Accounting theory and practice, Volume 1 (of 3)

by Roy B. Kester

Problem 3. The net worth section of the balance sheet should be set up as follows:

Capital Stock		$
Surplus:
At beginning of period	$
Net profit for period
At end of period			$

• Classify the items of the profit and loss statement
• on the basis of:
• 1. Operating income
• 2. Operating expenses
• 3. Non-operating income
• 4. Non-operating expenses

XXII

1. Albert Johnson and Harold Taylor enter into a copartnership agreement for the purpose of buying and selling Christmas novelties. Each contributes cash, no other resources of use to this undertaking being available. Taylor, because of wide acquaintance among manufacturers, is to handle the buying end, and Johnson is to have charge of the details of store management and selling. They are to share profits and losses equally.

On November 15, 19—, operations begin. They keep a full record of all transactions, using a cash book, purchase journal, sales journal, general journal, and ledger. The following accounts are kept:

• Cash
• Notes Receivable
• M. K. Lord
• C. H. Marks
• K. P. Temple
• L. K. Lewis
• F. M. Wood
• T. C. Bailey
• Merchandise Inventory
• Furniture and Fixtures
• Notes Payable
• Imbrie & Co.
• Bonbright & Co.
• Halsey, Stewart & Co.
• B. W. Chapman & Co.
• Albert Johnson, Capital
• Albert Johnson, Personal
• Harold Taylor, Capital
• Harold Taylor, Personal
• Profit and Loss
• Sales
• Sales Returns and Allowances
• Purchases
• Purchases Returns and Allowances
• Freight-In
• Salaries
• General Expense
• Expense Supplies
• Bad Debts
• Interest Expense
• Interest Income
• Purchase Discount

Enter the following transactions in their respective journals:

Nov.
15.	Each partner deposits $7,500 in the firm name of
	Johnson & Taylor at the Park National Bank.
	Paid $1,000 for furniture and fixtures.
	Paid rent $250 and advertising $100.
	Bought merchandise from Imbrie & Co. $2,000, paying $500
	cash, giving a note for $1,000, due in 30 days at 6%,
	and the balance remaining on account.
	Johnson withdrew $200 in funds for personal use.
16.	Cash sales $430.80: on account to F. M. Wood $569.20;
	K. P. Temple $500.
17.	Bought for cash, paper and twine $29.50;
	miscellaneous supplies $10.
18.	Sold merchandise to M. K. Lord for $1,000, accepting his
	10-day 6% note for $500 and $300 in cash.
	Cash sales amounted to $450.
19.	Bought a cash register for $150.
	Cash sales $400.
20.	Bought merchandise from Bonbright & Co. for $500, 2/10, n/30.
	Paid Imbrie & Co. on account $450.
	Taylor took merchandise $25, for his own use.
	Cash sales were $800.
22.	Cash sales were $300.
	Sold on account to Lewis $950; and to Marks $350.
23.	Paid Bonbright & Co. the bill of the 20th.
	Paid salaries $40.
24.	Sold T. C. Bailey, on account, $450 of merchandise.
	Johnson took $100 cash for current needs.
	The firm bought $1,400 merchandise from Halsey, Stewart & Co.
26.	Bought of B. W. Chapman & Co., merchandise $250.
	Cash sales were $450.
27.	The firm is notified that C. H. Marks has failed.
29.	Sold bill of merchandise of $200 to T. C. Bailey, receiving $100
	in cash, and a 6% note for the balance, due in 10 days.
	Cash sales were $300.
30.	Returned $50 merchandise to B. W. Chapman & Co.
	Paid freight $35; insurance $15.
	Lord paid note of $500 and interest.
	Paid $40 in wages and gave Halsey, Stewart & Co.
	a 10-day 6% note for amount due.

2. Using the adjustment data of [Assignment XXI, Problem 3], close the ledger of the Port Bedford Terminal Co. and take a trial balance after closing.