HTM 141 Final Exam Study Guide
HTM 141 Final Exam Study Guide HTM 141
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This 19 page Study Guide was uploaded by Krysta Gates on Tuesday April 7, 2015. The Study Guide belongs to HTM 141 at Purdue University taught by David Wood in Fall2014. Since its upload, it has received 73 views. For similar materials see Financial Accounting in Hospitality at Purdue University.
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Date Created: 04/07/15
HTM 141 FINAL EXAM STUDY GUIDE Spring 2014 I Adiusting Entries for Supplies Salaries Depreciation Accrued Revenue and Advanced Deposits 1 Supplies Inventory of supplies on 1130 re ects 250 in operating supplies on hand at year39s end This amount differs from the operating supplies balance of 500 Initial operating supplies balance 500 Ending operating supplies balance 250 Adjustment reduction in operating supplies 250 2 Salaries Michael pays employees every two weeks the last payday in this month is on the 24th Therefore wages for the 2431st must be accrued Assume ALL employees wages equal 10000 every 14 days January 24th31st covers 7 days 10000 X 714 5000 3 Depreciation A Van was purchased for 15000 on a year ago so it will be depreciated one year Its expected useful life is 4 years and the estimated salvage value is 1000 Depreciation cost salvage valueuseful life VAN 15000 1000 4 3500 B The catering equipment was purchased on January 1st for 10000 and will have a useful life of 5 years a 0 salvage value and needs to be depreciated for 11 months EQUIPMENT 10000 05 2000 each year but you need to nd 11 months 2000 X 1112 1833 3500 1833 5333 total depreciation 4 Advanced Deposits James checks into a room for 30 days on the 17th the motel records the 600 they receive from him as advanced deposits For this month the hotel records his payment fro 15 out of the 30 day stay 600 X 1530 300 portion ofJames s stay Type of Adjustment journal Entry DR CR 1 Supplies Operating Supplies Expense 250 Operating Supplies 250 to record reduction in operating supplies on hand 2 Salaries Wages Expense 5000 Wages Payable 5000 to record accrued wages at the end of the month 3 Depreciation Depreciation Expense 5333 Accumulated Depreciation Van 3500 Accumulated Depreciation Equipment 1833 to record depreciation expense for the year 4 Advance Deposits Advanced Deposit 300 Room Revenues 300 to record reduction in advanced deposit forJames II Recording Closing Entries for a Service Business 1 CLOSE REVANUE and EXPENSE accounts to INCOME SUMMARY ACCOUNT 2 CLOSE INCOME SUMMARY account to OWNER S EQUITY CAPITAL account 3 CLOSE the OWNER S DRAWING account to OWNER S EQUITY CAPITAL account EXPENSE ACCOUNT A EXPENSE ACCOUNT B Balance 120 Closing Entry 1 Balance 100 Closing Entry 1 100 Balance 0 Balance 0 Expense A 120 Expense B 100 220 goes to income summary account INCOME SUMMARY REVENUE 3103ng Entry 239 A 259 3 1 0 250 Closmg Entry 1 220 Closmg Entry 1 250 MADUIV mg pr 0 0 Closing Entry 3 30 Balance 30 Closing Entry 4 50 Balance 1000 Balance 0 Closing Entry 3 30 Balance 980 The revenue account has a CREDIT balance Therefore to close and clear this account it must be debited for the balance 150000 and the INCOME SUMMARY must be credited for the same amount Dec 31St Income Summary 44650 Melvin Mason Capital 44650 To close income summary account Dec 31st Mason Capital Account OE Account 10000 Mason Drawing 10000 To close drawing account After closing entries REVANUE EXPENSE and DRAWING accounts have ZERO balances Dec 31st Income Summary 105350 Manager s Salary 15000 Asst Manager Salary 7500 Room Attendant Wages 15150 Payroll Taxes 3000 Cleaning Supplies Expense 2700 Office Supplies 1000 Utilities 5000 Advertising 500 Repairs amp Maintenance 9000 Insurance Expense 1500 Depr Exp Furniture 4000 Depr Exp Equipment 1000 Depr Exp Building 10000 Property Tax 22000 Interest Expense 8000 To close expense accounts Dec 3 1St Room Revenue 150000 Income Summary 150000 TO C1086 139001 11 I39CVGIIUG account PostClosing Trial Balance After the accountant records and posts the closing entries the only accounts remaining in the general ledger are the balance sheet accounts assets liabilities and OE These must be equal Debits Credits Cash 5000 Marketable Securities 10000 AR 8000 Cleaning Supplies 1800 PPI 3000 Furniture 40000 Accum Depr Furniture 24000 Equipment 10000 Accum Depr Equipment 6000 Building 300000 Accum Depr Building 110000 Land 20000 AP 5000 NP 5000 Accrued Wages 150 Mortgage Payable 100000 Mason Capital 147000 Total 397800 397800 111 Cost of Food Available Used Sold and Gross Pro t Cost of Food Sold The sales of food beverages and other merchandise require that the cost of goods sold be recorded When food is purchased for resale it is recorded in inventory When they are sold they are transferred to COST OF FOODGOODS SOLD ACCOUNT This is determined by FOOD AVAILABLE FOR SALE Food Inventory beginning of period PLUS food purchases PLUS Transfers from the bar FOOD AVAILABLE FOR SALE AKA all the food you could have possibly sold at the price you paid for it Assumes there were no employee meals food waste promo meals etc COST OF FOOD USED Cost of food available for sale MINUS transfers to bar MINUS employee meals MINUS promo meals COST OF FOOD USED COST OF FOOD SOLD Cost of food available for sale MINUS Cost of food used COST OF FOOD SOLD NET INCOME Revenue MINUS Cost of Food Sold NET INCOME Gross Pro t Food Sales Cost of Food Sold IV Allowance for Bad Debt and Aging Accounts Receivable Allowance for Doubtful Accounts when people buy stuff and don t pay you back Allowance Method 1 Estimate bad debt expense 2 Write off account as uncollectable 3 Restore account previously written off a Restore account b Tax collectable income End of year estimate bad debt expense account provision for bed debt AKA bad debt expense9 do this by debiting bad debt expense and crediting allowance for doubtful accounts contra asset account to AR Allowance for Doubtful Accounts When you give up on the person paying you Date Account NU DM 2000quot on u cm Estimated Bad Debt Expense for year Dec 315t Bad Debt Expense 2000 Allowance for Doubtful Accounts 2000 What you do when you give up on someone paying you July 315t Allowance for Doubtful Accounts 100 AR DM 100 What you do when the end up paying you back Sept 16 HAIR DM 100 Allowance for Doubtful Accounts 100 Restore previously closed account quotCash u 100 H II AR restored DM 100 Aging Accounts Receivable The longer the amount is overdue the less likely you are to get it Say balance is 100000 at years end and you end up with 300 in the allowance for doubtful account When aging receivables you want the ending balance for doubtful accounts to equal your estimation Ex AR A 80000 not due yet B 10000 060 days overdue C 10000 60 days overdue Experience tells us that A Not due yet 005 of 80000 won t ever get paid AKA about 400 debt B 060 days overdue 4 of 10000 won t get paid AKA about 400 of bad debt C 60 days overdue 20 of 10000 won t get paid AKA 2800 of bad debt Don t need to know these numbers When aging receivables you want the ending balance for doubtful accounts to equal your estimation However we estimated that 2800 wouldn t get paid and found out that only 300 didn t get paid So allowance for doubtful accounts will get credited for 2500 V Inventory Valuation Methods Perpetual Inventory System used with merchandise that can be labeled easily Periodic Inventory System used with food and inventory where it s hard to tell what s left Value of food at beginning of period 12000 Units Price Per Unit Total Cost Beginning of Period 500 10 5000 Purchase 1 700 1 1 7700 Purchase 2 600 12 7200 Purchase 3 200 13 2600 Cost of Food Available for Sale Ending Inventory 600 Units Average Price 50unit FIFO Assumes the ending 600 units were the ones purchased most recently aka purchases 3 and 2 200 13 2600 purchase 3 400 12 4800 purchase 2 7400 ending inventory value Cost of Food Available 22500 Cost of Food Sold 22500 7400 15100 Gross Pro t 2000 units sold 600 ending inventory 1400 Average price per unit 50 70000 15100 cost of food sold 54900 GROSS PROFIT LIFO Assumes units purchased most recently were used most recently and the ending inventory consists of the oldest inventory 500 10unit 5000 beginning of period 100 11unit 1100 purchase 1 6100 ending inventory value Cost of Food Available 22500 Cost of Food Sold 22500 6100 16400 Gross Profit 2000 units sold 600 ending inventory 1400 Average price per unit 50 70000 16400 cost of food sold 53600 GROSS PROFIT Weighted Average Cost of Food Available Cost unit Of Units Available 22500 1125 unit average paid per unit 2000 Ending Inventory 600 X 1125 6700 Cost of Food Sold 22500 6750 Gross Profit 70000 15750 54250 VI Sumoftheyears digits depreciation declining balance depreciation and transactions involving sale and exchange of property Depreciation Methods 1 Straight Line Method Cost Salvage Depreciation Expense Life Cost of asset 10000 Salvage Value 1000 10000 1000 1800 year Life 5 years 5 Yea Depreciation Accumulated Book 6 Book Value Cost Accumulated Depreciation r Exp Deprecation Value SO 10000 1800 1 1800 1300 8200 At the end of an asset s life it MUST be equal to 2 139800 339600 639400 the salvage value 3 1800 5400 4600 4 1800 7200 2800 5 1800 9000 1800 2 Units of Production Method based off the idea that it s better to evaluate depreciation based on the usage ie miles on the road rather than time Cost Salvage educated guess Total Estimated Units of Production Cost 10000 Salvage Value 1000 Est Units of Prod 90000 miles 10000 1000 10mile depreciates 010 mile 90000 Yea r Depreciation Exp Accumulated Depr Book Value 1 15000 X 10 1500 1500 8500 2 1900 X 10 1900 1500 1900 3400 6600 3 20000 X 10 2000 3400 2000 5400 4600 4 21000 X 10 2100 5400 2100 7500 2500 5 22000 X 10 2200 7500 2 200 9700 300 l J Cost Salvage X Current Year Sum of Year s Digits Cost 10000 Salvage 1000 Life 5 yrs solife5432115 Yea Accumulated r Depreciation Expense Depreciation Book Value 1 100001000 X 515 3000 3000 7000 2 10000 1000 X 415 2400 5400 4600 3 10000 1000 X 315 1800 7200 2800 4 10000 1000 X 215 1200 8400 1600 5 1000 1000 X 115 600 9000 1000 4 Declining Balance Method Book Value at beginning of year X is found by putting 2 over life of the asset Salvage 1000 Book Value 10000 Life 5 years 25 40 Ex 1000 X 40 4000 3 Sum of the Year s Digits Method SYD More value depreciated in early life Depreciation Expense Year SYD 1 515 2 414 3 315 4 215 5 115 Salvage Value X Book Value Depreciation Expense Yea r II 1II Depreciation Expense 10000 X 40 4000 H Accumulated Depr 4000 II II Book Value 6000 6 000 X 40 2 400 3 600 X 40 1 440 2 160 X 40 864 1296 X 40 518 DISPOSING OF AN ASSET Loss on Disposal EXPENSE Katie gets rid of a truck worth 1600 book value Gain on Disposal REVANUE Katie gets rid of truck for more than book value Cost truck 10000 Book Value 1600 If you want to get rid of a truck must take ALL accounts off books DEBIT AD Truck for 8400 Loss on Disposal sells it at or below book value AKA 1600 Account DR Loss on Dis osal l 600 Accumulated De reciation ck 8400 Truck cost 10 000 Gain on Disposal if KO sells it for 3000 AKA 1400 over book value Account DR CR Cash 3000 Accumulated Depreciation Truck 8400 Truck 10000 Gain on Disposal 3000 1600 1400 Loss on Disposal if KO sells it for 500 AKA 1100 under book value Account Loss on Dis osal Cash Accumulated De reciation ck Truck EXCHANGE OF PROPERTY EOUIPMENT ASSETS Trade truck in at dealership for a new truck that costs 20000 Dealership takes old truck and offers the new one for 19500 AKA that the trade in value is 500 If you trade one asset for another you CANNOT SHOW LOSS OR GAIN Going to value new truck BOOK BOOT 1600 book value of old truck 19500 Value of new truck 21100 Sat the dealer offers 5000 for old truck and gives you the new truck for 15000 Book Boot 1600 15000 16600 Account DR CR Truck new 16600 Accumulated Depreciation Truck 8400 Truck old 10000 Cash check to dealership 15000 VII Payroll Transactions Total Earnings 30000 Federal Income Tax 6000 State Income Tax 2000 FICA 8 of 30000 2400 Health Insurance 100 008 X 30000 Federal Unemployment Tax 054 X 30000 State Unemployment Tax Date journal Entry DR CR Transaction to Record Employee Payroll 3000 125 Salary Expense 0 Federal Income Tax 6000 State Income Tax 2000 FICA Tax Payable 2400 Health Insurance 1000 Salary Payable net or take home pay 18600 1860 Salary Payable 0 Cash 18600 Transaction to Record Employer Payroll Taxes Expense 125 Payroll Taxes employer 4260 FICA Tax Payable 2400 Federal Unemployment Tax 240 State Unemployment Tax 1620 VIII Sale of Common Stock Cash Dividends and Treasury Stock no capital and drawing accounts with corporations assets liabilities stockholder s equity Sold 1000 shares of 10 par value common stock for 15 per share 1000 X 15 15000 cash Date CR Cash Common Stock 10000 PIC on Common Stock 5000 Declaration Date when board of directors get together and decide when dividend will be issued Record Date date you figure out who owns the company s stock the cut off date for who will get the dividend Payment Date date BOD decides to distribute the dividend Insider trading Illegal you know someone on the BOD and are getting insider info about dividend dates 2 Transactions 1 Declaration date 2 Payment date Closing Entries for a Corporation Retained Earnings debited Income Summary credited Accumulated profit in a corporation DOES NOT get closed like owner s equity CASH DIVIDENDS assets of a corporation decrease 10000 shares outstanding 2 per share dividend Date DR CR Nov 17th Retained Earnings capital 20000 Dividends Payable liability 20000 Jan 15th Dividends Payable 20000 Cash 20000 STOCK DIVIDENDS Often done When a corporation has no cash ow so they give out stock dividends Assets of a company decrease With cash dividends but not With stock dividends share prices just go down 10000 shares of stock 10 stock dividend on 16 market value stock meaning 1000 shares Will be distributed aka 10 of 10000 called Common Stock CS dividends distributable Declaration Date of November 17th Date DR CR Nov 17th Retained Earnings 16000 Common Stock Dividends Distributable 10000 Jan 17th CS Dividends Distributable 6000 Common Stock 10000 10000 6 Market Value of shares TREASURY STOCK When a corporation repurchases their own stock in hopes of selling it at a profit Buy 300 shares of treasury stock 20share 6000 Date DR CR Corporation buys 300 shares of own stock for 20 a share June 21 Treasury Stock 6000 Cash 6000 Corporation buys stock back 100 shares to resell at 25 per share August 3rd Cash 2500 Treasury Stock what it used to be worth 2000 PIC on Treasury Stock Pro t 500 Corporation sells 100 shares TS at 18 per share value of stock goes down Sept 5th Cash PIC on Treasury Stock Treasury Stock Sell 100 shares of TS at 15 per share Sept 15th Cash 1500 PIC on Treasury Stock what was left of 500 pro t 300 Retained Earnings have to take out of equity 200 TS 2000 Sell 100 shares of TS at 15 per share VOCAB FOR HTM 141 EXAM Revenue In ow of assets such as cash resulting from sales of goods and services Expense use of assets to produce revenue labor wages etc Net Income Total earnings or profit Calculated by taking revenues and subtracting expenses When revenue exceeds expenses you have net income If expenses exceed revenue you have net loss Balance Sheet Re ects financial position at a point in time Consists of assets liabilities and owner s equity contains real or permanent accounts AKA ones that don t get closed Trial Balance List of accounts and their debit or credit balances It s prepared to test the equity of debits and credits debits and credits should be equal Adjusting Entries Entries recorded at end of accounting period to adjust the income and expense accounts so they match to the appropriate accounting period Includes things like prepayments revenues not yet received expenses not yet paid or recorded depreciation and allowance for bad debts to record assets partially consumed but not recorded as expense Work Sheet Informational statement used by accountant to plan adjusting entries and financial statements Lists all general ledger accounts before making adjustments and prepping income statementbalance sheet Closing Entries Done at end of accounting period so a business owner can figure out their equity and start new period with a 0 balance Nominal aka temporary accounts aka revenue and expense accounts are closed 3 steps 1 Close REVANUE and EXPENSE accounts to INCOME SUMMARY 2 Close INCOME SUMMARU to OWNER S EQUITY capital account 3 Close owner s DRAWING account to the OWNER S EQUITY capital account Book Value The value at which an asset is recorded at on a balance sheet cost of asset accumulated depreciation Accelerated Depreciation When an asset depreciates faster in its earlier years of life and less in later years so straight line method of depreciation doesn t work Depreciable Cost cost of an asset original purchasing prince salvage value Salvage Value Estimated resale value at the end of an asset s useful life Value of asset must equal salvage value at the end of it s useful life Interest Fee paid by borrower of assets to compensate for the use of the asset Principal X Rate X Time Dishonored Note A note payable that the individual or company promising to pay doesn t pay Par Value Giving a share of stock a value when it s authorized nothing to do with the market value FIFO First In First Out assumes that the units purchased first were the first ones used So ending inventory consists of items purchased most recently LIFO Last In First Out assumes that the units purchased most recently were the ones used first So ending inventory consists of the older items FICA Tax employment tax that BOTH employees AND employers have to pay Payroll Tax Taxes employers are required to withhold or pay on behalf of employees Unemployment TaX Taxes employers are required to withhold or pay on behalf of employees Outstanding Shares shares of stock currently owned by someone other than the issuing corporation Issued Shares IPO initial public offering or original shares of stock that a company sells Authorized Shares Number of shares of stock that a corporation is allowed to sell Treasury Stock When corporation repurchases their own stock hoping to sell it higher Dividend portion of a company s earnings that are returned periodically to investors Who have bought stock
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