accounting problem solving
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Appendix C problems C.8 & C.9
LOC-1, LOC- Page C-25
through LOC- S & X Co. is a retail store owned solely by Joe Saunder. During the month of
November, the equity accounts were affected by the following events:
a.Assuming that the business is organized as a sole proprietorship:
1. Prepare the journal entries to record the above events in the
accounts of S & X.
2. Prepare the closing entries for the month of November. Assume
that after closing all of the revenue and expense accounts the
Income Summary account has a credit balance of $5,000.
Hint: Record the investment in a separate capital account and the
withdrawals (salary) in a separate drawing account. Close the drawing
account into the capital account as part of the closing entries.
b.Assuming that the business is organized as a corporation:
1.Prepare the journal entries to record the above events in the
accounts of S & X. Assume that the distribution of earnings on
November 30 was payment of a dividend that was declared on
2.Prepare the closing entries for the month of November. Assume
that after closing all of the revenue credit and expense accounts
(except Income Tax Expense) the Income Summary account has a
credit balance of $2,000. Before preparing the closing entries,
prepare the entries to accrue income tax expense for the month and
to close the Income Tax Expense account to the Income Summary
account. Assume that the corporate income tax rate is 30 percent.
c.Explain the causes of the differences in net income between S & X as a
sole proprietorship and S & X as a corporation.
d.Describe the effects of the business operations on Saunder’s individual
income tax return, assuming that the business is organized as (1) a sole
proprietorship and (2) a corporation.
LOC-3, LOC- The partnership of Avery and Kirk was formed on July 1, when George Avery
and Dinah Kirk agreed to invest equal amounts and to share profits and losses
equally. The investment by Avery consists of $30,000 cash and an inventory of
PROBLEM C.9 merchandise valued at $56,000.
Formation of a Kirk also is to contribute a total of $86,000. However, it is agreed that her
contribution will consist of the transfer of both the assets of her business and its
liabilities (listed below). A list of the agreed values of the various items as well
as their carrying values on Kirk’s records follows. Kirk also contributes enough
cash to bring her capital account to $86,000.
a.Draft entries (in general journal form) to record the investments of Avery
and Kirk in the new partnership.
b.Prepare the beginning balance sheet of the partnership (in report form) at
the close of business July 1, reflecting the above transfers to the firm.
c.On the following June 30 after one year of operation, the Income Summary
account showed a credit balance of $74,000, and the Drawing account for
each partner showed a debit balance of $31,000. Prepare journal entries to
close the Income Summary account and the Drawing accounts at June 30.
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