QUESTION ONE

AAA operates a private investigation business. Some clients are required to pay in advance for the company’s services, while others are billed after the services have been rendered. Advance payments are credited to an account entitled Unearned Investigation Fees. On December 31, 1998 the unadjusted trial balance for the year appears as follows:

Cash $17,150 – Prepaid insurance 1,600 – Office equipment 17,100 – Accumulated depreciation for office equipment 6,800 – Withdrawals 3,200 – Investigation fees earned 43,300 – Rent expense 5,400 – Office supplies 1,100 – Unearned investigation fees 4,100 – Accounts payable 3,900 – Utilities expense 450 – Interest expense 3000 – Insurance expense 200 – Telephone expense 1,200 – Salaries expense 22,900 – Capital ?.

Required:

1) Prepare a 10-column work sheet for 1998, starting with the unadjusted trial balance and including these additional facts:

a. Depreciation expense for the year is to be calculated on the basis of a useful life of the office equipment estimated at 5 years with a salvage value of $100.

b. Salaries earned by employees during the year but not yet recorded or paid amounted to $1,600.

c. Office supplies on hand December 31 amounted to $600.

d. On January 1, 1997 $2,400 was paid as the premium for four years’ liability insurance.

e. Investigation services rendered during the year but not yet collected or billed to clients amounted to $3,200.

2) Present the classified balance sheet on December 31, 1998.

3) Calculate return on equity ratio.

QUESTION TWO

Prepare journal entries to record the following transactions for a retail store. Show entries as should be recorded in both buyer’s books and seller’s books:

- April 3: Purchased merchandise from CBS Company under the following terms: $1,900 invoice price; 3/15, n/60; FOB shipping point.

- April 4: Paid $150 for shipping charges on purchase of April 3.

- April 5: Returned unacceptable merchandise to CBS Company that had an invoice price of $400.

- April 18: Sent a check to CBS Company for the April 3 purchase.

- April 19: Purchased merchandise from NBC Company under the following terms: $2,800 invoice price; 4/10, n/60; FOB destination.

- April 21: After brief negotiations, received a credit memorandum from NBC Company granting $500 allowance on the purchase of April 19.

- April 30: Sent a check to NBC Company paying for the April 19 purchase.

QUESTION THREE

Use the following information for the year ended December 31, 1998 to present Multiple-Step Income Statement for ABC Supermarket:

Merchandise inventory 1/1/1998 $1,100 – Merchandise inventory 12/31/1998 $1,860 - Sales $9,700 – Sales returns $570 – Sales discounts $380 – Purchases $3,200 – Purchases allowances $880 - Depreciation expenses $1,300 – Transportation-in $680 – Purchases returns $200 – Rent expense $700.