Exam 4: Review of the Accounting Cycle

Orlando Company began operations on December 1. The company had the following transactions during December. Record these transactions in proper form, including explanations. If an entry is not required, please write "No Entry." a. Issued 50,000 shares of no par common stock and received $350,000 cash. b. Extended an offer of employment to a sales manager who will begin work on January 1. c. Purchased machinery on account for $450,000 from Tampa Company. d. Purchased a two-year insurance policy for $4,800. Paid cash. This policy will become effective on January 1. e. Paid $2,500 in office rent for the month of January. f. Purchased office furniture for $50,000 with a 10% down payment and a six month note payable for the balance. g. Paid wages of $15,000 to employees. h. Provided services to customers on account for $85,000. i. Paid $200,000 to Tampa Company on account. j. Received payment in full for services rendered in part (h). k. Paid a telephone bill for $525.

List the sequence in which financial statements are prepared.

Accrued expenses are paid before they are incurred.

To close out an expense or loss account ________.

Liabilities represent claims of third parties against the assets of a business.

To close out the dividends account ________.

Selected transactions for Rosewood Industries are presented below. The fiscal year end for the company is April 30. Net income prior to these adjustments is $43,670. a. The company had purchased a 2-year insurance policy for $2,400 on January 1 and debited the prepaid insurance account. Insurance coverage begins on January 1. b. Depreciation on equipment for the month was $600. Equipment was purchased on January 1 of the current year. c. The company borrowed $15,000 on February 1 at 12% interest. Principal and interest are due on February 1 of the following year. d. The unadjusted trial balance showed a balance in Supplies of $2,650. A month-end inventory showed $900 on hand. e. The company loaned $8,000 to a customer on April 1. The note has an annual interest rate of 12% and is due along with accrued interest on March 31 of the following year. f. Employees had earned $5,600 in salaries as of April 30. These salaries will be paid on May 3. g. The unadjusted trial balance showed unearned revenues of $7,200. During April, $1,200 of these revenues were earned. Required: 1. Prepare the necessary adjusting entries for Rosewood Industries as of April 30. Please include explanations. 2. Compute net income after these adjustments have been made.