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.
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.
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)
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.
- 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.
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|
|Processed a $600 cash withdrawal (dividend) from the business for Joanne Burton|
- 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)
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|
|130||Equipment and Supplies||2,800|
|310||Lee Adkins, Capital||57,400|
|320||Lee Adkins, Drawing||30,000|
|410||Professional Fee Revenue||39,000|
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)
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|
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.
- 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?