Answers:➔ Q1: Journal Entries for ABC Sole Proprietorship.
Entry
No.
Description
Cash
Dr
5,000,000
Capital
1
Cr
5,000,000
Capital investment by the owner
Equipment
500,000
Cash
2
500,000
Purchased equipment in cash
Inventory
2,000,000
Cash
3
2,000,000
Purchased inventory in cash
Cash
1,000,000
Sales Revenue
4
1,000,000
Sold inventory in cash
Accounts Receivable
200,000
Sales Revenue
5
200,000
Sold inventory on account
Salaries Expenses
250,000
Cash
6
250,000
Paid salaries in cash
Cash
7
500,000
Notes Payable
500,000
Borrowed an amount from Riyadh bank for promissory note
Supplies
100,000
Accounts Payable
8
100,000
Purchased supplies on account
Accounts Payable
100,000
Cash
9
100,000
Paid cash for credit purchases
Cash
10
200,000
Accounts Receivable
Collected amounts for credit sales
200,000
➔ Q2:
The four accounting principles are the following:
–
The Cost Principle: A measure of value used in accounting in which the value of an asset on
the balance sheet is recorded at its original cost when acquired by the company, and it doesn’t
reflect the fair market value of the company’s assets.
–
Full disclosure principle: It requires a business to report all necessary and relevant
information about their financial statements that would impact users’ decisions.
–
Revenue recognition principle: It describes how and when a company records its revenue
in its accounting records. If a company is following the cash basis of accounting, then
revenue will be recognized once the cash is received. However, if company is following the
accrual basis of accounting, revenue will be recognized as it’s earned, not when cash is
received.
–
Matching Principle: It states that revenues and expenses incurred to generate these revenues
should be recognized in the same period. (Wild, 2013)
The four accounting assumptions are the following:
–
The Monetary Unit Assumption: all transactions recorded in the business records can be
expressed and measured in monetary terms by a currency.
–
Going-Concern Assumption: an accounting term for a company that has the resources
needed to continue operating indefinitely until it provides evidence to the contrary. For
example, a company will no longer be a going concern if it declared bankruptcy.
–
Time Period Assumption: It presumes that the life of a company can be divided into equal
time periods, such as months and years. These time periods are known as accounting periods
for which companies prepare their financial statements.
–
Business Entity Assumption: It assumes that all of the economic activity conducted by a
business is separate from that of its owners. (Wild, 2013)
➔ Q3: Adjusting Entries:
1. Supplies Expense = Total Supplies during the year – Supplies at the end of year
Supplies Expense = 20,000 – 5,000 = 15,000
2. Earned Revenue of 5,000 should be recorded as Unearned Revenue (Liability)
3. Unpaid Salaries of 25,000 should be recorded as Salaries Payable (Liability)
4. Earned Revenues but not recorded yet should be recorded as Accounts Receivable
5. Debit the Annual Depreciation Expense, and Credit the Accumulated Depreciation by
10,000
Entry
No.
Date
Description
Supplies Expense
1
Dr
15,000
Supplies
Dec 31st
Cr
15,000
To record supplies used during 2022
Service Revenue
2
Dec 31st
5,000
Unearned Revenue
5,000
To record revenues received in advance
Salaries Expense
3
Dec 31st
25,000
Salaries Payable
25,000
To accrue unpaid salaries
Accounts Receivable
4
Dec 31st
50,000
Earned Revenue
50,000
To accrue revenue earned
Depreciation Expense
5
Dec 31st
Accumulated Depreciation
To record annual depreciation
10,000
10,000
➔ Q4: Preparing the Financial Statements:
ABC Corporation
Income Statement
December 31 2022
Revenues:
Sales
Subtotals
Total
10,000,000
Less Expenses:
Cost Of Goods Sold
7,000,000
Salaries Expenses
1,000,000
Rent Expenses
500,000
Depreciation Expenses
100,000
(8,600,000)
Total Expenses
Net Income
1,400,000
ABC Corporation
Statement of Retained Earnings
December 31 2022
300,000
1,400,000
(100,000)
1,600,000
Retained Earnings (Begin)
Add Net Income
Less Dividends
Retained Earnings (End)
ABC Corporation
Balance Sheet
December 31 2022
Assets
Cash
Accounts Receivable
Supplies
1,000,000
5,000,000
100,000
Equipment
1,000,000
(–) Accumulated Depreciation
(200,000)
Equipment (net)
800,000
Total Assets
6,900,000
Liabilities & Equity
Accounts Payable
Notes Payable
Unearned Revenue
Total Liabilities
Common Stock
Retained Earnings
Total Equity
Total Liabilities & Equity
100,000
500,000
100,000
700,000
4,600,000
1,600,000
6,200,000
6,900,000
➔ Q5: Computing the Cost of Goods Sold (COGS)
–
First: FIFO Method:
Sale Date
Units Sold
200
January 25, 2023
–
COGS
Inventory Balance
(Units sold X Cost per Unit)
( Units left X Cost per Unit)
150 units X 20 = 3,000
50 units X 25 = 1,250
100 units X 30 = $3,000
Total = $4,250
Second: LIFO Method
Sale Date
January 25, 2023
Units Sold
200
COGS
Inventory Balance
(Units sold X Cost per Unit)
( Units left X Cost per Unit)
100 units X 30 = 3,000
50 units X 25 = 1,250
50 units X 20 = 1,000
100 units X 20 = $2,000
Total = $5,250
–
Third: Weighted Average
Average Cost per unit = Total Cost of Units Available for Sale / Total Units
Average Cost per unit = (3000 + 1250 + 3000) / 300 = $24.17
Sale Date
January 25, 2023
Units Sold
200
COGS
Inventory Balance
(Units sold X Cost per Unit)
( Units left X Cost per Unit)
200 units X 24.17 = $4,834
100 units X 24.17 = $2,417
References
Wild, J. J. (2013). Financial Accounting. McGraw Hill.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
