This quiz consists of 3 essay questions and 1 problem. All parts must be completed.
Question #1
Identify four kinds of external users and describe how they use accounting information.
Question #2
Describe the link between a business's income statement, statement of retained earnings, and the balance sheet. Your answer should include a description of the order in which the statements are prepared, and an explanation of any numerical links, i.e., values sourced from one statement to complete another statement.
Question #3
A. Two primary characteristics of accounting information are relevance and reliability. Explain these characteristics.
B. Explain materiality. Does it relate only to the relative size of dollar amounts?
Problem #1
Assume no other transactions or activities have taken place during the period except as noted. Prepare and present calculations for partial credit, i.e., show all work!!
During May, the following transactions were completed by JeTT Inc., a new business started on May 1, 2015.
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May
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1 Sold 20,000 shares of $10 par value stock for $200,000 cash.
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1
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Purchased equipment for $36,000, paying $6,000 cash, charging the balance on account.
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3
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Purchased office supplies for $5,000 on account.
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5
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Paid $3,600 cash for 1-year insurance policy effective May 1. Use the account Prepaid Insurance to record this asset.
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12
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Billed customers $8,000 for professional services.
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18
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Paid $12,000 cash on amount owed on equipment and $3,000 on amount owed on office supplies.
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20
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Paid $7,000 cash for employee salaries.
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21
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Collected $4,000 cash from customers billed on May 12.
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25
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Billed customers $10,000 for professional services.
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31
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Paid $1,200 for the monthly utilities for the office.
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31
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Paid cash dividend of $.80 per share to shareholders
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Warning
1. Journalize the Transactions, omitting explanations
2. Create T Accounts on scrap paper you will not submit, to accumulate information for the remaining requirements of this problem
The following additional information is provided for your use before preparing the income statement:
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Unbilled and uncollected revenue for services performed as of May 31 is $12,000.
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Depreciation on equipment for the month was $600.
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An inventory count shows $1,000 of office supplies on hand at May 31.
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Accrued but unpaid employee salaries were $4,000 (the salaries have not yet been recorded).
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3. Prepare any necessary journal entries to record the above adjustments
4. Prepare any additional journal entries to properly record expenses, assuring the balance sheet accounts will be properly presented.
5. Prepare the appropriate closing entries for the month of May, 2015.
6. Update your T Accounts on the paper you will not submit
7. Prepare the Income Statement, for the month ending May 31, 2015.
8. Prepare the Statement of Retained Earnings for the month ending May 31, 2015
9. Prepare the Classified Balance Sheet for May 31, 2015.