Week One Exercise Assignment
Basic Accounting Equations
1. Recognition of normal balances
The following items appeared in the accounting records of Triguero’s, a retail music store that
also sponsors concerts. Classify each of the items as an asset, liability, revenue, or expense from
the company’s viewpoint. Also indicate the normal account balance of each item.
Classification
a.
b.
c.
d.
e.
f.
g.
h.
i.
Amounts paid to a mall for rent
Amounts to be paid in 10 days to suppliers
A new fax machine purchased for office use
Land held as an investment
Amounts due from customers
Daily sales of merchandise sold,
Promotional costs to publicize a concert
A long-term loan owed to Citizens Bank
The albums, tapes, and CDs held for sale to customers
Expense
Liability
Asset
Asset
Asset
Revenue
Expense
Liability
Asset
Normal Balance
Debit
Credit
Debit
Debit
Debit
Credit
Debit
Credit
Debit
2. Basic journal entries.
The following pertain to the Jennifer Royall Company:
May 1 Jennifer Royall invested cash of $25,000 and land valued at $15,000 into the business.
Cash
25,000
Land
15,000
Owners’ Equity
40,000
(Investment by owner)
5
Provided $1,000 of services to Jason Ratchford, a client, on account.
Accounts receivable
1,200
Revenue
1,200
(Services on Account)
9
Paid $1,250 of salaries to an employee.
Salary expense
1,250
Cash
1,250
14
Acquired a new computer for $4,200 on account.
Computer equipment
4,200
Accounts payable
4,200
(Purchased computer on account)
20
Collected $800 from Jason Ratchford for services provided on May 5.
Cash
$800
Accounts receivable
$800
(Received $800 of the $1,000 owed by Ratchford)
24
Borrowed $2,500 from BestBanc by securing a six-month loan.
Cash
2,500
Notes payable
2,500
(Borrowed $7,500 from Best Banc, 6 months)
3. Balance sheet preparation
The following data relate to Preston Company as of December 31, 20XX:
Building
$40,000
Accounts receivable
$24,000
Cash
21,000
Loan payable
30,000
J. Preston, capital
65,000
Land
21,000
Accounts payable
?
Prepare a balance sheet in good form as of December 31, 20XX.
Preston Company
Balance Sheet as at December 31, 20XX
Assets
Current assets
Cash
Liabilities
Current Liabilities
$21,000 Accounts payable
Accounts receivable
24,000 Total Current Liabilities
Total Current Assets
45,000 Long-Term Liabilities
$11,000
11,000
Long-Term Assets:
Loan payable
30,000
Building
44,000 Total Long-Term Liabilities
30,000
Land
21,000 Total Liabilities
41,000
Total Long-Term Assets
65,000 Capital
Total Assets
106,000
J. Preston Capital
$65,000
Total Assets
106,000
4. Basic Transaction Processing
On November 1 of the current year, Richard Simmons established a sole proprietorship. The
following transactions occurred during the month:
1. Simmons invested $32,000 into the business for $32,000 in common stock.
2. Paid $5,000 to acquire a used minivan.
3. Purchased $1,800 of office furniture on account.
4. Performed $2,100 of consulting services on account.
5. Paid $300 of repair expenses.
6. Received $800 from clients who were previously billed in item 4.
7. Paid $500 on account to the supplier of office furniture in item 3.
8. Received a $150 electric bill, to be paid next month.
9. Simmons withdrew $800 from the business.
10. Received $250 in cash from clients for consulting services rendered.
Assets
Cash
Accounts
=
Office
Van
furniture
Liabilities+ Equity
Accoun
ts
Payable
Common Stocks
Revenues
Dividends
Expense
receivable
1. $32,000
$32,000
2. ($5,000)
$5,000
3.
4.
$1,800
$2,100
5. ($300)
6. $800
$1,800
$2,100
($300)
$800
7. ($500)
($500)
8.
$150
9. ($800)
($150)
($800)
10. ($250)
$17,950
$250
$1,300
$1,800
$5,000
$1,450 $31,200
$1,900
C.1. Liabilities= $1,450 Liabilities appear on the balance sheet
2. Revenue- Expenses= Net Profit. Revenue exceeded expenses by $1,900 and cash is
positive, indicating a “good” month.
5. Transaction analysis and statement preparation.
The transactions that follow relate to Burton Enterprises for March 20X1, the company’s first
month of activity.
3/1
Joanne Burton, the owner, invested $20,000 into the business.
3/4
Performed $2,400 of services on account.
3/7
Acquired a small parcel of land by paying $6,000 cash.
3/12
Received $500 from a client who was billed previously on March 4.
3/15
Paid $200 to the Journal Herald for advertising expense.
3/18
Acquired $9,000 of equipment from Park Central Outfitters by paying $7,000 down and
agreeing to remit the balance owed within the next 2 weeks, (A/P)
3/22
Received $300 cash from clients for services.
3/24
Paid $1,500 on account to Park Central Outfitters in partial settlement of the balance
due from the transaction on March 18.
3/28
Rented a car from United Car Rental for use on March 28. Total charges amounted to
$125, with United billing Burton for the amount due.
3/31
Paid $600 for March wages.
3/31
Processed a $600 cash withdrawal (dividend) from the business for Joanne Burton
Assets
Cash
= Liabilities
Accounts
Land
receivables
Equipment Accounts Common Dividends Revenues
Payable
Stock
3/1$20,000
3/4
+ Owners Equity
$20,000
$2,400
$2,400
3/7 ($6,000)
3/12 $500
$6,000
($500)
3/15 ($200)
($200)
3/18 ($7,000)
$9,000
$2,000
3/22 $300
$300
3/24 ($1,500)
($1,500)
3/28
$125
($125)
3/31 ($600)
($600)
3/31($600)
$4,900 $1,900
($600)
$6,000
$9,000
$375
$19,400
Burton Enterprises
Income Statement for the Period Ending March, 20X1
Revenue
$2,700
Expenses:
Advertising expense $200
Auto Expense
Wage Expense
Net Income
Exp.
$125
$900
$1,225
$1,475
$1,775
Burton Enterprises
Statement of Retained Earnings for the Period Ending March 20X1
Beginning Retained Earnings (3/1/20X1)
Add: Net Income
$0
$1,475
Subtotal
$1,475
Subtract: Dividends
$600
Ending Retained Earnings Balance (3/1/20X1)
$875
Burton Enterprises
Balance Sheet as at March 31, 20X1
Assets
Cash
$4,900
Accts Rec
$1,900
Land
$6,000
Equipment
$9,000
Total Assets
$21,800
Liabilities:
Accts Pay
Total Liabilities
$375
$375
Stockholder’s Equity:
Common Stock
Retained Earnings
$20,000
$875
Total Stockholder’s Equity $20,875
Total Liabilities& Equity
$21,250
6. Entry and Trial Balance Preparation
Lee Adkins is a portrait artist. The following schedule presents Lee’s combined chart of accounts
and trial balance as of May 31.
Account #
Account Name
Debit
Credit
110
Cash
2,700
120
Accounts receivable
12,100
130
Equipment& Supplies
2,800
140
Studio
210
Accounts Payable
2,600
310
Lee Adkins, Capital
57,400
320
Lee Adkins, Drawing
410
Profession Fee Revenue
510
Advertising Expense
2,300
520
Salaries Expense
2,100
540
Utilities Expense
2,000
45,000
30,000
39,000
$99,000
$99,000
The general ledger also revealed account no. 530, Legal Account Expense. The following
transactions occurred during June:
6/2
Collected $3,000 on account from customers
6/7
Sold 25% of the equipment and supplies to a young artist for $700 for cash.
6/10 Received a $300 invoice from the accountant for preparing last quarter’s financial
statements.
6/15
Paid $1,900 to creditors on account.
6/27
Adkins withdrew $2,000 cash for personal use.
6/30
a.
Billed a customer $3,000 for a portrait painted this month
Adkins Studio-General Journal entries
6/2
Cash
110
Accounts Receivable
120
3,000
3,000
(Received Cash on Account)
6/7
Cash
110
Equipment& Supplies
130
700
700
(Sold Equipment & Supplies)
6/10
Cash
530
Accounts Payable
210
300
300
(Received Bill for Accounting Services)
6/15
Accounts Payable
210
Cash
110
1,900
1,900
(Paid Creditors on Account)
6/27
Lee Adkins, Drawing
320
2,000
Cash
110
2,000
(Owner Withdrawal)
6/30
Accounts Receivable
Cash
120
.
3,000
110
Cash
Date 20XX
5/31
Exp.
Balance
Post Ref.
3,000
acct. 110
Debit
Credit
Balance
2,700
6/2
J2
3,000
5,700
6/7
J2
700
6,400
6/15
J2
1,900
4,500
6/27
J2
2,000
2,500
Accounts. Receivable
Date 20XX
5/31
Exp.
Post Ref.
Debit
6/30
J2
3,000
3,000
Equipment& Supplies
Exp.
Post Ref.
Debit
Exp.
5/31
Balance
6/10
Exp.
Balance
Post Ref.
2,100
Acct.140
Debit
Credit
Balance
45,500
Accounts Payable
5/31
Credit
700
Studio
Date 20XX
Acct. 130
2,800
J2
Date 20XX
9,100
12,100
Balance
6/7
Balance
12,100
J2
5/31
Credit
Balance
6/2
Date 20XX
Acct. 120
Post Ref.
Acct. 210
Debit
Credit
Balance
Balance
2,600
J2
300
2,900
6/15
J2
2,100
Lee Adkins, Capital
Date 20XX
5/31
Exp.
Post Ref.
Debit
5/31
Exp.
Post Ref.
Debit
2,000
Post Ref.
Debit
J2
Date 20XX
Exp.
5/31
Balance
32,000
Acct. 410
Credit
3,000
Post Ref.
Debit
Balance
Balance
42,000
Acct. 510
Credit
Balance
2,300
Salaries Expense
Exp.
Balance
39,000
Advertising Expense
5/31
Credit
Balance
6/30
Date 20XX
Acct. 320
30,000
J2
Exp.
Balance
57,400
Professional Fee Revenue
5/31
Credit
Balance
6/27
Date 20XX
Acct. 310
Balance
Lee Adkins, Drawing
Date 20XX
800
Post Ref.
Acct. 520
Debit
Credit
Balance
2,100
Legal& Accounting Expense
Date 20XX
Exp.
6/10
Post Ref.
Debit
J2
300
Credit
5/31
Exp.
Post Ref.
Acct. 540
Debit
Credit
Balance
Balance Sheet as at June 30, 20XX
$2,500
Accounts receivable
12,100
Equipment& Supplies
2,100
Studio
$45,000
Accounts Payable
800
Lee Adkins, Capital
57,400
Lee Adkins, Drawing
32,000
Professional Fee Revenue
42,000
Advertising Expense
2,300
Salaries Expense
2,100
Legal& Accounting Expense
Utilities Expense
Balance
2,000
Adkins Studio
Cash
Balance
300
Utilities Expense
Date 20XX
Acct. 530
300
2,000
100,200
100,200
7. Journal entry preparation
On January 1 of the current year, Peter Houston invested $80,000 cash with his company
MuniServ. The cash was obtained from an owner investment by Peter Houston of $50,000 and a
$30,000 bank loan. Shortly thereafter, the company acquired selected assets of a bankrupt
competitor. The acquisition included land ($10,000), a building ($40,000) and vehicles
($10,000). MuniServ paid $45,000 at the time of the transaction and agreed to remit the
remaining balance due of $15,000 (account payable) by February 15.
During January, the company had additional cash outlays for the following items:
Purchases of store equipment
4,600
Note payment
500
Salaries expense
2,300
Advertising expense
700
The January utility bill of $200 was received on January 31 and will be paid next month.
MuniServ rendered services to clients on account to $9,400. All customers have been billed; by
month-end, $3,700 had been received in settlement of account balances.
a. Present journal entries that reflect MuniServ’s January transactions, including the $80,000
raised from the owner investment and loan
1. Cash
80,000
Notes payable
30,000
Peter Houston, Capital
50,000
2. Land
10,000
Building
40,000
Vehicles
10,000
Cash
45,000
Accounts payable
15,000
3. Store equipment
4,600
Cash
4,600
4. Notes payable
500
Cash
500
5. Salary expense
2,300
Cash
2,300
6. Advertising expense
700
Cash
700
7. Utility expense
200
Accounts payable
8. Accounts receivable
200
9,400
Revenue
9. Cash
9,400
3,700
Accounts receivable
3,700
b. Compute the total debits, total credits, and ending balance that would be found in the
company’s cash account.
General Ledger
Cash Account
Date
1/1/20XX
1/X/20XX
1/X/20XX
1/X/20XX
1/X/20XX
1/X/20XX
1/X/20XX
Total
Description
Investment
Purchase Asset
Purchase store
equipment store
equipment
Paid note
Paid salaries
Paid advertising
Collected A/R
Debit
80,000
Credit
45,000
4,600
500
2,300
700
3,700
83,700
53,100
Balance
80,000
35,000
30,400
29,400
27,600
26,900
30,600
C. Determine the amount that would be shown on the January 31 trial balance for Accounts
Payable. Is the balance a debit or a credit?
TRIAL BALANCE
DEBITS
CASH
CREDITS
30,600
ACCOUNTS RECEIVABLE
3,700
LAND
10,000
BUILDING
40,000
VEHICLES
10,000
EQUIPMENT
4,600
ACCOUNTS PAYABLE
15,200
NOTES PAYABLE
28,500
PETER HOUSTON, CAPITAL
50,000
SERVICE REVENUE
9,400
SALARIES EXPENSE
2,300
ADVERTISING EXPENSE
700
UTILITIES EXPENSE
200
Totals
$
102,100
$102,100
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