The Financial Reporting Process- Assignment 2
Q1. Consider the following set of transactions occurring during the month of May for Knapp
consulting company. For each transaction indicate the impact on 1) the balance of cash 2) Cash basis
net income and 3) Accrual basis net income for May. [First is an example provided to you]
Particulars Cash Balance Cash basis Net Accrual basis net
Income Income
a) Receive Rs. 1,500 +1,500 +1,500 0
from customers
who were billed for
services in April.
b) Provide Rs. 3,200 0 0 3200
of consulting
services to a local
business. Payment
is not expected
until June.
c) Purchase office 0 0 3600
supplies for Rs. 400
on credit. All
supplies are used
by the end of May.
d) Pay Rs. 600 to -400 -400 3600
workers Rs. 400 is
for work in May
and Rs. 200 is for
work in April.
e) Pay Rs. 200 to -200 -200 3600
advertise in a local
newspaper in May.
Q2. United Hotels purchases 1 year of fire Insurance coverage on December 1 for Rs. 24,000 (2,000
per month), debiting prepaid Insurance.
On 31st December United Hotels would record the following adjusting entry.
a) Insurance expense Dr. 24,000
To Prepaid Insurance 24,000
b) Insurance Expense Dr. 2,000
To Prepaid Insurance 2,000
c) Insurance Expense Dr. 22,000
To Prepaid Insurance 22,000
d) No entry is required on Dec 31st, because full cash payment was made on December 1 and
the insurance does not expire until the following November 30th.
Q3. Fill in the blanks, associated with each adjusting entry:
a) Accrued Expense: Debit: Salaries; Credit: Salaries Payable
b) Accrued Revenue: Debit Accounts receivable; Credit: Revenue
Q4. For each of the following account, indicate whether the account is shown in the income
statement or the balance sheet
Accounts Financial Statements
a) Accounts Receivable Balance Sheet
b) Unearned Revenue Balance Sheet
c) Supplies expenses Income Statement
d) Salaries Payable Balance Sheet
e) Depreciation expenses Income Statement
f) Service Revenue Income Statement
Q5. Following account balances appear in the 2020 adjusted trial balance of Bajaj Corporation:
Cash: Rs. 4,000; Accounts Receivable: Rs. 8,000; Inventory: Rs. 18,000, Equipment: Rs. 110,000
Accumulated depreciation: Rs. 40,000; Accounts payable: Rs. 25,000, Salaries Payable: Rs.
15,000; Common stock: Rs. 50,000 and Retained Earnings: ???
Prepare the December 31st, 2020, classified balance sheet including the correct balance of
retained earnings.
Answer-
Balance Sheet
Assets Amount Amount
Cash Rs. 4,000
Accounts Receivable Rs. 8,000
Inventory Rs. 18,000
Equipment Rs. 1,10,000
Total Assets Rs. 1,40,000
Liabilities
Accumulated Depreciation Rs. 40,000
Accounts Payable Rs. 25,000
Salaries Payable Rs. 15,000
Total Liabilities Rs. 80,000
Owner’s Equity
Common Stock Rs. 50,000
Retained Earnings* Rs. 10,000
Total Equity Rs. 60,000
*Note:
Retained Assets = Assets - Liabilities – Common Stock
= Rs. 1,40,000 - Rs. 80,000 – Rs. 50,000
= Rs 10,000
Q6. The 31st December, 2019, adjusted Trial balance for C Corporation is presented below:
Account Title Debit Credit
Cash 11,000
Accounts Receivable 140,000
Prepaid Rent 5,000
Office supplies 25,000
Equipment 3,00,000
Accumulated Depreciation 125,000
Accounts payable 11,000
Salaries Payable 10,000
Interest Payable 4,000
Notes payable (due in 2 years) 30,000
Common stock 2,00,000
Retained Earnings 50,000
Service revenue 4,00,000
Salaries expense 3,00,000
Rent expense 15,000
Depreciation Expense 30,000
Interest Expense 4,000
830,000 830,000
Required:
1) Prepare an Income statement for the year ended December 31st, 2019.
2) Prepare a classified balance sheet as of December 31st, 2019.
Answer –
1. Income Statement
Amount Amount
A. Revenues
Service Revenues Rs. 4,00,000
Total Revenues Rs. 4,00,000
B. Expenses
Salaries Expense Rs. 3,00,000
Rent Expense Rs. 15,000
Depreciation Expense Rs 30,000
Interest Expense Rs 4,000
Total Expenses Rs. 3,49,000
Net income Rs. 4,00,000 – Rs. 3,49,000 Rs. 51,000
2. Balance Sheet
Assets Amount Liabilities Amount
Cash Rs. 11,000 Common Stock Rs. 2,00,000
Equipment Rs. 3,00,000 Notes Payable Rs. 30,000
Office Supplies Rs. 25,000 Interest Payable Rs. 4,000
Prepaid Rent Rs. 5,000 Accounts Payable Rs. 11,000
Accounts Receivable Rs. 1,40,000 Salaries Payable Rs. 10,000
Accounts Depreciation -Rs. 1,25,000 Retained Earning Rs. 50,000
Net Profit Rs. 51,000
Total Assets Rs. 3,56,000 Total Liabilities Rs. 3,56,000
