ANSWERS TO SAMPLE TEST #4

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1 ANSWERS TO SAMPLE TEST #4 PART A: 1 F 21 C 41 B 2 T 22 D 42 A 3 T 23 D 43 A 4 F 24 A 44 C 5 T 25 B 45 B 6 F 26 A 46 D 7 F 27 C 47 C 8 T 28 B 48 A 9 T 29 B 49 C 10 F 30 C 50 A 11 T 31 A 12 F 32 D 13 F 33 A 14 T 34 C 15 T 35 B 16 F 36 C 17 T 37 A 18 F 38 C 19 T 39 D 20 T 40 D

2 PART B: PROBLEMS (various points - see below - total of 50 pts): 1. During one week, three employees of the Snowshoe Lodge worked the number of hours shown below. All these employees receive overtime for any hours worked beyond 40 in a week. Compute regular earnings, overtime earnings, and gross pay for each employee (10 points). Employee Name Regular Hourly Rate Hours Worked Regular Earnings Overtime Earnings Gross Pay Janet Jones $ $ $ $ Miguel Rodriguez $ $ $72.00 $ Melanie Young $ $ $63.75 $ The monthly salaries for December and the year-to-date earnings as of November 30 for the three employees of the Lakeview Medical Center are listed below. Compute the amount of social security tax and Medicare tax to be withheld from each employee's gross pay for December (10 points). Employee Name December Gross Pay Cumulative Earnings through Nov. 30 Social Security Tax for Dec.* Medicare Tax for Dec. Vince Kim $5,500 $90,500 0 $79.75 Adriana Greitas 7,000 87,600 $ $ Andy Smitsky 6,500 85,500 $ $94.25 At the time the test was given, the cap for Social Security was at $90,000

3 3. The Rollins Company has two office employees and two shipping employees. A summary of their earnings and deductions for the week ended June 14, 2004, is shown below. On page 6 of a general journal (use the form below), record the June 14 payroll and the entry on June 16 to issue the paychecks (10 pts). Earnings and Deductions Office Employees Shipping Employees Gross Earnings $1, $ Social Security Tax Medicare Tax Income Tax Health Insurance Net Pay for Week $ $ GENERAL JOURNAL Page 6 DATE DESCRIPTION POST. REF. DEBIT CREDIT Jun 14 Office Salary Expense Shipping Wages Expense Social Security Tax Payable Medicare tax Payable Income Tax Payable Health Insurance Premium Payable Salaries and Wages Payable To record payroll for week ended Jun Salaries and Wages Payable Cash To record the issue of paychecks

4 4. On July 31, 2004, after one month of operation, the general ledger of Dakota Consulting contained the following accounts and balances. The firm adjusts losses from uncollectible accounts only at the end of the fiscal year. Monthly adjustments are listed below. Journalize the following adjustments (a-e). ACCOUNT BALANCE ACCOUNT BALANCE Cash $13,425 Dr Interest Payable -- Accounts Receivable 9,500 Dr. Salaries Payable $600 Cr. Allowance for Doubtful Accts 125 Cr. Key Dakota, Capital 22,800 Cr. Supplies 650 Dr. Key Dakota, Drawing 2,600 Dr. Prepaid Insurance 3,000 Dr. Fees Incomes 16,500 Cr. Office Equipment 14,500 Dr. Salaries Expense 11,050 Dr. Accum Depr - Office Equipment -- Supplies Expense -- Notes Payable 14,000 Cr. Insurance Expense -- Accounts Payable 700 Cr. Depr Exp - Office Equipment -- Interest Expense -- Adjustments (mark both a debit and a credit with the corresponding letter): (a) On July 31, an inventory of the supplies showed that items costing $250 were on hand. (b) On July 31, one month of a 3-month prepaid insurance expired. (c) On July 1, the firm issued a 3-month, 9 percent note for $4,000. (d) On July 1, the firm purchased office equipment for $14,500. The office equipment is expected to have a useful life of 5 years and a salvage value of $1,000. (e) On July 31, accrued salaries to part-time employees were $2,000. The salaries will not be paid until August 2. ANSWERS: 7/31 Supplies Expense Dr 400 Supplies Cr 400 7/31 Insurance Expense Dr 1000 Ppd Insurance Cr /31 Interest Expense Dr 30 Interest Payable Cr 30 7/31 Depr Exp Office Equipment Dr 225 Accumulated Depreciation Office Eq Cr 225 7/31 Salaries Expense Dr 2000 Salaries Payable Cr 2000

5 5. Calculate the cost of goods section of the income statement (for the period of the year ended December 31, 2005), using those of the following account balances, which are required (10 pts): Cash $10,180 Accounts Receivable 26,420 Merchandise Inventory, January 1, ,160 Merchandise Inventory, December 31, ,300 Equipment 38,000 Accounts Payable 41,200 Mortgage Payable 9,000 Purchases 81,300 Freight In 600 Purchase Returns and Allowances 2,900 Purchase Discounts 1,510 Sales 141,800 COST OF GOODS SOLD: Beginning Inventory, January 1, ,160 Net Delivered Cost of Purchases Purchases 81,300 Plus Freight In +600 Delivered Cost of Purchases 81,900 Less Purchase R&A 2,900 Purchases Discounts 1,510-4,410 Net Delivered Cost of Purchases +77,490 Total Merchandise Available for Sale Less Ending Inventory, December 31, ,300 Cost of Goods Sold 75,350

6 6. The following accounts appear on the worksheet of East Bay Pet Clinic. Indicate the section of the classified income statement or classified balance sheet in which each account will be reported (10 points). Sections of Classified Income Statement or Balance Sheet: A. Operating Revenue B. Cost of Goods Sold C. Operating Expenses D. Other Income E. Other Expenses F. Current Assets G. Plant and Equipment (Fixed Assets) H. Current Liabilities I. Long-Term Liabilities J. Owner s Equity Letter(s) Accounts: A 1. Sales Returns and Allowances F 2. Office Supplies J 3. Olga Ramirez, Capital B 4. Purchase Discounts H 5. Medicare Tax Payable G 6. Truck A 7. Sales Discounts G 8. Accumulated Depreciation Medical Equipment C 9. Salaries Expense F & B 10. Merchandise Inventory F 11. Prepaid Advertising D 12. Rent Income I 13. Notes Payable (on 2- and 3-year notes) F 14. Accounts Receivable C 15. Depreciation Expense Medical Equipment B 16. Purchases G 17. Building E 18. Interest Expense C 19. Truck Expense F 20. Petty Cash Fund

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