ACC 205 week 1 Exercise

   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.

a. Amounts paid to a mall for rent. 

b. Amounts to be paid in 10 days to suppliers. 

c. A new fax machine purchased for office use. 

d. Land held as an investment. 

e. Amounts due from customers. 

f. Daily sales of merchandise sold. 

g. Promotional costs to publicize a concert. 

h. A long-term loan owed to Citizens Bank. 

i. The albums, tapes, and CDs held for sale to customers. 

2. Basic journal entries 

The following transactions pertain to the Jennifer Royall Company:

  

May 1

Jenni­fer Royall invested cash of $25,000   and land valued at $15,000 into the business.

 

5

Provided $1,000 of services to Jason   Ratchford, a client, on account.

 

9

Paid $1,250 of salaries to an employee.

 

14

Acquired a new computer for $4,200, on   account.

 

20

Collected $800 from Jason Ratchford for   services provided on May 5.

 

24

Borrowed $2,500 from BestBanc by securing a   six-month loan.

Prepare journal entries (and explanations) to record the preceding transactions and events.

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 as of December 31, 20XX. (See Exhibit 1.1 and 1.4)

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. 

Instructions 

a. Arrange the following asset, liability, and owner’s equity elements of the account­ing equation: Cash,  Accounts Receivable, Office Furniture, Van, Accounts Payable, Common Stock/Dividends, and Revenues/Expenses. (See Exhibit 1.5)

b. Record each transaction on a separate line. After all transactions have been recorded, compute the balance in each of the preceding items. 

c. Answer the following questions for Simmons. 

(1) How much does the company owe to its creditors at month-end? On which financial statement(s) would this information be found? 

(2) Did the company have a “good” month from an accounting viewpoint? Briefly explain.

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 cash 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 two 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

Instructions

a. Determine the impact of each of the preceding transactions on Burton’s assets,

liabilities, and owner’s equity. See exhibit 1.5. Use the following format:

Assets = Liabilities + Owner’s Equity

Cash, Accounts Receivable, Land, Equipment Accounts Payable (+)Common Stock (+) Revenues

(-) Dividends (-) Expenses

a. Record each transaction on a separate line. Calculate balances only after the last transaction has been recorded.

b. Prepare an income statement, a statement of retained earnings, and a balance sheet, (See Exhibit 1.2, 1.3 and 1.4)

6. Entry and trial balance preparation. Lee Adkins is a portrait artist. The following schedule represents Lee’s combined chart of accounts and trial balance as of May 31. 

Account number Account name Debit Credit

  

110 

Cash 

$ 2,700 

 

120 

Accounts   Receivable 

12,100 

 

130 

Equipment   and Supplies 

2,800 

 

140 

Studio 

45,000 

 

210 

Accounts   Payable 

$2,600

 

310 

Lee Adkins,   Capital

57,400

 

320 

Lee Adkins,   Drawing 

30,000 

 

410 

Professional   Fee Revenue

39,000

 

510 

Advertising   Expense 

2,300 

 

520 

Salaries   Expense 

2,100 

 

540 

Utilities   Expense 

2,000   

 

$99,000   

$99,000

        

The general ledger also revealed account no. 530, Legal and Accounting 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 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

Billed a customer $3,000   for a portrait painted this month.

 

         

a. Record the necessary journal entries for June on page 2 of the company’s general journal. (See Exhibit 2.6)

b. Open running balance ledger “T” accounts by entering account titles, account num­bers, and May 31 balances. (See exhibit 2.3 and 2.4)

c. Post the journal entries to the “T” accounts. 

d. Prepare a trial balance as of June 30. (See exhibit 2.9)

7. Journal entry preparation. On January 1 of the current year, Peter Houston invested $80,000 cash into 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 (an 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 amounting to $9,400. All customers have been billed; by month end, $3,700 had been received in settlement of account balances.

Instructions

a. Present journal entries that reflect MuniServ’s January transactions, including the $80,000 raised from the owner investment and loan. (See exhibit 2.6)

b. Compute the total debits, total credits, and ending balance that would be found in the company’s Cash account. (Post to “T” Accounts, see exhibit 2.3 and 2.4)

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?