjusted trial balance for Water & Malt Inc. appears below as of December 31, 2010.Water & Malt Inc.Unadjusted Trial BalanceDecember 31, 2010Debit CreditCash $35,300Accounts receivable 16,000Prepaid insurance 5,000Supplies 1,500Equipment 20,000Accumulated depreciation-equipment $3,200Accounts payable 11,000Unearned service revenue 9,800Common shares 27,000Retained earnings 17,000Dividends 1,000Service revenue 24,600Salary expense 8,200Utilities expense 800Rent expense 3,600Advertising expense 1,200 ________$92,600 $92,600Additional data is as follows:∙Supplies used during the current year amount to $700.∙Accrued salaries on December 31, 2010, amount to $500.∙Unearned service revenue earned during the year amounts to $3,500.∙Depreciation for the current year amounts to $2,000.∙Prepaid insurance on hand on December 31, 2010, amounts to $800.Based on the unadjusted trial balance and the additional data, prepare a balance sheet for Water & Malt Inc. dated December 31, 2010.Solution: Water & Malt Inc.Balance SheetDecember 31, 2010Assets LiabilitiesCash $35,300 Accounts payable $11,000Accounts receivable 16,000 Salary payable 500Prepaid insurance 800 Unearned serviceSupplies 800 revenue 6,300Equipment $20,000 Total liabilities 17,800Less: Accumulated Shareholders' Equitydepreciation 5,200 14,800 Common shares 27,000Retained earnings 22,900Total S/H equity 49,900Total liabilities andTotal assets $67,700 S/H equity $67,700[Practice 11] Given the adjusted trial balance for Destiny Inc. below as of December 31, 2010 prepare the income statement and statement of retained earnings for the year ended December 31, 2010.Destiny Inc.Adjusted Trial BalanceDecember 31, 2010Debit CreditCash $62,500Accounts receivable 40,200Supplies 550Prepaid insurance 820Equipment 36,000Accumulated depreciation-equipment $8,800Accounts payable 6,500Unearned service revenue 15,700Salary payable 42,650Common shares 23,295Retained earnings 10,000Dividends 8,000Service revenue 82,200Salary expense 32,850Supplies expense 3,200Insurance expense 800Depreciation expense-equipment 925Utilities expense 3,300 ________$189,145 $189,145Answer: Destiny Inc.Income StatementFor the Year Ended December 31, 2010Service revenue $82,200Expenses:Salary expense $32,850Supplies expense 3,200Insurance expense 800Depn. expense-equipment 925Utilities expense 3,300 41,075Net income $41,125Destiny Inc.Statement of Retained EarningsFor the Year Ended December 31, 2010Retained earnings, January 1, 2007 $10,000Add: Net income 41,12551,125Less: Dividends (8,000)Retained earnings, December 31, 2007 $43,125[Practice 12] The unadjusted trial balance for Peanut Butter & Jam Inc. appears below as of December 31, 2010.Peanut Butter & Jam Inc.Unadjusted Trial BalanceDecember 31, 2010Debit CreditCash $55,500Accounts receivable 6,000Prepaid insurance 15,000Supplies 3,000Equipment 40,000Accumulated depreciation-equipment $4,000Accounts payable 21,000Unearned service revenue 10,500Common shares 48,250Retained earnings 12,000Dividends 5,000Service revenue 44,600Salary expense 7,200Utilities expense 1,200Rent expense 5,250Advertising expense 2,200 ________$140,350 $140,350Additional data is as follows:∙Unearned service revenue earned during the year amounts to $8,500.∙Depreciation for the current year amounts to $4,000.∙Prepaid insurance consists of a policy purchased on January 1, 2010 for a 15 months coverage.∙ Supplies used during the current year amount to $1,500.∙Accrued salaries on December 31, 2010, amount to $2,500.Based on the unadjusted trial balance and the additional data, prepare a balance sheet for Peanut Butter & Jam Inc. dated December 31, 2010.Answer: Water & Malt Inc.Balance SheetDecember 31, 2010Assets LiabilitiesCash $55,500 Accounts payable $21,000Accounts receivable 6,000 Salary payable 2,500Prepaid insurance 3,000 Unearned serviceSupplies 1,500 revenue 2,000Equipment $40,000 Total liabilities 25,500 Less: Accumulated Shareholders' Equitydepreciation 8,000 32,000 Common shares 48,250Retained earnings 24,250Total S/H equity 72,500Total liabilities andTotal assets $98,000 S/H equity $98,000Net Income $17,250 = 44,600+8,500-4,000-12,000-1500-2500-7,200-1,200-5,250-2,200 Retained Earnings $24,250 =12,000+17,250-5,000。