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.
- Amounts paid to a mall for rent.
- Amounts to be paid in 10 days to suppliers.
- A new fax machine purchased for office use.
- Land held as an investment.
- Amounts due from customers.
- Daily sales of merchandise sold.
- Promotional costs to publicize a concert.
- A long-term loan owed to Citizens Bank.
- The albums, tapes, and CDs held for sale to customers.
Question-2
Basic journal entries
The following transactions pertain to the Jennifer Royall Company:
| 1-May | 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.
Question-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
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)
Question-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
- 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)
- Record each transaction on a separate line. After all transactions have been recorded, compute the balance in each of the preceding items.
- 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.
Question-5
Transaction analysis and statement preparation. The transactions that follows relate to Burton Enterprises for March 20X1, the company’s first month of activity.
| 1-Mar | Joanne Burton, the owner, invested $20,000 cash into the business. |
| 4-Mar | Performed $2,400 of services on account. |
| 7-Mar | Acquired a small parcel of land by paying $6,000 cash |
| 12-Mar | Received $500 from a client who was billed previously on March 4. |
| 15-Mar | Paid $200 to the Journal Herald for advertising expense. |
| 18-Mar | 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). | |
| 22-Mar | Received $300 cash from clients for services. |
| 24-Mar | Paid $1,500 on account to Park Central Outfitters in partial settlement of |
| the balance due from the transaction on March 18. | |
| 28-Mar | 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. | |
| 31-Mar | Paid $600 for March wages |
| 31-Mar | |
| Processed a $600 cash withdrawal (dividend) from the business for Joanne Burton |
Instructions
- 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:
- Record each transaction on a separate line. Calculate balances only after the last transaction has been recorded.
- Prepare an income statement, a statement of retained earnings, and a balance sheet, (See Exhibit 1.2, 1.3 and 1.4)
Question-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:
| 2-Jun | Collected $3,000 on account from customers |
| 7-Jun | Sold 25% of the equipment and supplies to a young artist for $700 cash |
| 10-Jun | Received a $300 invoice from the accountant for preparing last quarter’s financial Statements. |
| 15-Jun | Paid $1,900 to creditors on account. |
| 27-Jun | Adkins withdrew $2,000 cash for personal use. |
| 30-Jun | Billed a customer $3,000 for a portrait painted this month. |
- Record the necessary journal entries for June on page 2 of the company’s general journal. (See Exhibit 2.6)
- Open running balance ledger “T” accounts by entering account titles, account numbers, and May 31 balances. (See exhibit 2.3 and 2.4)
- Post the journal entries to the “T” accounts.
- Prepare a trial balance as of June 30. (See exhibit 2.9)
Question-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
- Present journal entries that reflect MuniServ’s January transactions, including the $80,000 raised from the owner investment and loan. (See exhibit 2.6)
- 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)
- Determine the amount that would be shown on the January 31 trial balance for Accounts Payable. Is the balance a debit or a credit?