Answer:
a. Insurance Expense 16,400 Prepaid Insurance 16,400 Insurance expired ($12,000 + $18,000 – $13,600). b. Insurance Expense 16,400 Prepaid Insurance 16,400 Insurance expired.
Thursday 30 June 2016
The prepaid insurance account had a balance of $12,000 at the beginning of the year
The prepaid insurance account had a balance of $12,000 at the beginning of the year. The account was debited for $18,000 for premiums on policies purchased during the year. Journalize the adjusting entry required at the end of the year for each of the following situations: (a) the amount of unexpired insurance applicable to future periods is $13,600; (b) the amount of insurance expired during the year is $16,400.
Answer:
a. Insurance Expense 16,400 Prepaid Insurance 16,400 Insurance expired ($12,000 + $18,000 – $13,600). b. Insurance Expense 16,400 Prepaid Insurance 16,400 Insurance expired.
Answer:
a. Insurance Expense 16,400 Prepaid Insurance 16,400 Insurance expired ($12,000 + $18,000 – $13,600). b. Insurance Expense 16,400 Prepaid Insurance 16,400 Insurance expired.
The balance in the prepaid insurance account, before adjustment at the end of the year, is $21,700.
The balance in the prepaid insurance account, before adjustment at the end of the year, is $21,700. Journalize the adjusting entry required under each of the following alternatives for determining the amount of the adjustment: (a) the amount of insurance expired during the year is $16,450; (b) the amount of unexpired insurance applicable to future periods is $5,250.
Answer:
a. Insurance Expense 16,450 Prepaid Insurance 16,450 Insurance expired. b. Insurance Expense 16,450 Prepaid Insurance 16,450 Insurance expired ($21,700 – $5,250).
Answer:
a. Insurance Expense 16,450 Prepaid Insurance 16,450 Insurance expired. b. Insurance Expense 16,450 Prepaid Insurance 16,450 Insurance expired ($21,700 – $5,250).
At March 31, the end of the first month of operations, the usual adjusting entry transferring prepaid insurance expired
At March 31, the end of the first month of operations, the usual adjusting entry transferring prepaid insurance expired to an expense account is omitted. Which items will be incorrectly stated, because of the error, on (a) the income statement for March and (b) the balance sheet as of March 31? Also indicate whether the items in error will be overstated or understated.
Answer:
a. Insurance expense (or expenses) will be understated. Net income will be overstated.
b. Prepaid insurance (or assets) will be overstated. Owner’s equity will be overstated.
Answer:
a. Insurance expense (or expenses) will be understated. Net income will be overstated.
b. Prepaid insurance (or assets) will be overstated. Owner’s equity will be overstated.
The supplies and supplies expense accounts at December 31, after adjusting entries have been posted at the end of the first year
The supplies and supplies expense accounts at December 31, after adjusting entries have been posted at the end of the first year of operations, are shown in the following T accounts:
Supplies Supplies Expense Bal. 1,560 Bal. 4,250
Determine the amount of supplies purchased during the year.
Answer:
$5,810 ($1,560 + $4,250).
Supplies Supplies Expense Bal. 1,560 Bal. 4,250
Determine the amount of supplies purchased during the year.
Answer:
$5,810 ($1,560 + $4,250).
The balance in the supplies account, before adjustment at the end of the year, is $2,389
The balance in the supplies account, before adjustment at the end of the year, is $2,389. Journalize the adjusting entry required if the amount of supplies on hand at the end of the year is $830.
Answer:
Supplies Expense 1,559 Supplies 1,559 Supplies used ($2,389 – $830).
Answer:
Supplies Expense 1,559 Supplies 1,559 Supplies used ($2,389 – $830).
The following accounts were taken from the unadjusted trial balance of Orion Co., a congressional lobbying firm
The following accounts were taken from the unadjusted trial balance of Orion Co., a congressional lobbying firm. Indicate whether or not each account would normally require an adjusting entry. If the account normally requires an adjusting entry, use the following notation to indicate the type of adjustment:
AE—Accrued Expense
AR—Accrued Revenue
PE—Prepaid Expense
UR—Unearned Revenue
To illustrate, the answer for the first account is shown below.
Account Answer Accounts Receivable Normally requires adjustment (AR). Cash Interest Expense Interest Receivable Johann Atkins, Capital Land Office Equipment Prepaid Rent Supplies Unearned Fees Wages Expense
Answer:
Account Answer Accounts Receivable .................................. Normally requires adjustment (AR). Cash .............................................................. Does not normally require adjustment. Interest Expense ......................................... Normally requires adjustment (AE). Interest Receivable ..................................... Normally requires adjustment (AR). Johann Atkins, Capital ............................... Does not normally require adjustment. Land .............................................................. Does not normally require adjustment. Office Equipment ........................................ Does not normally require adjustment. Prepaid Rent ................................................ Normally requires adjustment (PE). Supplies ........................................................ Normally requires adjustment (PE). Unearned Fees ............................................ Normally requires adjustment (UR). Wages Expense ........................................... Normally requires adjustment (AE).
AE—Accrued Expense
AR—Accrued Revenue
PE—Prepaid Expense
UR—Unearned Revenue
To illustrate, the answer for the first account is shown below.
Account Answer Accounts Receivable Normally requires adjustment (AR). Cash Interest Expense Interest Receivable Johann Atkins, Capital Land Office Equipment Prepaid Rent Supplies Unearned Fees Wages Expense
Answer:
Account Answer Accounts Receivable .................................. Normally requires adjustment (AR). Cash .............................................................. Does not normally require adjustment. Interest Expense ......................................... Normally requires adjustment (AE). Interest Receivable ..................................... Normally requires adjustment (AR). Johann Atkins, Capital ............................... Does not normally require adjustment. Land .............................................................. Does not normally require adjustment. Office Equipment ........................................ Does not normally require adjustment. Prepaid Rent ................................................ Normally requires adjustment (PE). Supplies ........................................................ Normally requires adjustment (PE). Unearned Fees ............................................ Normally requires adjustment (UR). Wages Expense ........................................... Normally requires adjustment (AE).
A three-year premium paid on a fire insurance policy. 2. Fees earned but not yet received.
Classify the following items as (a) prepaid expense, (b) unearned revenue, (c) accrued revenue, or (d) accrued expense.
1. A three-year premium paid on a fire insurance policy.
2. Fees earned but not yet received.
3. Fees received but not yet earned.
4. Salary owed but not yet paid.
5. Subscriptions received in advance by a magazine publisher.
6. Supplies on hand.
7. Taxes owed but payable in the following period.
8. Utilities owed but not yet paid.
Answer:
1. Prepaid expense 5. Unearned revenue
2. Accrued revenue 6. Prepaid expense
3. Unearned revenue 7. Accrued expense
4. Accrued expense 8. Accrued expense
1. A three-year premium paid on a fire insurance policy.
2. Fees earned but not yet received.
3. Fees received but not yet earned.
4. Salary owed but not yet paid.
5. Subscriptions received in advance by a magazine publisher.
6. Supplies on hand.
7. Taxes owed but payable in the following period.
8. Utilities owed but not yet paid.
Answer:
1. Prepaid expense 5. Unearned revenue
2. Accrued revenue 6. Prepaid expense
3. Unearned revenue 7. Accrued expense
4. Accrued expense 8. Accrued expense
Sunday 19 June 2016
The following data (in millions) were taken the financial statements of Walmart Stores, Inc.
The following data (in millions) were taken the financial statements of Walmart Stores, Inc.
Recent Year Prior Year Revenue $421,849 $408,085 Operating expenses 396,307 384,083 Operating income $ 25,542 $ 24,002
a. For Walmart Stores, Inc., determine the amount of change in millions and the percent of change (round to one decimal place) from the prior year to the recent year for:
1. Revenue
2. Operating expenses
3. Operating income
b. Comment on the results of your horizontal analysis in part (a).
c. Based upon Exercise 2-23, compare and comment on the operating results of Target and Walmart for the recent year.
Answer:
a.
1. Revenue:
$13,764 million increase ($421,849 – $408,085)
3.4% increase ($13,764 ÷ $408,085)
2. Operating expenses:
$12,224 million increase ($396,307 – $384,083)
3.2% increase ($12,224 ÷ $384,083)
3. Operating expenses:
$1,540 million increase ($25,542 – $24,002)
6.4% increase ($1,540 ÷ $24,002)
b. During the recent year, revenue increased by 3.4%, while operating expenses increased by 3.2%. As a result, operating income increased by 6.4%, a favorable trend from the prior year.
c. Because of the size differences between Target and Walmart (Walmart has over 6 times the revenue), it is best to compare the two companies on the basis of percent changes. Target and Walmart increased their revenue from the prior year by approximately the same percent (3.1% for Target and 3.4% for Walmart). However, Target's operating expenses increased by only 2.4% compared to Walmart's 3.2% increase. As a result, Target's operating income increased by 12.4% compared to Walmart's 6.4% increase. Based upon this analysis, it appears that Target was better able to control its operating expenses as its revenue increased than was Walmart.
Recent Year Prior Year Revenue $421,849 $408,085 Operating expenses 396,307 384,083 Operating income $ 25,542 $ 24,002
a. For Walmart Stores, Inc., determine the amount of change in millions and the percent of change (round to one decimal place) from the prior year to the recent year for:
1. Revenue
2. Operating expenses
3. Operating income
b. Comment on the results of your horizontal analysis in part (a).
c. Based upon Exercise 2-23, compare and comment on the operating results of Target and Walmart for the recent year.
Answer:
a.
1. Revenue:
$13,764 million increase ($421,849 – $408,085)
3.4% increase ($13,764 ÷ $408,085)
2. Operating expenses:
$12,224 million increase ($396,307 – $384,083)
3.2% increase ($12,224 ÷ $384,083)
3. Operating expenses:
$1,540 million increase ($25,542 – $24,002)
6.4% increase ($1,540 ÷ $24,002)
b. During the recent year, revenue increased by 3.4%, while operating expenses increased by 3.2%. As a result, operating income increased by 6.4%, a favorable trend from the prior year.
c. Because of the size differences between Target and Walmart (Walmart has over 6 times the revenue), it is best to compare the two companies on the basis of percent changes. Target and Walmart increased their revenue from the prior year by approximately the same percent (3.1% for Target and 3.4% for Walmart). However, Target's operating expenses increased by only 2.4% compared to Walmart's 3.2% increase. As a result, Target's operating income increased by 12.4% compared to Walmart's 6.4% increase. Based upon this analysis, it appears that Target was better able to control its operating expenses as its revenue increased than was Walmart.
The following data (in millions) are taken from the financial statements of Target Corporation.
The following data (in millions) are taken from the financial statements of Target Corporation.
Recent Year Prior Year Revenue $67,390 $65,357 Operating expenses 62,138 60,684 Operating income $ 5,252 $ 4,673
a. For Target Corporation, determine the amount of change in millions and the percent of change (round to one decimal place) from the prior year to the recent year for:
1. Revenue
2. Operating expenses
3. Operating income
b. What conclusions can you draw from your analysis of the revenue and the total operating expenses?
Answer:
a.
1. Revenue:
$2,033 million increase ($67,390 – $65,357)
3.1% increase ($2,033 ÷ $65,357)
2. Operating expenses:
$1,454 million increase ($62,138 – $60,684)
2.4% increase ($1,454 ÷ $60,684)
3. Operating income:
$579 million increase ($5,252 – $4,673)
12.4% increase ($579 ÷ $4,673)
b. During the recent year, revenue increased by 3.1%, while operating expenses increased by only 2.4%. As a result, operating income increased by 12.4%, a favorable trend from the prior year.
Recent Year Prior Year Revenue $67,390 $65,357 Operating expenses 62,138 60,684 Operating income $ 5,252 $ 4,673
a. For Target Corporation, determine the amount of change in millions and the percent of change (round to one decimal place) from the prior year to the recent year for:
1. Revenue
2. Operating expenses
3. Operating income
b. What conclusions can you draw from your analysis of the revenue and the total operating expenses?
Answer:
a.
1. Revenue:
$2,033 million increase ($67,390 – $65,357)
3.1% increase ($2,033 ÷ $65,357)
2. Operating expenses:
$1,454 million increase ($62,138 – $60,684)
2.4% increase ($1,454 ÷ $60,684)
3. Operating income:
$579 million increase ($5,252 – $4,673)
12.4% increase ($579 ÷ $4,673)
b. During the recent year, revenue increased by 3.1%, while operating expenses increased by only 2.4%. As a result, operating income increased by 12.4%, a favorable trend from the prior year.
Cash of $8,800 received on account was recorded as a debit to Fees Earned and a credit to Cash
The following errors took place in journalizing and posting transactions:
a. Cash of $8,800 received on account was recorded as a debit to Fees Earned and a credit to Cash.
b. A $1,760 purchase of supplies for cash was recorded as a debit to Supplies Expense and a credit to Accounts Payable.
Journalize the entries to correct the errors. Omit explanations.
Answer:
Cash 17,600 Fees Earned 8,800 Accounts Receivable 8,800 Accounts Payable* 1,760 Supplies Expense 1,760 Ex. 2–22 a. b. Supplies 1,760 Cash 1,760
* The first entry reverses the original entry. The second entry is the entry that should have been made initially.
a. Cash of $8,800 received on account was recorded as a debit to Fees Earned and a credit to Cash.
b. A $1,760 purchase of supplies for cash was recorded as a debit to Supplies Expense and a credit to Accounts Payable.
Journalize the entries to correct the errors. Omit explanations.
Answer:
Cash 17,600 Fees Earned 8,800 Accounts Receivable 8,800 Accounts Payable* 1,760 Supplies Expense 1,760 Ex. 2–22 a. b. Supplies 1,760 Cash 1,760
* The first entry reverses the original entry. The second entry is the entry that should have been made initially.
Rent of $13,550 paid for the current month was recorded as a debit to Rent Expense and a credit to Prepaid Rent
The following errors took place in journalizing and posting transactions:
a. Rent of $13,550 paid for the current month was recorded as a debit to Rent Expense and a credit to Prepaid Rent.
b. A withdrawal of $14,000 by Ron Sutin, owner of the business, was recorded as a debit to Wages Expense and a credit to Cash.
Journalize the entries to correct the errors. Omit explanations.
Answer:
a. Prepaid Rent 13,550 Cash 13,550 b. Ron Sutin, Drawing 14,000 Wages Expense 14,000
a. Rent of $13,550 paid for the current month was recorded as a debit to Rent Expense and a credit to Prepaid Rent.
b. A withdrawal of $14,000 by Ron Sutin, owner of the business, was recorded as a debit to Wages Expense and a credit to Cash.
Journalize the entries to correct the errors. Omit explanations.
Answer:
a. Prepaid Rent 13,550 Cash 13,550 b. Ron Sutin, Drawing 14,000 Wages Expense 14,000
Identify the errors in the following trial balance. All accounts have normal balances.Mascot Co. Unadjusted Trial balance
Identify the errors in the following trial balance. All accounts have normal balances.
Mascot Co. Unadjusted Trial balance For the Month Ending july 31, 2014 Debit balances Credit balances Cash .................................................................. 36,000 Accounts Receivable.................................................... 112,600 Prepaid Insurance ...................................................... 18,000 Equipment............................................................. 375,000 Accounts Payable ...................................................... 53,300 Salaries Payable........................................................ 7,500 Samuel Parson, Capital ................................................. 297,200 Samuel Parson, Drawing ................................................ 17,000 Service Revenue ....................................................... 682,000 Salary Expense......................................................... 396,800 Advertising Expense.................................................... 73,000 Miscellaneous Expense ................................................. 11,600 1,189,300 1,189,300
Answer:
1. The Debit column total is added incorrectly. The sum is $890,700 rather than $1,189,300.
2. The trial balance should be dated “July 31, 2014,” not “For the Month Ending July 31, 2014.”
3. The Accounts Receivable balance should be in the Debit column.
4. The Accounts Payable balance should be in the Credit column.
5. The Samuel Parson, Drawing, balance should be in the Debit column.
6. The Advertising Expense balance should be in the Debit column.
A corrected trial balance would be as follows:
MASCOT CO. Unadjusted Trial Balance July 31, 2014 Debit Balances
Credit Balances
Cash 36,000 Accounts Receivable 112,600 Prepaid Insurance 18,000 Equipment 375,000 Accounts Payable 53,300 Salaries Payable 7,500 Samuel Parson, Capital 297,200 Samuel Parson, Drawing 17,000 Service Revenue 682,000 Salary Expense 396,800 Advertising Expense 73,000 Miscellaneous Expense 11,600 1,040,000 1,040,000
Mascot Co. Unadjusted Trial balance For the Month Ending july 31, 2014 Debit balances Credit balances Cash .................................................................. 36,000 Accounts Receivable.................................................... 112,600 Prepaid Insurance ...................................................... 18,000 Equipment............................................................. 375,000 Accounts Payable ...................................................... 53,300 Salaries Payable........................................................ 7,500 Samuel Parson, Capital ................................................. 297,200 Samuel Parson, Drawing ................................................ 17,000 Service Revenue ....................................................... 682,000 Salary Expense......................................................... 396,800 Advertising Expense.................................................... 73,000 Miscellaneous Expense ................................................. 11,600 1,189,300 1,189,300
Answer:
1. The Debit column total is added incorrectly. The sum is $890,700 rather than $1,189,300.
2. The trial balance should be dated “July 31, 2014,” not “For the Month Ending July 31, 2014.”
3. The Accounts Receivable balance should be in the Debit column.
4. The Accounts Payable balance should be in the Credit column.
5. The Samuel Parson, Drawing, balance should be in the Debit column.
6. The Advertising Expense balance should be in the Debit column.
A corrected trial balance would be as follows:
MASCOT CO. Unadjusted Trial Balance July 31, 2014 Debit Balances
Credit Balances
Cash 36,000 Accounts Receivable 112,600 Prepaid Insurance 18,000 Equipment 375,000 Accounts Payable 53,300 Salaries Payable 7,500 Samuel Parson, Capital 297,200 Samuel Parson, Drawing 17,000 Service Revenue 682,000 Salary Expense 396,800 Advertising Expense 73,000 Miscellaneous Expense 11,600 1,040,000 1,040,000
The following errors occurred in posting from a two-column journal: 1. A credit of $6,000 to Accounts Payable was not posted.
The following errors occurred in posting from a two-column journal:
1. A credit of $6,000 to Accounts Payable was not posted.
2. An entry debiting Accounts Receivable and crediting Fees Earned for $5,300 was not posted.
3. A debit of $2,700 to Accounts Payable was posted as a credit.
4. A debit of $480 to Supplies was posted twice.
5. A debit of $3,600 to Cash was posted to Miscellaneous Expense.
6. A credit of $780 to Cash was posted as $870.
7. A debit of $12,620 to Wages Expense was posted as $12,260.
Considering each case individually (i.e., assuming that no other errors had occurred), indicate: (a) by “yes” or “no” whether the trial balance would be out of balance; (b) if answer to (a) is “yes,” the amount by which the trial balance totals would differ; and (c) whether the Debit or Credit column of the trial balance would have the larger total. Answers should be presented in the following form, with error (1) given as an example:
(a) (b) (c) Error Out of balance Difference Larger Total 1. yes $6,000 debit
Answer:
(a) (b)
(c)
Error Out of Balance Difference 1. yes $6,000 2. no — 3. yes 5,400 4. yes 480 5. no — 6. yes 90 7. yes 360
Larger Total debit — credit debit — credit credit
1. A credit of $6,000 to Accounts Payable was not posted.
2. An entry debiting Accounts Receivable and crediting Fees Earned for $5,300 was not posted.
3. A debit of $2,700 to Accounts Payable was posted as a credit.
4. A debit of $480 to Supplies was posted twice.
5. A debit of $3,600 to Cash was posted to Miscellaneous Expense.
6. A credit of $780 to Cash was posted as $870.
7. A debit of $12,620 to Wages Expense was posted as $12,260.
Considering each case individually (i.e., assuming that no other errors had occurred), indicate: (a) by “yes” or “no” whether the trial balance would be out of balance; (b) if answer to (a) is “yes,” the amount by which the trial balance totals would differ; and (c) whether the Debit or Credit column of the trial balance would have the larger total. Answers should be presented in the following form, with error (1) given as an example:
(a) (b) (c) Error Out of balance Difference Larger Total 1. yes $6,000 debit
Answer:
(a) (b)
(c)
Error Out of Balance Difference 1. yes $6,000 2. no — 3. yes 5,400 4. yes 480 5. no — 6. yes 90 7. yes 360
Larger Total debit — credit debit — credit credit
The following preliminary unadjusted trial balance of Ranger Co., a sports ticket agency, does not balance:
The following preliminary unadjusted trial balance of Ranger Co., a sports ticket agency, does not balance:
Ranger Co. Unadjusted Trial balance August 31, 2014
Debit balances
Credit balances
Cash ............................................................ 77,600 Accounts Receivable.............................................. 37,750 Prepaid Insurance ................................................ 12,000 Equipment....................................................... 19,000 Accounts Payable ................................................ 29,100 Unearned Rent................................................... 10,800 Carmen Meeks, Capital ........................................... 110,000 Carmen Meeks, Drawing .......................................... 13,000 Service Revenue ................................................. 385,000 Wages Expense .................................................. 213,000 Advertising Expense.............................................. 16,350 Miscellaneous Expense ........................................... 18,400 273,700 668,300
When the ledger and other records are reviewed, you discover the following: (1) the debits and credits in the cash account total $77,600 and $62,100, respectively; (2) a billing of $9,000 to a customer on account was not posted to the accounts receivable account; (3) a payment of $4,500 made to a creditor on account was not posted to the accounts payable account; (4) the balance of the unearned rent account is $5,400; (5) the correct balance of the equipment account is $190,000; and (6) each account has a normal balance.
Prepare a corrected unadjusted trial balance.
Answer:
RANGER CO. Unadjusted Trial Balance August 31, 2014 Debit Balances
Credit Balances
Cash 15,500 Accounts Receivable 46,750 Prepaid Insurance 12,000 Equipment 190,000 Accounts Payable 24,600 Unearned Rent 5,400 Carmen Meeks, Capital 110,000 Carmen Meeks, Drawing 13,000 Service Revenue 385,000 Wages Expense 213,000 Advertising Expense 16,350 Miscellaneous Expense 18,400 525,000 525,000
Ranger Co. Unadjusted Trial balance August 31, 2014
Debit balances
Credit balances
Cash ............................................................ 77,600 Accounts Receivable.............................................. 37,750 Prepaid Insurance ................................................ 12,000 Equipment....................................................... 19,000 Accounts Payable ................................................ 29,100 Unearned Rent................................................... 10,800 Carmen Meeks, Capital ........................................... 110,000 Carmen Meeks, Drawing .......................................... 13,000 Service Revenue ................................................. 385,000 Wages Expense .................................................. 213,000 Advertising Expense.............................................. 16,350 Miscellaneous Expense ........................................... 18,400 273,700 668,300
When the ledger and other records are reviewed, you discover the following: (1) the debits and credits in the cash account total $77,600 and $62,100, respectively; (2) a billing of $9,000 to a customer on account was not posted to the accounts receivable account; (3) a payment of $4,500 made to a creditor on account was not posted to the accounts payable account; (4) the balance of the unearned rent account is $5,400; (5) the correct balance of the equipment account is $190,000; and (6) each account has a normal balance.
Prepare a corrected unadjusted trial balance.
Answer:
RANGER CO. Unadjusted Trial Balance August 31, 2014 Debit Balances
Credit Balances
Cash 15,500 Accounts Receivable 46,750 Prepaid Insurance 12,000 Equipment 190,000 Accounts Payable 24,600 Unearned Rent 5,400 Carmen Meeks, Capital 110,000 Carmen Meeks, Drawing 13,000 Service Revenue 385,000 Wages Expense 213,000 Advertising Expense 16,350 Miscellaneous Expense 18,400 525,000 525,000
A fee of $21,000 earned and due from a client was not debited to Accounts Receivable or credited to a revenue account
Indicate which of the following errors, each considered individually, would cause the trial balance totals to be unequal:
a. A fee of $21,000 earned and due from a client was not debited to Accounts Receivable or credited to a revenue account, because the cash had not been received.
b. A receipt of $11,300 from an account receivable was journalized and posted as a debit of $11,300 to Cash and a credit of $11,300 to Fees Earned.
c. A payment of $4,950 to a creditor was posted as a debit of $4,950 to Accounts Payable and a debit of $4,950 to Cash.
d. A payment of $5,000 for equipment purchased was posted as a debit of $500 to Equipment and a credit of $500 to Cash.
e. Payment of a cash withdrawal of $19,000 was journalized and posted as a debit of $1,900 to Salary Expense and a credit of $19,000 to Cash.
Indicate which of the preceding errors would require a correcting entry.
Answer:
Inequality of trial balance totals would be caused by errors described in (c) and (e). For (c), the debit total would exceed the credit total by $9,900 ($4,950 + $4,950). For (e), the credit total would exceed the debit total by $17,100 ($19,000 – $1,900).
Errors (b), (d), and (e) would require correcting entries. Although it is not a correcting entry, the entry that was not made in (a) should also be entered in the journal.
a. A fee of $21,000 earned and due from a client was not debited to Accounts Receivable or credited to a revenue account, because the cash had not been received.
b. A receipt of $11,300 from an account receivable was journalized and posted as a debit of $11,300 to Cash and a credit of $11,300 to Fees Earned.
c. A payment of $4,950 to a creditor was posted as a debit of $4,950 to Accounts Payable and a debit of $4,950 to Cash.
d. A payment of $5,000 for equipment purchased was posted as a debit of $500 to Equipment and a credit of $500 to Cash.
e. Payment of a cash withdrawal of $19,000 was journalized and posted as a debit of $1,900 to Salary Expense and a credit of $19,000 to Cash.
Indicate which of the preceding errors would require a correcting entry.
Answer:
Inequality of trial balance totals would be caused by errors described in (c) and (e). For (c), the debit total would exceed the credit total by $9,900 ($4,950 + $4,950). For (e), the credit total would exceed the debit total by $17,100 ($19,000 – $1,900).
Errors (b), (d), and (e) would require correcting entries. Although it is not a correcting entry, the entry that was not made in (a) should also be entered in the journal.
The accounts in the ledger of Leaf Co. as of December 31, 2014, are listed in alphabetical order as follows
The accounts in the ledger of Leaf Co. as of December 31, 2014, are listed in alphabetical order as follows. All accounts have normal balances. The balance of the cash account has been intentionally omitted.
Accounts Payable $ 23,500 Notes Payable $ 50,000 Accounts Receivable 38,100 Prepaid Insurance 6,400 Cash ? Rent Expense 36,000 Dan Leafdale, Capital 50,000 Supplies 3,200 Dan Leafdale, Drawing 16,000 Supplies Expense 9,000 Fees Earned 538,000 Unearned Rent 13,500 Insurance Expense 6,000 Utilities Expense 18,000 Land 40,000 Wages Expense 476,800 Miscellaneous Expense 12,000
Prepare an unadjusted trial balance, listing the accounts in their normal order and inserting the missing figure for cash.
Answer:
LEAF CO. Unadjusted Trial Balance December 31, 2014 Debit Balances
Credit Balances
Cash 13,500 * Accounts Receivable 38,100 Supplies 3,200 Prepaid insurance 6,400 Land 40,000 Accounts Payable 23,500 Unearned Rent 13,500 Notes Payable 50,000 Dan Leafdale, Capital 50,000 Dan Leafdale, Drawing 16,000 Fees Earned 538,000 Wages Expense 476,800 Rent Expense 36,000 Utilities Expense 18,000 Supplies Expense 9,000 Insurance Expense 6,000 Miscellaneous Expense 12,000 675,000 675,000 *$13,500 = $675,000 – $12,000 – $6,000 – $9,000 – $18,000 – $36,000 – $476,800 – $16,000 – $40,000 – $6,400 – 3,200 – $38,100
Accounts Payable $ 23,500 Notes Payable $ 50,000 Accounts Receivable 38,100 Prepaid Insurance 6,400 Cash ? Rent Expense 36,000 Dan Leafdale, Capital 50,000 Supplies 3,200 Dan Leafdale, Drawing 16,000 Supplies Expense 9,000 Fees Earned 538,000 Unearned Rent 13,500 Insurance Expense 6,000 Utilities Expense 18,000 Land 40,000 Wages Expense 476,800 Miscellaneous Expense 12,000
Prepare an unadjusted trial balance, listing the accounts in their normal order and inserting the missing figure for cash.
Answer:
LEAF CO. Unadjusted Trial Balance December 31, 2014 Debit Balances
Credit Balances
Cash 13,500 * Accounts Receivable 38,100 Supplies 3,200 Prepaid insurance 6,400 Land 40,000 Accounts Payable 23,500 Unearned Rent 13,500 Notes Payable 50,000 Dan Leafdale, Capital 50,000 Dan Leafdale, Drawing 16,000 Fees Earned 538,000 Wages Expense 476,800 Rent Expense 36,000 Utilities Expense 18,000 Supplies Expense 9,000 Insurance Expense 6,000 Miscellaneous Expense 12,000 675,000 675,000 *$13,500 = $675,000 – $12,000 – $6,000 – $9,000 – $18,000 – $36,000 – $476,800 – $16,000 – $40,000 – $6,400 – 3,200 – $38,100
Based upon the data presented in Exercise 2-13, (a) prepare an unadjusted trial balance GRAND CANYON TOURS CO
Based upon the data presented in Exercise 2-13, (a) prepare an unadjusted trial balance, listing the accounts in their proper order. (b) Based upon the unadjusted trial balance, determine the net income or net loss.
Answer:
GRAND CANYON TOURS CO. Unadjusted Trial Balance April 30, 2014 Debit Balances
Credit Balances
Cash 62,300 Accounts Receivable 8,500 Supplies 2,000 Equipment 25,000 Accounts Payable 13,000 Luis Chavez, Capital 75,000 Luis Chavez, Drawing 5,000 Service Revenue 19,500 Operating Expenses 4,700 107,500 107,500
a.
b. Net income, $14,800 ($19,500 – $4,700)
Based upon the T accounts in Exercise 2-13, prepare the nine journal entries from which the postings were made
Based upon the T accounts in Exercise 2-13, prepare the nine journal entries from which the postings were made. Journal entry explanations may be omitted.
Answer:
(1) Cash 75,000 Luis Chavez, Capital 75,000 (2) Supplies 4,000 Cash 4,000 (3) Equipment 25,000 Accounts Payable 22,000 Cash 3,000 (4) Operating Expenses 2,700 Cash 2,700 (5) Accounts Receivable 19,500 Service Revenue 19,500 (6) Accounts Payable 9,000 Cash 9,000 (7) Cash 11,000 Accounts Receivable 11,000 (8) Operating Expenses 2,000 Supplies 2,000 (9) Luis Chavez, Drawing 5,000 Cash 5,000
Answer:
(1) Cash 75,000 Luis Chavez, Capital 75,000 (2) Supplies 4,000 Cash 4,000 (3) Equipment 25,000 Accounts Payable 22,000 Cash 3,000 (4) Operating Expenses 2,700 Cash 2,700 (5) Accounts Receivable 19,500 Service Revenue 19,500 (6) Accounts Payable 9,000 Cash 9,000 (7) Cash 11,000 Accounts Receivable 11,000 (8) Operating Expenses 2,000 Supplies 2,000 (9) Luis Chavez, Drawing 5,000 Cash 5,000
Grand Canyon Tours Co. is a travel agency. The nine transactions recorded by Grand Canyon Tours during April 2014
Grand Canyon Tours Co. is a travel agency. The nine transactions recorded by Grand Canyon Tours during April 2014, its first month of operations, are indicated in the following T accounts:
Cash Equipment Luis Chavez, Drawing (1) 75,000 (2) 4,000 (3) 25,000 (9) 5,000 (7) 11,000 (3) 3,000 (4) 2,700 (6) 9,000 (9) 5,000
Accounts Receivable Accounts Payable Service Revenue (5) 19,500 (7) 11,000 (6) 9,000 (3) 22,000 (5) 19,500
Supplies Luis Chavez, Capital Operating Expenses (2) 4,000 (8) 2,000 (1) 75,000 (4) 2,700 (8) 2,000
Indicate for each debit and each credit: (a) whether an asset, liability, owner’s equity, drawing, revenue, or expense account was affected and (b) whether the account was increased (+) or decreased (–). Present your answers in the following form, with transaction (1) given as an example:
Account Debited Account Credited Transaction Type Effect Type Effect (1) asset + owner’s equity +
Answer:
a. and b.
Account Debited Account Credited
Transaction
Type
Effect Type Effect
(1) (2) (3)
(4) (5) (6) (7) (8) (9)
asset + owner’s equity + asset + asset – asset + asset – liability + expense + asset – asset + revenue + liability – asset – asset + asset – expense + asset – drawing + asset –
Cash Equipment Luis Chavez, Drawing (1) 75,000 (2) 4,000 (3) 25,000 (9) 5,000 (7) 11,000 (3) 3,000 (4) 2,700 (6) 9,000 (9) 5,000
Accounts Receivable Accounts Payable Service Revenue (5) 19,500 (7) 11,000 (6) 9,000 (3) 22,000 (5) 19,500
Supplies Luis Chavez, Capital Operating Expenses (2) 4,000 (8) 2,000 (1) 75,000 (4) 2,700 (8) 2,000
Indicate for each debit and each credit: (a) whether an asset, liability, owner’s equity, drawing, revenue, or expense account was affected and (b) whether the account was increased (+) or decreased (–). Present your answers in the following form, with transaction (1) given as an example:
Account Debited Account Credited Transaction Type Effect Type Effect (1) asset + owner’s equity +
Answer:
a. and b.
Account Debited Account Credited
Transaction
Type
Effect Type Effect
(1) (2) (3)
(4) (5) (6) (7) (8) (9)
asset + owner’s equity + asset + asset – asset + asset – liability + expense + asset – asset + revenue + liability – asset – asset + asset – expense + asset – drawing + asset –
As of January 1, Terrace Waters, Capital, had a credit balance of $314,000
As of January 1, Terrace Waters, Capital, had a credit balance of $314,000. During the year, withdrawals totaled $10,000, and the business incurred a net loss of $320,000.
a. Compute the balance of Terrace Waters, Capital, as of the end of the year.
b. Assuming that there have been no recording errors, will the balance sheet prepared at December 31 balance? Explain.
Answer:
a. Debit (negative) balance of $16,000 ($314,000 – $10,000 – $320,000). This negative balance means that the liabilities of Waters' business exceed the assets.
b. Yes. The balance sheet prepared at December 31 will balance, with Terrace Waters, Capital, being reported in the owner’s equity section as a negative $16,000.
a. Compute the balance of Terrace Waters, Capital, as of the end of the year.
b. Assuming that there have been no recording errors, will the balance sheet prepared at December 31 balance? Explain.
Answer:
a. Debit (negative) balance of $16,000 ($314,000 – $10,000 – $320,000). This negative balance means that the liabilities of Waters' business exceed the assets.
b. Yes. The balance sheet prepared at December 31 will balance, with Terrace Waters, Capital, being reported in the owner’s equity section as a negative $16,000.
During March, $276,500 was paid to creditors on account, and purchases on account were $261,000
a. During March, $276,500 was paid to creditors on account, and purchases on account were $261,000. Assuming the March 31 balance of Accounts Payable was $76,000, determine the account balance on March 1.
b. On July 1, the accounts receivable account balance was $49,000. During July, $525,000 was collected from customers on account. Assuming the July 31 balance was $61,500, determine the fees billed to customers on account during July.
c. On September 1, the cash account balance was $28,440. During September, cash receipts totaled $112,100 and the September 30 balance was $33,200. Determine the cash payments made during September.
Answer:
a. Accounts Payable Mar. 1 X 276,500 261,000 Mar. 31 76,000 X + $261,000 – $276,500 = $76,000 X = $76,000 + $276,500 – $261,000 X = $91,500
b. Accounts Receivable July 1 49,000 525,000 X July 31 61,500 $49,000 + X – $525,000 = $61,500 X = $61,500 + $525,000 – $49,000 X = $537,500
c. Cash Sept. 1 28,440 X 112,100 Sept. 30 33,200 $28,440 + $112,100 – X = $33,200 X = $28,440 + $112,100 – $33,200 X = $107,340
b. On July 1, the accounts receivable account balance was $49,000. During July, $525,000 was collected from customers on account. Assuming the July 31 balance was $61,500, determine the fees billed to customers on account during July.
c. On September 1, the cash account balance was $28,440. During September, cash receipts totaled $112,100 and the September 30 balance was $33,200. Determine the cash payments made during September.
Answer:
a. Accounts Payable Mar. 1 X 276,500 261,000 Mar. 31 76,000 X + $261,000 – $276,500 = $76,000 X = $76,000 + $276,500 – $261,000 X = $91,500
b. Accounts Receivable July 1 49,000 525,000 X July 31 61,500 $49,000 + X – $525,000 = $61,500 X = $61,500 + $525,000 – $49,000 X = $537,500
c. Cash Sept. 1 28,440 X 112,100 Sept. 30 33,200 $28,440 + $112,100 – X = $33,200 X = $28,440 + $112,100 – $33,200 X = $107,340
During the month, Warwick Co. received $515,000 in cash and paid out $375,000 in cash.
During the month, Warwick Co. received $515,000 in cash and paid out $375,000 in cash.
a. Do the data indicate that Warwick Co. had net income of $140,000 during the month? Explain.
b. If the balance of the cash account is $200,000 at the end of the month, what was the cash balance at the beginning of the month?
Answer:
a. The increase of $140,000 ($515,000 – $375,000) in the cash account does not indicate net income of that amount. Net income is the net change in all assets and liabilities from operating (revenue and expense) transactions.
b. $60,000 ($200,000 – $140,000)
or
Cash X 375,000 515,000 200,000
X + $515,000 – $375,000 = $200,000 X = $200,000 – $515,000 + $375,000 X = $60,000
a. Do the data indicate that Warwick Co. had net income of $140,000 during the month? Explain.
b. If the balance of the cash account is $200,000 at the end of the month, what was the cash balance at the beginning of the month?
Answer:
a. The increase of $140,000 ($515,000 – $375,000) in the cash account does not indicate net income of that amount. Net income is the net change in all assets and liabilities from operating (revenue and expense) transactions.
b. $60,000 ($200,000 – $140,000)
or
Cash X 375,000 515,000 200,000
X + $515,000 – $375,000 = $200,000 X = $200,000 – $515,000 + $375,000 X = $60,000
The following selected transactions were completed during January of the current year: 1. Billed customers for fees earned, $48,600.
The following selected transactions were completed during January of the current year:
1. Billed customers for fees earned, $48,600.
2. Purchased supplies on account, $1,975.
3. Received cash from customers on account, $31,400.
4. Paid creditors on account, $1,350.
a. Journalize the above transactions in a two-column journal, using the appropriate number to identify the transactions. Journal entry explanations may be omitted.
b. Post the entries prepared in (a) to the following T accounts: Cash, Supplies, Accounts Receivable, Accounts Payable, Fees Earned. To the left of each amount posted in the accounts, place the appropriate number to identify the transactions.
c. Assume that the unadjusted trial balance on January 31 shows a credit balance for Accounts Receivable. Does this credit balance mean an error has occurred?
Answer:
a.
Accounts Receivable 48,600 Fees Earned 48,600 Supplies 1,975 Accounts Payable 1,975 Cash 31,400 Accounts Receivable 31,400 Accounts Payable 1,350 Cash 1,350
b.
Cash Accounts Payable (3) 31,400 (4) 1,350 (4) 1,350 (2) 1,975 Supplies Fees Earned (2) 1,975 (1) 48,600
Accounts Receivable (1) 48,600 (3) 31,400
c. No. A credit balance in Accounts Receivable could occur if a customer overpaid his or her account. Regardless, the credit balance should be investigated to verify that an error has not occurred.
1. Billed customers for fees earned, $48,600.
2. Purchased supplies on account, $1,975.
3. Received cash from customers on account, $31,400.
4. Paid creditors on account, $1,350.
a. Journalize the above transactions in a two-column journal, using the appropriate number to identify the transactions. Journal entry explanations may be omitted.
b. Post the entries prepared in (a) to the following T accounts: Cash, Supplies, Accounts Receivable, Accounts Payable, Fees Earned. To the left of each amount posted in the accounts, place the appropriate number to identify the transactions.
c. Assume that the unadjusted trial balance on January 31 shows a credit balance for Accounts Receivable. Does this credit balance mean an error has occurred?
Answer:
a.
Accounts Receivable 48,600 Fees Earned 48,600 Supplies 1,975 Accounts Payable 1,975 Cash 31,400 Accounts Receivable 31,400 Accounts Payable 1,350 Cash 1,350
b.
Cash Accounts Payable (3) 31,400 (4) 1,350 (4) 1,350 (2) 1,975 Supplies Fees Earned (2) 1,975 (1) 48,600
Accounts Receivable (1) 48,600 (3) 31,400
c. No. A credit balance in Accounts Receivable could occur if a customer overpaid his or her account. Regardless, the credit balance should be investigated to verify that an error has not occurred.
On May 22, 2014, Hillcrest Co. purchased $6,180 of supplies on account. In Hillcrest Co.’s chart of accounts
On May 22, 2014, Hillcrest Co. purchased $6,180 of supplies on account. In Hillcrest Co.’s chart of accounts, the supplies account is No. 15, and the accounts payable account is No. 21.
a. Journalize the May 22, 2014, transaction on page 19 of Hillcrest Co.’s two-column journal. Include an explanation of the entry.
b. Prepare a four-column account for Supplies. Enter a debit balance of $1,500 as of May 1, 2014. Place a check mark () in the Posting Reference column.
c. Prepare a four-column account for Accounts Payable. Enter a credit balance of $16,750 as of May 1, 2014. Place a check mark () in the Posting Reference column.
d. Post the May 22, 2014, transaction to the accounts.
e. Do the rules of debit and credit apply to all companies?
Answer:
a.
JOURNAL
Page 19
Date
Description
Post. Ref.
Debit
Credit
2014 Adjusting Entries May 22 Supplies 15 6,180 Accounts Payable 21 6,180 Purchased supplies on account. b., c., d. Account: Supplies Account No. 15
Date
Item
Post. Ref.
Debit
Credit
Balance Debit Credit 2014 May 1 Balance √ 1,500 22 19 6,180 7,680 Account: Accounts Payable Account No. 21
Date
Item
Post. Ref.
Debit
Credit
Balance Debit Credit 2014 May 1 Balance √ 16,750 22 19 6,180 22,930 e. Yes, the rules of debit and credit apply to all companies.
a. Journalize the May 22, 2014, transaction on page 19 of Hillcrest Co.’s two-column journal. Include an explanation of the entry.
b. Prepare a four-column account for Supplies. Enter a debit balance of $1,500 as of May 1, 2014. Place a check mark () in the Posting Reference column.
c. Prepare a four-column account for Accounts Payable. Enter a credit balance of $16,750 as of May 1, 2014. Place a check mark () in the Posting Reference column.
d. Post the May 22, 2014, transaction to the accounts.
e. Do the rules of debit and credit apply to all companies?
Answer:
a.
JOURNAL
Page 19
Date
Description
Post. Ref.
Debit
Credit
2014 Adjusting Entries May 22 Supplies 15 6,180 Accounts Payable 21 6,180 Purchased supplies on account. b., c., d. Account: Supplies Account No. 15
Date
Item
Post. Ref.
Debit
Credit
Balance Debit Credit 2014 May 1 Balance √ 1,500 22 19 6,180 7,680 Account: Accounts Payable Account No. 21
Date
Item
Post. Ref.
Debit
Credit
Balance Debit Credit 2014 May 1 Balance √ 16,750 22 19 6,180 22,930 e. Yes, the rules of debit and credit apply to all companies.
Value Consulting Co. has the following accounts in its ledger: Cash; Accounts Receivable; Supplies; Office Equipment
Value Consulting Co. has the following accounts in its ledger: Cash; Accounts Receivable; Supplies; Office Equipment; Accounts Payable; Dennis Isberg, Capital; Dennis Isberg, Drawing; Fees Earned; Rent Expense; Advertising Expense; Utilities Expense; Miscellaneous Expense.
Journalize the following selected transactions for July 2014 in a two-column journal. Journal entry explanations may be omitted.
July 1. Paid rent for the month, $3,200.
3. Paid advertising expense, $750.
5. Paid cash for supplies, $1,300.
6. Purchased office equipment on account, $12,500.
10. Received cash from customers on account, $11,400.
15. Paid creditor on account, $1,175.
27. Paid cash for repairs to office equipment, $600.
30. Paid telephone bill for the month, $180.
31. Fees earned and billed to customers for the month, $33,760.
31. Paid electricity bill for the month, $1,300.
31. Withdrew cash for personal use, $4,000.
Answer:
2014 July 1 Rent Expense 3,200 Cash 3,200 3 Advertising Expense 750 Cash 750 5 Supplies 1,300 Cash 1,300 6 Office Equipment 12,500 Accounts Payable 12,500 10 Cash 11,400 Accounts Receivable 11,400 15 Accounts Payable 1,175 Cash 1,175 27 Miscellaneous Expense 600 Cash 600 30 Utilities Expense 180 Cash 180 31 Accounts Receivable 33,760 Fees Earned 33,760 31 Utilities Expense 1,300 Cash 1,300 31 Dennis Isberg, Drawing 4,000 Cash 4,000
Journalize the following selected transactions for July 2014 in a two-column journal. Journal entry explanations may be omitted.
July 1. Paid rent for the month, $3,200.
3. Paid advertising expense, $750.
5. Paid cash for supplies, $1,300.
6. Purchased office equipment on account, $12,500.
10. Received cash from customers on account, $11,400.
15. Paid creditor on account, $1,175.
27. Paid cash for repairs to office equipment, $600.
30. Paid telephone bill for the month, $180.
31. Fees earned and billed to customers for the month, $33,760.
31. Paid electricity bill for the month, $1,300.
31. Withdrew cash for personal use, $4,000.
Answer:
2014 July 1 Rent Expense 3,200 Cash 3,200 3 Advertising Expense 750 Cash 750 5 Supplies 1,300 Cash 1,300 6 Office Equipment 12,500 Accounts Payable 12,500 10 Cash 11,400 Accounts Receivable 11,400 15 Accounts Payable 1,175 Cash 1,175 27 Miscellaneous Expense 600 Cash 600 30 Utilities Expense 180 Cash 180 31 Accounts Receivable 33,760 Fees Earned 33,760 31 Utilities Expense 1,300 Cash 1,300 31 Dennis Isberg, Drawing 4,000 Cash 4,000
Identify each of the following accounts of Kaiser Services Co. as asset, liability, owner’s equity, revenue
Identify each of the following accounts of Kaiser Services Co. as asset, liability, owner’s equity, revenue, or expense, and state in each case whether the normal balance is a debit or a credit.
a. Accounts Payable
b. Accounts Receivable
c. Amanda Whitmore, Capital
d. Amanda Whitmore, Drawing
e. Cash
f. Fees Earned
g. Office Equipment
h. Rent Expense
i. Supplies
j. Wages Expense
Answer:
a. Liability—credit
b. Asset—debit
c. Owner’s equity
d. Owner’s equity
e. Asset—debit
f. Revenue—credit
g. Asset—debit (Amanda Whitmore, Capital)—credit
h. Expense—debit
i. Asset—debit (Amanda Whitmore, Drawing)—debit
j. Expense—debit
a. Accounts Payable
b. Accounts Receivable
c. Amanda Whitmore, Capital
d. Amanda Whitmore, Drawing
e. Cash
f. Fees Earned
g. Office Equipment
h. Rent Expense
i. Supplies
j. Wages Expense
Answer:
a. Liability—credit
b. Asset—debit
c. Owner’s equity
d. Owner’s equity
e. Asset—debit
f. Revenue—credit
g. Asset—debit (Amanda Whitmore, Capital)—credit
h. Expense—debit
i. Asset—debit (Amanda Whitmore, Drawing)—debit
j. Expense—debit
During the month, Gates Labs Co. has a substantial number of transactions affecting each of the following accounts
During the month, Gates Labs Co. has a substantial number of transactions affecting each of the following accounts. State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries.
1. Accounts Payable
2. Accounts Receivable
3. Cash
4. Fees Earned
5. Insurance Expense
6. Steve Campbell, Drawing
7. Utilities Expense
Answer:
1. debit and credit entries (c)
2. debit and credit entries (c)
3. debit and credit entries (c)
4. credit entries only (b)
5. debit entries only (a)
6. debit entries only (a)
7. debit entries only (a)
1. Accounts Payable
2. Accounts Receivable
3. Cash
4. Fees Earned
5. Insurance Expense
6. Steve Campbell, Drawing
7. Utilities Expense
Answer:
1. debit and credit entries (c)
2. debit and credit entries (c)
3. debit and credit entries (c)
4. credit entries only (b)
5. debit entries only (a)
6. debit entries only (a)
7. debit entries only (a)
The following table summarizes the rules of debit and credit. For each of the items (a) through (l), indicate whether the proper answer is a debit or a credit
The following table summarizes the rules of debit and credit. For each of the items (a) through (l), indicate whether the proper answer is a debit or a credit.
increase Decrease Normal balance
Balance sheet accounts: Asset (a) (b) Debit Liability (c) Debit (d) Owner’s equity: Capital Credit (e) (f) Drawing (g) (h) (i) Income statement accounts: Revenue (j) (k) Credit Expense (l) Credit Debit
Answer:
a. debit g. debit
b. credit h. credit
c. credit i. debit
d. credit j. credit
e. debit k. debit
f. credit l. debit
increase Decrease Normal balance
Balance sheet accounts: Asset (a) (b) Debit Liability (c) Debit (d) Owner’s equity: Capital Credit (e) (f) Drawing (g) (h) (i) Income statement accounts: Revenue (j) (k) Credit Expense (l) Credit Debit
Answer:
a. debit g. debit
b. credit h. credit
c. credit i. debit
d. credit j. credit
e. debit k. debit
f. credit l. debit
LeadCo School is a newly organized business that teaches people how to inspire and influence others
LeadCo School is a newly organized business that teaches people how to inspire and influence others. The list of accounts to be opened in the general ledger is as follows:
Accounts Payable Miscellaneous Expense
Accounts Receivable Prepaid Insurance
Cash Rent Expense
Equipment Supplies
Fees Earned Supplies Expense
Ivy Bishop, Capital Unearned Rent
Ivy Bishop, Drawing Wages Expense
List the accounts in the order in which they should appear in the ledger of LeadCo School and assign account numbers. Each account number is to have two digits: the first digit is to indicate the major classification (1 for assets, etc.), and the second digit is to identify the specific account within each major classification (11 for Cash, etc.).
Answer:
Balance Sheet Accounts Income Statement Accounts 1. Assets 4. Revenue 11 Cash 41 Fees Earned 12 Accounts Receivable 13 Supplies 5. Expenses 14 Prepaid Insurance 51 Wages Expense 15 Equipment 52 Rent Expense 53 Supplies Expense 2. Liabilities 21 Accounts Payable 22 Unearned Rent 59 Miscellaneous Expense 3. Owner’s Equity 31 Ivy Bishop, Capital 32 Ivy Bishop, Drawing
Accounts Payable Miscellaneous Expense
Accounts Receivable Prepaid Insurance
Cash Rent Expense
Equipment Supplies
Fees Earned Supplies Expense
Ivy Bishop, Capital Unearned Rent
Ivy Bishop, Drawing Wages Expense
List the accounts in the order in which they should appear in the ledger of LeadCo School and assign account numbers. Each account number is to have two digits: the first digit is to indicate the major classification (1 for assets, etc.), and the second digit is to identify the specific account within each major classification (11 for Cash, etc.).
Answer:
Balance Sheet Accounts Income Statement Accounts 1. Assets 4. Revenue 11 Cash 41 Fees Earned 12 Accounts Receivable 13 Supplies 5. Expenses 14 Prepaid Insurance 51 Wages Expense 15 Equipment 52 Rent Expense 53 Supplies Expense 2. Liabilities 21 Accounts Payable 22 Unearned Rent 59 Miscellaneous Expense 3. Owner’s Equity 31 Ivy Bishop, Capital 32 Ivy Bishop, Drawing
Innerscape Interiors is owned and operated by Gina Kissel, an interior decorator
Innerscape Interiors is owned and operated by Gina Kissel, an interior decorator. In the ledger of Innerscape Interiors, the first digit of the account number indicates its major account classification (1—assets, 2—liabilities, 3—owner’s equity, 4—revenues, 5— expenses). The second digit of the account number indicates the specific account within each of the preceding major account classifications.
Match each account number with its most likely account in the list below. The account numbers are 11, 12, 13, 21, 31, 32, 41, 51, 52, and 53.
Accounts Payable Gina Kissel, Drawing
Accounts Receivable Land
Cash Miscellaneous Expense
Fees Earned Supplies Expense
Gina Kissel, Capital Wages Expense
Answer:
Account
Account Number
Accounts Payable 21
Accounts Receivable 12
Cash 11
Fees Earned 41
Gina Kissel, Capital 31
Gina Kissel, Drawing 32
Land 13
Miscellaneous Expense 53
Supplies Expense 52
Wages Expense 51
Match each account number with its most likely account in the list below. The account numbers are 11, 12, 13, 21, 31, 32, 41, 51, 52, and 53.
Accounts Payable Gina Kissel, Drawing
Accounts Receivable Land
Cash Miscellaneous Expense
Fees Earned Supplies Expense
Gina Kissel, Capital Wages Expense
Answer:
Account
Account Number
Accounts Payable 21
Accounts Receivable 12
Cash 11
Fees Earned 41
Gina Kissel, Capital 31
Gina Kissel, Drawing 32
Land 13
Miscellaneous Expense 53
Supplies Expense 52
Wages Expense 51
The following accounts appeared in recent financial statements of Continental Airlines:
The following accounts appeared in recent financial statements of Continental Airlines:
Accounts Payable Flight Equipment
Air Traffic Liability Landing Fees (Expense)
Aircraft Fuel Expense Passenger Revenue
Cargo and Mail Revenue Purchase Deposits for Flight Equipment
Commissions (Expense) Spare Parts and Supplies
Identify each account as either a balance sheet account or an income statement account. For each balance sheet account, identify it as an asset, a liability, or owner’s equity. For each income statement account, identify it as a revenue or an expense.
Answer:
Balance Sheet Accounts Income Statement Accounts Assets Revenue Flight Equipment Cargo and Mail Revenue Purchase Deposits for Flight Equipmenta Passenger Revenue Spare Parts and Supplies Liabilities Expenses Accounts Payable Aircraft Fuel Expense Air Traffic Liabilityb Commissions (Expense)c Landing Fees (Expense)d
None
Owner’s Equity
a Advance payments (deposits) on aircraft to be delivered in the future b Passenger ticket sales not yet recognized as revenue c Commissions paid to travel agents d Fees paid to airports for landing rights
Accounts Payable Flight Equipment
Air Traffic Liability Landing Fees (Expense)
Aircraft Fuel Expense Passenger Revenue
Cargo and Mail Revenue Purchase Deposits for Flight Equipment
Commissions (Expense) Spare Parts and Supplies
Identify each account as either a balance sheet account or an income statement account. For each balance sheet account, identify it as an asset, a liability, or owner’s equity. For each income statement account, identify it as a revenue or an expense.
Answer:
Balance Sheet Accounts Income Statement Accounts Assets Revenue Flight Equipment Cargo and Mail Revenue Purchase Deposits for Flight Equipmenta Passenger Revenue Spare Parts and Supplies Liabilities Expenses Accounts Payable Aircraft Fuel Expense Air Traffic Liabilityb Commissions (Expense)c Landing Fees (Expense)d
None
Owner’s Equity
a Advance payments (deposits) on aircraft to be delivered in the future b Passenger ticket sales not yet recognized as revenue c Commissions paid to travel agents d Fees paid to airports for landing rights
Friday 17 June 2016
Lowe’s Companies Inc., a major competitor of The Home Depot in the home improvement business, operates over 1,700 stores
Lowe’s Companies Inc., a major competitor of The Home Depot in the home improvement business, operates over 1,700 stores. Lowe’s recently reported the following balance sheet data (in millions):
Year 2 Year 1
Total assets $33,699 $33,005
Total liabilities 15,587 13,936
a. Determine the total stockholders’ equity as of at the end of Years 2 and 1.
b. Determine the ratio of liabilities to stockholders’ equity for Year 2 and Year 1. Round to two decimal places.
c. What conclusions regarding the risk to the creditors can you draw from (b)?
d. Using the balance sheet data for The Home Depot in Exercise 1-26, how does the ratio of liabilities to stockholders’ equity of Lowe’s compare to that of The Home Depot?
Answer:
a.
Year 2: $18,112 ($33,699 – $15,587)
Year 1: $19,069 ($33,005 – $13,936)
b.
Year 2: 0.86 ($15,587 ÷ $18,112)
Year 1: 0.73 ($13,936 ÷ $19,069)
c.
The risk for creditors has increased from 0.73 in Year 1 to 0.86 in Year 2. In both years, creditors have less at stake in Lowe’s than do stockholders, since the ratio is less than 1.
d.
Lowe’s ratio of liabilities to stockholders’ equity is less than 1. In comparison, The Home Depot’s ratio of liabilities to stockholders’ equity is greater than 1 for Year 2 and Year 1. Thus, the creditors of The Home Depot are more at risk than are the creditors of Lowe’s.
Year 2 Year 1
Total assets $33,699 $33,005
Total liabilities 15,587 13,936
a. Determine the total stockholders’ equity as of at the end of Years 2 and 1.
b. Determine the ratio of liabilities to stockholders’ equity for Year 2 and Year 1. Round to two decimal places.
c. What conclusions regarding the risk to the creditors can you draw from (b)?
d. Using the balance sheet data for The Home Depot in Exercise 1-26, how does the ratio of liabilities to stockholders’ equity of Lowe’s compare to that of The Home Depot?
Answer:
a.
Year 2: $18,112 ($33,699 – $15,587)
Year 1: $19,069 ($33,005 – $13,936)
b.
Year 2: 0.86 ($15,587 ÷ $18,112)
Year 1: 0.73 ($13,936 ÷ $19,069)
c.
The risk for creditors has increased from 0.73 in Year 1 to 0.86 in Year 2. In both years, creditors have less at stake in Lowe’s than do stockholders, since the ratio is less than 1.
d.
Lowe’s ratio of liabilities to stockholders’ equity is less than 1. In comparison, The Home Depot’s ratio of liabilities to stockholders’ equity is greater than 1 for Year 2 and Year 1. Thus, the creditors of The Home Depot are more at risk than are the creditors of Lowe’s.
The Home Depot, Inc., is the world’s largest home improvement retailer and one of the largest retailers in the United States
The Home Depot, Inc., is the world’s largest home improvement retailer and one of the largest retailers in the United States based on net sales volume. The Home Depot operates over 2,200 Home Depot® stores that sell a wide assortment of building materials and home improvement and lawn and garden products.
The Home Depot recently reported the following balance sheet data (in millions):
Year 2 Year 1
Total assets $40,125 $40,877
Total stockholders’ equity 18,889 19,393
a. Determine the total liabilities at the end of Years 2 and 1.
b. Determine the ratio of liabilities to stockholders’ equity for Year 2 and Year 1. Round to two decimal places.
c. What conclusions regarding the margin of protection to the creditors can you draw from (b)?
Answer:
a.
Year 2: $21,236 ($40,125 – $18,889)
Year 1: $21,484 ($40,877 – $19,393)
b.
Year 2: 1.12 ($21,236 ÷ $18,889)
Year 1: 1.11 ($21,484 ÷ $19,393)
c.
The ratio of liabilities to stockholders’ equity increased from 1.11 to 1.12 indicating a slight increase in risk for creditors from Year 1 to Year 2.
The Home Depot recently reported the following balance sheet data (in millions):
Year 2 Year 1
Total assets $40,125 $40,877
Total stockholders’ equity 18,889 19,393
a. Determine the total liabilities at the end of Years 2 and 1.
b. Determine the ratio of liabilities to stockholders’ equity for Year 2 and Year 1. Round to two decimal places.
c. What conclusions regarding the margin of protection to the creditors can you draw from (b)?
Answer:
a.
Year 2: $21,236 ($40,125 – $18,889)
Year 1: $21,484 ($40,877 – $19,393)
b.
Year 2: 1.12 ($21,236 ÷ $18,889)
Year 1: 1.11 ($21,484 ÷ $19,393)
c.
The ratio of liabilities to stockholders’ equity increased from 1.11 to 1.12 indicating a slight increase in risk for creditors from Year 1 to Year 2.
We-Sell Realty, organized August 1, 2014, is owned and operated by Omar Farah
We-Sell Realty, organized August 1, 2014, is owned and operated by Omar Farah. How many errors can you find in the following statements for We-Sell Realty, prepared after its first month of operations?
We-Sell Realty Income Statement August 31, 2014 Sales commissions ................................................ $140,000 Expenses: Office salaries expense........................................... $87,000 Rent expense.................................................... 18,000 Automobile expense............................................. 7,500 Miscellaneous expense........................................... 2,200 Supplies expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,150 total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,850 Net income ....................................................... $ 25,000
Omar Farah Statement of Owner’s Equity August 31, 2013 Omar Farah, capital, August 1, 2014.......................................... $ 0 Less withdrawals during August............................................. 10,000 $(10,000) Investment on August 1, 2014............................................... 15,000 $ 5,000 Net income for August...................................................... 25,000 Omar Farah, capital, August 31, 2014 ........................................ $ 30,000
Balance Sheet For the Month Ended August 31, 2014 Assets Liabilities Cash ............................. $ 8,900 Accounts receivable ..................... $38,600 Accounts payable ................. 22,350 Supplies................................ 4,000 Owner’s Equity Omar Farah, capital...................... 30,000 total assets ....................... $31,250 total liabilities and owner’s equity........ $72,600
Answer:
1. All financial statements should contain the name of the business in their heading. The statement of owner’s equity is incorrectly headed as “Omar Farah” rather than We-Sell Realty. The heading of the balance sheet needs the name of the business.
2. The income statement and statement of owner’s equity cover a period of time and should be labeled “For the Month Ended August 31, 2014.”
3. The year in the heading for the statement of owner’s equity should be 2014 rather than 2013.
4. The balance sheet should be labeled “August 31, 2014,” rather than “For the Month Ended August 31, 2014.”
5. In the income statement, the miscellaneous expense amount should be listed as the last expense.
6. In the income statement, the total expenses are incorrectly subtracted from the sales commissions, resulting in an incorrect net income amount. The correct net income should be $24,150. This also affects the statement of owner’s equity and the amount of Omar Farah, Capital, that appears on the balance sheet.
7. In the statement of owner’s equity, the additional investment should be added first to Omar Farah, capital, as of August 1, 2014. The net income should be presented next, followed by the amount of withdrawals, which is subtracted from the net income to yield a net increase in owner’s equity.
8. Accounts payable should be listed as a liability on the balance sheet.
9. Accounts receivable and supplies should be listed as assets on the balance sheet.
10. The balance sheet assets should equal the sum of the liabilities and owner’s equity.
Corrected financial statements appear as follows:
WE-SELL REALTY Income Statement For the Month Ended August 31, 2014 Sales commissions $140,000 Expenses: Office salaries expense $87,000 Rent expense 18,000 Automobile expense 7,500 Supplies expense 1,150 Miscellaneous expense 2,200 Total expenses 115,850 Net income $ 24,150 WE-SELL REALTY Statement of Owner’s Equity For the Month Ended August 31, 2014 Omar Farah, capital, August 1, 2014 $ 0 Investment on August 1, 2014 $15,000 Net income for August 24,150 $39,150 Less withdrawals during August 10,000 Increase in owner’s equity 29,150 Omar Farah, capital, August 31, 2014 $29,150 WE-SELL REALTY Balance Sheet August 31, 2014 Assets Liabilities Cash $ 8,900 Accounts payable $22,350 Accounts receivable 38,600 Supplies 4,000 Owner’s Equity Omar Farah, capital 29,150 Total liabilities and Total assets $51,500 owner’s equity $51,500
We-Sell Realty Income Statement August 31, 2014 Sales commissions ................................................ $140,000 Expenses: Office salaries expense........................................... $87,000 Rent expense.................................................... 18,000 Automobile expense............................................. 7,500 Miscellaneous expense........................................... 2,200 Supplies expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,150 total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,850 Net income ....................................................... $ 25,000
Omar Farah Statement of Owner’s Equity August 31, 2013 Omar Farah, capital, August 1, 2014.......................................... $ 0 Less withdrawals during August............................................. 10,000 $(10,000) Investment on August 1, 2014............................................... 15,000 $ 5,000 Net income for August...................................................... 25,000 Omar Farah, capital, August 31, 2014 ........................................ $ 30,000
Balance Sheet For the Month Ended August 31, 2014 Assets Liabilities Cash ............................. $ 8,900 Accounts receivable ..................... $38,600 Accounts payable ................. 22,350 Supplies................................ 4,000 Owner’s Equity Omar Farah, capital...................... 30,000 total assets ....................... $31,250 total liabilities and owner’s equity........ $72,600
Answer:
1. All financial statements should contain the name of the business in their heading. The statement of owner’s equity is incorrectly headed as “Omar Farah” rather than We-Sell Realty. The heading of the balance sheet needs the name of the business.
2. The income statement and statement of owner’s equity cover a period of time and should be labeled “For the Month Ended August 31, 2014.”
3. The year in the heading for the statement of owner’s equity should be 2014 rather than 2013.
4. The balance sheet should be labeled “August 31, 2014,” rather than “For the Month Ended August 31, 2014.”
5. In the income statement, the miscellaneous expense amount should be listed as the last expense.
6. In the income statement, the total expenses are incorrectly subtracted from the sales commissions, resulting in an incorrect net income amount. The correct net income should be $24,150. This also affects the statement of owner’s equity and the amount of Omar Farah, Capital, that appears on the balance sheet.
7. In the statement of owner’s equity, the additional investment should be added first to Omar Farah, capital, as of August 1, 2014. The net income should be presented next, followed by the amount of withdrawals, which is subtracted from the net income to yield a net increase in owner’s equity.
8. Accounts payable should be listed as a liability on the balance sheet.
9. Accounts receivable and supplies should be listed as assets on the balance sheet.
10. The balance sheet assets should equal the sum of the liabilities and owner’s equity.
Corrected financial statements appear as follows:
WE-SELL REALTY Income Statement For the Month Ended August 31, 2014 Sales commissions $140,000 Expenses: Office salaries expense $87,000 Rent expense 18,000 Automobile expense 7,500 Supplies expense 1,150 Miscellaneous expense 2,200 Total expenses 115,850 Net income $ 24,150 WE-SELL REALTY Statement of Owner’s Equity For the Month Ended August 31, 2014 Omar Farah, capital, August 1, 2014 $ 0 Investment on August 1, 2014 $15,000 Net income for August 24,150 $39,150 Less withdrawals during August 10,000 Increase in owner’s equity 29,150 Omar Farah, capital, August 31, 2014 $29,150 WE-SELL REALTY Balance Sheet August 31, 2014 Assets Liabilities Cash $ 8,900 Accounts payable $22,350 Accounts receivable 38,600 Supplies 4,000 Owner’s Equity Omar Farah, capital 29,150 Total liabilities and Total assets $51,500 owner’s equity $51,500
A summary of cash flows for Ethos Consulting Group for the year ended May 31, 2014, is shown below.
A summary of cash flows for Ethos Consulting Group for the year ended May 31, 2014, is shown below.
Cash receipts: Cash received from customers $637,500 Cash received from additional investment of owner 62,500 Cash payments: Cash paid for operating expenses 475,000 Cash paid for land 90,000 Cash paid to owner for personal use 17,500
The cash balance as of June 1, 2013, was $58,000.
Prepare a statement of cash flows for Ethos Consulting Group for the year ended May 31, 2014.
Answer:
ETHOS CONSULTING GROUP Statement of Cash Flows For the Year Ended May 31, 2014 Cash flows from operating activities: Cash received from customers $637,500 Deduct cash payments for operating expenses 475,000 Net cash flows from operating activities $162,500 Cash flows used for investing activities: Cash payments for purchase of land (90,000) Cash flows from financing activities: Cash received from owner as investment $ 62,500 Deduct cash withdrawals by owner 17,500 Net cash flows from financing activities 45,000 Net decrease in cash during year $117,500 Cash as of June 1, 2013 58,000 Cash as of May 31, 2014 $175,500
Cash receipts: Cash received from customers $637,500 Cash received from additional investment of owner 62,500 Cash payments: Cash paid for operating expenses 475,000 Cash paid for land 90,000 Cash paid to owner for personal use 17,500
The cash balance as of June 1, 2013, was $58,000.
Prepare a statement of cash flows for Ethos Consulting Group for the year ended May 31, 2014.
Answer:
ETHOS CONSULTING GROUP Statement of Cash Flows For the Year Ended May 31, 2014 Cash flows from operating activities: Cash received from customers $637,500 Deduct cash payments for operating expenses 475,000 Net cash flows from operating activities $162,500 Cash flows used for investing activities: Cash payments for purchase of land (90,000) Cash flows from financing activities: Cash received from owner as investment $ 62,500 Deduct cash withdrawals by owner 17,500 Net cash flows from financing activities 45,000 Net decrease in cash during year $117,500 Cash as of June 1, 2013 58,000 Cash as of May 31, 2014 $175,500
Indicate whether each of the following activities would be reported on the statement of cash flows;Cash received from fees earned
Indicate whether each of the following activities would be reported on the statement of cash flows as (a) an operating activity, (b) an investing activity, or (c) a financing activity:
1. Cash received from fees earned.
2. Cash paid for expenses.
3. Cash paid for land.
4. Cash paid to owner for personal use.
Answer:
1. (a) operating activity
2. (a) operating activity
3. (b) investing activity
4. (c) financing activity
1. Cash received from fees earned.
2. Cash paid for expenses.
3. Cash paid for land.
4. Cash paid to owner for personal use.
Answer:
1. (a) operating activity
2. (a) operating activity
3. (b) investing activity
4. (c) financing activity
Each of the following items is shown in the financial statements of Exxon Mobil Corporation.
Each of the following items is shown in the financial statements of Exxon Mobil Corporation.
1. Accounts payable
2. Cash equivalents
3. Crude oil inventory
4. Equipment
5. Exploration expenses
6. Income taxes payable
7. Investments
8. Long-term debt
9. Marketable securities
10. Notes and loans payable
11. Notes receivable
12. Operating expenses
13. Prepaid taxes
14. Sales
15. Selling expenses
a. Identify the financial statement (balance sheet or income statement) in which each item would appear.
b. Can an item appear on more than one financial statement?
c. Is the accounting equation relevant for ExxonMobil Corporation?
Answer:
a.
Balance sheet: 1, 2, 3, 4, 6, 7, 8, 9, 10, 11, 13
Income statement: 5, 12, 14, 15
b. Yes, an item can appear on more than one financial statement. For example, cash appears on both the balance sheet and statement of cash flows. However, the same item cannot appear on both the income statement and balance sheet.
c. Yes, the accounting equation is relevant to all companies, including Exxon Mobil Corporation.
1. Accounts payable
2. Cash equivalents
3. Crude oil inventory
4. Equipment
5. Exploration expenses
6. Income taxes payable
7. Investments
8. Long-term debt
9. Marketable securities
10. Notes and loans payable
11. Notes receivable
12. Operating expenses
13. Prepaid taxes
14. Sales
15. Selling expenses
a. Identify the financial statement (balance sheet or income statement) in which each item would appear.
b. Can an item appear on more than one financial statement?
c. Is the accounting equation relevant for ExxonMobil Corporation?
Answer:
a.
Balance sheet: 1, 2, 3, 4, 6, 7, 8, 9, 10, 11, 13
Income statement: 5, 12, 14, 15
b. Yes, an item can appear on more than one financial statement. For example, cash appears on both the balance sheet and statement of cash flows. However, the same item cannot appear on both the income statement and balance sheet.
c. Yes, the accounting equation is relevant to all companies, including Exxon Mobil Corporation.
Financial information related to the proprietorship of Ebony Interiors for February and March 2014 is as follows:
Financial information related to the proprietorship of Ebony Interiors for February and March 2014 is as follows:
February 28, 2014 March 31, 2014 Accounts payable $310,000 $400,000 Accounts receivable 800,000 960,000 Cash 320,000 380,000 Justin Berk, capital ? ? Supplies 30,000 35,000
a. Prepare balance sheets for Ebony Interiors as of February 28 and March 31, 2014.
b. Determine the amount of net income for March, assuming that the owner made no additional investments or withdrawals during the month.
c. Determine the amount of net income for March, assuming that the owner made no additional investments but withdrew $50,000 during the month.
Answer:
a. EBONY INTERIORS Balance Sheet February 28, 2014 Assets Liabilities Cash $ 320,000 Accounts payable $ 310,000 Accounts receivable 800,000 Supplies 30,000 Owner’s Equity Justin Berk, capital 840,000 Total liabilities and Total assets $1,150,000 owner’s equity $1,150,000 EBONY INTERIORS Balance Sheet March 31, 2014 Assets Liabilities Cash $ 380,000 Accounts payable $ 400,000 Accounts receivable 960,000 Supplies 35,000 Owner’s Equity Justin Berk, capital 975,000 Total liabilities and Total assets $1,375,000 owner’s equity $1,375,000
b.
Owner’s equity, March 31 $975,000
Owner’s equity, February 28 840,000
Net income $135,000
c.
Owner’s equity, March 31 $975,000
Owner’s equity, February 28 840,000
Increase in owner’s equity $135,000
Add withdrawal 50,000
Net income $185,000
February 28, 2014 March 31, 2014 Accounts payable $310,000 $400,000 Accounts receivable 800,000 960,000 Cash 320,000 380,000 Justin Berk, capital ? ? Supplies 30,000 35,000
a. Prepare balance sheets for Ebony Interiors as of February 28 and March 31, 2014.
b. Determine the amount of net income for March, assuming that the owner made no additional investments or withdrawals during the month.
c. Determine the amount of net income for March, assuming that the owner made no additional investments but withdrew $50,000 during the month.
Answer:
a. EBONY INTERIORS Balance Sheet February 28, 2014 Assets Liabilities Cash $ 320,000 Accounts payable $ 310,000 Accounts receivable 800,000 Supplies 30,000 Owner’s Equity Justin Berk, capital 840,000 Total liabilities and Total assets $1,150,000 owner’s equity $1,150,000 EBONY INTERIORS Balance Sheet March 31, 2014 Assets Liabilities Cash $ 380,000 Accounts payable $ 400,000 Accounts receivable 960,000 Supplies 35,000 Owner’s Equity Justin Berk, capital 975,000 Total liabilities and Total assets $1,375,000 owner’s equity $1,375,000
b.
Owner’s equity, March 31 $975,000
Owner’s equity, February 28 840,000
Net income $135,000
c.
Owner’s equity, March 31 $975,000
Owner’s equity, February 28 840,000
Increase in owner’s equity $135,000
Add withdrawal 50,000
Net income $185,000
One item is omitted in each of the following summaries of balance sheet and income statement data Freeman heyward Jones Ramirez
One item is omitted in each of the following summaries of balance sheet and income statement data for the following four different proprietorships:
Freeman heyward Jones Ramirez
Beginning of the year: Assets $ 900,000 $490,000 $115,000 (d) Liabilities 360,000 260,000 81,000 $120,000 End of the year: Assets 1,260,000 675,000 100,000 270,000 Liabilities 330,000 220,000 80,000 136,000 During the year: Additional investment in the business (a) 150,000 10,000 55,000 Withdrawals from the business 75,000 32,000 (c) 39,000 Revenue 570,000 (b) 115,000 115,000 Expenses 240,000 128,000 122,500 128,000
Determine the missing amounts, identifying them by letter. (Hint: First determine the amount of increase or decrease in owner’s equity during the year.)
Answer:
In each case, solve for a single unknown, using the following equation:
Owner’s Equity (beginning) + Investments – Withdrawals + Revenues – Expenses = Owner’s Equity (ending)
Freeman Owner’s equity at end of year ($1,260,000 – $330,000)……………………… $930,000 Owner’s equity at beginning of year ($900,000 – $360,000)……………… 540,000 Increase in owner’s equity……………………………………………………… $390,000 Deduct increase due to net income ($570,000 – $240,000)………………… 330,000 $ 60,000 Add withdrawals………………………………………………….……………… 75,000 Additional investment in the business…………………………………… (a) $135,000 Heyward Owner’s equity at end of year ($675,000 – $220,000)……………………… $455,000 Owner’s equity at beginning of year ($490,000 – $260,000)………………… 230,000 Increase in owner’s equity………………………………………………….…… $225,000 Add withdrawals………………………………………………….……………… 32,000 $257,000 Deduct additional investment…………………………………………………. 150,000 Increase due to net income………………………………………………….… $107,000 Add expenses………………………………………………….…………………… 128,000 Revenue………………………………………………….……………………… (b) $235,000 Jones Owner’s equity at end of year ($100,000 – $80,000)………………………… $ 20,000 Owner’s equity at beginning of year ($115,000 – $81,000)………………… 34,000 Decrease in owner’s equity………………………………………………….…… $ (14,000) Deduct decrease due to net loss ($115,000 – $122,500)…………………… 7,500 $ (6,500) Deduct additional investment…………………………………………….…… 10,000 Withdrawals from the business…………………………………………… (c) $ (16,500) Ramirez Owner’s equity at end of year ($270,000 – $136,000)……………………… $134,000 Add decrease due to net loss ($115,000 – $128,000)………………………… 13,000 $147,000 Add withdrawals………………………………………………….………………… 39,000 Owner’s equity at beginning of year…………………………………………… $186,000 Deduct additional investment…………………………………………………… 55,000 $131,000 Add liabilities at beginning of year…………………………………………… 120,000 Assets at beginning of year………………………………………………… (d) $251,000
Freeman heyward Jones Ramirez
Beginning of the year: Assets $ 900,000 $490,000 $115,000 (d) Liabilities 360,000 260,000 81,000 $120,000 End of the year: Assets 1,260,000 675,000 100,000 270,000 Liabilities 330,000 220,000 80,000 136,000 During the year: Additional investment in the business (a) 150,000 10,000 55,000 Withdrawals from the business 75,000 32,000 (c) 39,000 Revenue 570,000 (b) 115,000 115,000 Expenses 240,000 128,000 122,500 128,000
Determine the missing amounts, identifying them by letter. (Hint: First determine the amount of increase or decrease in owner’s equity during the year.)
Answer:
In each case, solve for a single unknown, using the following equation:
Owner’s Equity (beginning) + Investments – Withdrawals + Revenues – Expenses = Owner’s Equity (ending)
Freeman Owner’s equity at end of year ($1,260,000 – $330,000)……………………… $930,000 Owner’s equity at beginning of year ($900,000 – $360,000)……………… 540,000 Increase in owner’s equity……………………………………………………… $390,000 Deduct increase due to net income ($570,000 – $240,000)………………… 330,000 $ 60,000 Add withdrawals………………………………………………….……………… 75,000 Additional investment in the business…………………………………… (a) $135,000 Heyward Owner’s equity at end of year ($675,000 – $220,000)……………………… $455,000 Owner’s equity at beginning of year ($490,000 – $260,000)………………… 230,000 Increase in owner’s equity………………………………………………….…… $225,000 Add withdrawals………………………………………………….……………… 32,000 $257,000 Deduct additional investment…………………………………………………. 150,000 Increase due to net income………………………………………………….… $107,000 Add expenses………………………………………………….…………………… 128,000 Revenue………………………………………………….……………………… (b) $235,000 Jones Owner’s equity at end of year ($100,000 – $80,000)………………………… $ 20,000 Owner’s equity at beginning of year ($115,000 – $81,000)………………… 34,000 Decrease in owner’s equity………………………………………………….…… $ (14,000) Deduct decrease due to net loss ($115,000 – $122,500)…………………… 7,500 $ (6,500) Deduct additional investment…………………………………………….…… 10,000 Withdrawals from the business…………………………………………… (c) $ (16,500) Ramirez Owner’s equity at end of year ($270,000 – $136,000)……………………… $134,000 Add decrease due to net loss ($115,000 – $128,000)………………………… 13,000 $147,000 Add withdrawals………………………………………………….………………… 39,000 Owner’s equity at beginning of year…………………………………………… $186,000 Deduct additional investment…………………………………………………… 55,000 $131,000 Add liabilities at beginning of year…………………………………………… 120,000 Assets at beginning of year………………………………………………… (d) $251,000
Exploration Services was organized on March 1, 2014. A summary of the revenue and expense transactions for March follows:
Exploration Services was organized on March 1, 2014. A summary of the revenue and expense transactions for March follows:
Fees earned $1,100,000
Wages expense 715,000
Rent expense 80,000
Supplies expense 9,000
Miscellaneous expense 12,000
Prepare an income statement for the month ended March 31.
Answer:
EXPLORATION SERVICES Income Statement For the Month Ended March 31, 2014 Fees earned $1,100,000 Expenses: Wages expense $715,000 Rent expense 80,000 Supplies expense 9,000 Miscellaneous expense 12,000 Total expenses 816,000 Net income $ 284,000
Fees earned $1,100,000
Wages expense 715,000
Rent expense 80,000
Supplies expense 9,000
Miscellaneous expense 12,000
Prepare an income statement for the month ended March 31.
Answer:
EXPLORATION SERVICES Income Statement For the Month Ended March 31, 2014 Fees earned $1,100,000 Expenses: Wages expense $715,000 Rent expense 80,000 Supplies expense 9,000 Miscellaneous expense 12,000 Total expenses 816,000 Net income $ 284,000
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