Review 4.

2 Offenbach Company

Topic: Accounting for adjusting entries

Level of difficulty: Moderate

The Offenbach Company prepares its financial statements for the year ending on 31
December X1.

Required

The table below lists events or transactions that took place during the year X1. Indicate
by a checkmark to which category of adjusting entries each event is related.

Assignment 4.6 Poulenc Company

Topic: Adjusting entries

Level of difficulty: Moderate

Poulenc & Associates, a consulting firm, was incorporated on 1 June X1. On 30 June,
the trial balance shows the following balances for selected accounts:

Note payable (balance sheet) 20,000 Prepaid insurance (balance sheet) 3,600
Unearned fees (balance sheet) 1,200 Fees earned (income statement) 1,800

Analysis reveals the following additional data relating to these accounts (no adjusting
entry has been recorded):

1 A customer paid in June 1,200 CU towards a yearly subscription to a service that

Poulenc started providing in June.

2 Prepaid insurance is the cost of a nine-month insurance policy, effective as of 1 June.

3 The note payable is dated 1 June. It is a 12-month, 10 percent note.

4 Services rendered to customers but not yet billed as at 30 June totaled 1,500 CU.

Required

Show the impact on the balance sheet and the income statement for Poulenc Company
as of 30 June, for each of the above transactions.

Assignment 4.7 Debussy Company

Topic: End-of-period entries and preparation of financial statements

Level of difficulty: High

Debussy Company has prepared a set of financial statements: balance sheet, income
statement and statement of retained earnings (see Exhibit 1). The accounting period X1
ends on 30 September X1. Due to the illness of the company's accountant, none of the
end-of-period entries have been recorded.

Required

1 Show the impact on the financial statements of the end-of-period transactions or

events which are described in Exhibit 2.

2 Update the financial statements in Exhibit 1 taking into account these transactions and
events.

Exhibit 1 Preliminary financial statements (000 CU)

 Statement of retained earnings
Retained earnings, 1 October X0 1,500
Net income for X1 1,538
Total 3,038
Cash dividends declared 0
Retained earnings, 30 September X1 3,038

Exhibit 2 End-of-Period Entries (all Amounts in 000 CU)

1 Depreciation expense on the building is 80 CU for X1.

2 Part of the building owned by the company has been rented to other companies with
occupancy starting on 1 September X1. The amount invoiced to the tenants (60 CU in
total) was paid in advance for three months and collected in cash. It has been recorded
in the item ‘Unearned rent revenue’ at the time the payment was received.

3 Salaries are paid on a weekly basis. The amount corresponding to the last week of
September (25 CU) will be paid at the beginning of October.

4 Interest on the note receivable has accrued for one month. It will be collected when
the note is due at the end of December. The rate is 6 percent per annum.

5 Income tax at the rate of 30 percent applies to X1. The tax owed will be paid in the
following accounting period.

6 An exceptional shareholders meeting held in September X1 decided on a cash

dividends distribution of 800 CU (out of the retained earnings). The dividend will be
paid out in October X1.

Weber Company
Topic: Link between balance sheet, income statement and statement of cash flows

The Weber Company manufactures and sells household equipment on a national

market. The balance sheet at 31 December X1 is presented below.

Balance sheet at 31 December X1 (in thousands of Currency Units)

ASSETS LIABILITIES AND

SHAREHOLDERS EQUITY
Fixed assets Shareholders’ equity

Manufacturing Equipment 900 Capital 600

Reserves 300
 Current assets Net Income for X11 240
1,140
Inventories Liabilities

• Raw materials 90 Financial debt

• Finished products 140 150
Accounts payable2
Accounts receivable3 150 130
Income tax payable4
Cash at Bank 300 160

Total 1,580 Total 1,580

The following budgets are given (in thousands of Currency Units):

1 - Sales budget: 1,400 CU (1,200 CU will be received from customers during the year).

2 - Purchases budget (raw materials): 500 CU (460 CU will be paid to suppliers during
the year)

3 - Finance budget: repayment of financial debt for 70 CU. New debt received: 50 CU.
Interest has been paid for 20 CU

4 - Salaries and social charges budget: 350 CU (paid during the year).

5 - Renting expenses budget: 230 CU (paid during the year)

6 - Various taxes budget: 90 CU (paid during the year)

7 - Investment budget: acquisition of fixed assets for 300 CU (paid during the year).

8 - Depreciation budget (including the depreciation of fixed assets acquired during the
year): 30 CU.

9 - Increase of capital in cash: 150 CU (received during the year).

10 - Inventories budget:
- raw materials ending inventory: 100 CU.
- finished products ending inventory: 120 CU

The income tax rate is 40%. The income tax expense will be paid during the following
year.

Required

Prepare the following pro forma documents for the year X2: cash flow budget, income
statement and balance sheet.

1
To be appropriated in X2: 25% will be distributed.
2
To be paid in X2.
3
To be received in X2.
4
To be paid in X2.
Review 2.3 Albinoni Company

Topic: Transactions and the business equation

Level of difficulty: Low

Albinoni Company is a retailer. During one accounting period, it carried out the
following transactions (all expressed in CU, except where clearly marked):

1 Creation of the business and provision by shareholders of a piece of equipment for the
amount of 80, and of cash for 30 CU.

2 A loan was received from the banker: 200 CU.

3 Miscellaneous business taxes: 40 (paid cash during the period).

4 Purchase of merchandise for resale: 50 (on account).

5 Legal fees: ten (cash outflow during the period).

6 Personnel expenses for the period: salaries and social charges: 30 (paid cash during
the period).

7 Sale of merchandise to customers: 80 (on account) and 20 (cash sales). The

merchandise that was sold had been purchased for 40 CU.

8 Payment to the merchandise suppliers: 30 CU.

9 Cash received from customers: 70 CU.

10 The assets brought as a capital contribution when the business was created are
expected to have a useful life of four years. The loss of value of the asset is expected to
be the same each year for four years.

11 The value of the merchandise on hand at the end of the year (ending inventory) is ten
CU.

Required

Show the impact of each event on the balance sheet equation. You have the following
choice:

1 To record the purchases of merchandise as inventory (‘perpetual inventory system’) or

2 To record theses purchases as expenses (‘periodic inventory system'). Please mention

clearly your choice.

Use the format presented in Appendix 1.

Assignment 3.6 Sibelius Company

Topic: The beginning of the accounting process: the journal

Level of difficulty: Low

The Sibelius Company was incorporated on 1 March X1. It carries a commercial

activity. The following transactions were undertaken during the first month of operation
of Sibelius Co.

1 March Sibelius company was incorporated with a share capital of 600 CU. A bank
1 account was opened with Commercial Credit Bank.
2 March Purchased merchandise on credit: 350 CU.
6
3 March Paid telephone expense for the month of March: 50 CU.
12
4 March Sold merchandise for 500 CU (260 CU cash and 240 CU on credit). (The
20 purchase price of the merchandise sold was 300 CU).
5 March Paid fully the supplier of merchandise (see transaction 2).
29
6 March Organized a physical inventory and computed an ending inventory of 50
30 CU.

Required

Prepare the journal entries for the month of March X1.

Note that:

 The company wants to compute the income that reflects the economic situation
at 31 March. Consequently, the ending inventory must appear in the records of
the company.
 In order to record purchases, sales and inventory, you can choose to record the
purchases of merchandise either through the inventory (a balance sheet account
and merchandise sold is valued as COGS) or directly as a purchase (an income
statement account modified by the change in inventory to get the value of
merchandise sold). You must indicate your choice of method in handling
purchases clearly at the top of your journal (see appendix).
 A partial excerpt from the chart of accounts of Sibelius Company is given below
(note that the authorized accounts are provided in alphabetical order without
reference to their expected ending balance):

Accounts payable

Accounts receivable

Capital
Cash in bank

Change in inventories (if purchases recorded in the income statement)

Cost of goods sold or COGS (if purchases recorded in the balance sheet)

Inventories

Purchases of merchandise (if purchases recorded in the income statement)

Sales of merchandise

Telephone expenses

Appendix

Recording of purchases, sales and inventory.

Indicate the system chosen: