Financial Accounting | SoSe 2024
Prof. Dr. Christoph Sextroh
Financial Accounting
Tutorial 3
Preparing financial statements
Task 1: Transaction and Tabular Analysis
Show the effects of these transactions on the expanded accounting equation:
1. Ray Neal decides to start a smartphone app development company which he names
Softbyte. On September 1, 2020, he invests €15,000 cash in the business. This
transaction results in an equal increase in assets and owner’s equity.
2. Softbyte purchases computer equipment for €7,000 cash.
3. Softbyte purchases for €1,600 headsets and other accessories expected to last several
months. The supplier allows Softbyte to pay this bill in October.
4. Softbyte receives €1,200 cash from customers for app development services it has
performed.
5. Softbyte receives a bill for €250 from the Daily News for advertising on its online website
but postpones payment until a later date.
6. Softbyte performs €3,500 of services. The company receives cash of €1,500 from
customers, and it bills the balance of €2,000 on account.
7. Softbyte pays the following expenses in cash for September: office rent €600, salaries and
wages of employees €900, and utilities €200.
8. Softbyte pays its €250 Daily News bill in cash. The company previously (in Transaction 5)
recorded the bill as an increase in Accounts Payable.
9. Softbyte receives €600 in cash from customers who had been billed for services (in
Transaction 6).
10. Ray Neal withdraws €1,300 in cash from the business for his personal use.
Task 2: Transaction and Tabular Analysis
Transactions made by Virmari SA, a public accounting firm, for the month of August are shown
below. Prepare a tabular analysis which shows the effects of these transactions on the expanded
accounting equation.
1. The owner invested €25,000 cash in the business.
2. The company purchased €7,000 of office equipment on credit.
3. The company received €8,000 cash in exchange for services performed.
4. The company paid €850 for this month’s rent.
5. The owner withdrew €1,000 cash for personal use.
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Financial Accounting | SoSe 2024
Prof. Dr. Christoph Sextroh
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Financial Accounting | SoSe 2024
Prof. Dr. Christoph Sextroh
Task 3: Recording Business Activities
Julie Loeng engaged in the following activities in establishing her salon, “Hair It Is”:
• Opened a bank account in the name of Hair It Is and deposited ¥20,000 of her own
money in this account as her initial investment.
• Purchased equipment on account (to be paid in 30 days) for a total cost of ¥4,800.
• Interviewed three people for the position of hair stylist.
Prepare the journal entries to record the transactions.
Task 4: Financial Statement Items
Presented below is selected information related to Li Fashions at December 31, 2020. Li reports
financial information monthly.
1. Determine the total assets at December 31, 2020.
2. Determine the net income reported for December 2020.
3. Determine the owner’s equity at December 31, 2020.
Task 5: Adjusting Entries for Defferals
The ledger of Hammond Deliveries, on March 31, 2020, includes these selected accounts before
adjusting entries are prepared.
Debit Credit
Prepaid Insurance € 3,600
Supplies 2,800
Equipment 25,000
Accumulated Depreciation-Equipment €5,000
Unearned Service Revenue 9,200
An analysis of the accounts shows the following. Prepare the adjusting entries for the month of
March.
1. Insurance expires at the rate of €100 per month.
2. Supplies on hand total €800.
3. The equipment depreciates €200 a month.
4. During March, services were performed for €4,000 of the unearned service
revenue reported.
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Financial Accounting | SoSe 2024
Prof. Dr. Christoph Sextroh
Exercise 6: Adjusting Entries Accruals
Mahindra Computer Services began operations on August 1, 2020. At the end of August 2020,
management prepares monthly financial statements. The following information relates to August
(amounts in thousands). Prepare the adjusting entries needed at August 31, 2020.
1. At August 31, the company owed its employees INR800 in salaries and wages that will be
paid on September 1.
2. On August 1, the company borrowed INR30,000 from a local bank on a 15-year mortgage.
The annual interest rate is 10%.
3. Revenue for services performed but unrecorded for August totaled INR1,100.
Exercise 7: Trial Balance
Skolnick Co. was organized on April 1, 2020. The company prepares quarterly financial
statements. The adjusted trial balance at June 30 are shown below.
Debit Credit
Cash $ 6,700 Accumulated Depreciation $ 850
Accounts Receivable 600 Notes Payable 5,000
Prepaid Rent 900 Accounts Payable 1,510
Supplies 1,000 Salaries and Wages Payable 400
Equipment 15,000 Interest Payable 50
Owner’s Drawings 600 Unearned Rent Revenue 500
Salaries and Wages Exp. 9,400 Owner’s Capital 14,000
Rent Expense 1,500 Service Revenue 14,200
Depreciation Expense 850 Rent Revenue 800
Supplies Expense 200
Utilities Expense 510
Interest Expense 50
$ 37,310 $ 37,310
Task:
1. Determine the net income or net loss at June 30, 2020.
2. Determine the total assets and total liabilities at June 30, 2020.
3. Determine the amount of owner’s capital at June 30, 2020
