Free Acc 205 Week One Exercise Assignment

Running Head: BASIC ACCOUNTING 1

Basic Accounting Equations

Rachel Landrum

ACC205: Principles of Accounting I (BAG1417B)

Instructor: Carolyn Woods

April 27, 2014

BASIC ACCOUNTING 2

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. (Expense, normal debit balance)

b. Amounts to be paid in 10 days to suppliers. (Liability, normal credit balance)

c. A new fax machine purchased for office use. (Asset, normal debit balance)

d. Land held as an investment. (Asset, normal debit balance)

e. Amounts due from customers. (Asset, normal debit balance)

f. Daily sales of merchandise sold. (Revenue, normal credit balance)

g. Promotional costs to publicize a concert. (Expense, normal debit balance)

h. A long-term loan owed to Citizens Bank. (Liability, normal credit balance)

i. The albums, tapes, and CDs held for sale to customers. (Asset, normal debit balance)

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.

Cash $25,000 (debit)

Land $15,000 (debit)

Owner’s equity $40,000 (credit)

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

account.

Accounts receivable $1,000 (debit)

Revenue $1,000 (credit)

(Services on Account)

9 Paid $1,250 of salaries to an employee.

BASIC ACCOUNTING 3

Cash $1,250 (credit)

Wage expense $1,250 (debit)

(paid wages to employee 5/9)

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

Computer equipment $4,200 (debit)

Accounts payable $4,200 (credit)

(purchased new computer on account)

20 Collected $800 from Jason Ratchford for services provided on

May 5.

Cash $800 (debit)

Accounts receivable $800 (credit)

(collected money on account for services on May 5 from Jason

Ratchford)

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

Cash $2,500 (debit)

Accounts payable $2,500 (credit)

(Secured a six month loan for $2,500 at BestBanc)

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 ? (11,000)

Prepare a balance sheet as of December 31, 20XX. (See Exhibit 1.1 and 1.4)

Practice 3 Balance Sheet

Current assets: 2007 2008

Cash 21,000.00

-

Investments -

-

Inventories -

-

BASIC ACCOUNTING 4

Accounts receivable 24,000.00

-

Pre-paid expenses -

-

Other -

-

Total current assets 45,000.00

-

Fixed assets: 2007 2008

Building 40,000.00

-

Land 21,000.00

-

Equity and other investments -

-

Less accumulated depreciation -

-

Total fixed assets 61,000.00

-

Other assets: 2007 2008

Goodwill -

Total other assets -

-

Total assets 106,000.00 - Liabilities and owner's equityCurrent liabilities: 2007 2008

Accounts payable 11,000.00

-

Accrued wages -

-

Accrued compensation -

-

Income taxes payable -

-

-

-

Other -

-

Total current liabilities 11,000.00

-

Long-term liabilities: 2007 2008

Loan payable 30,000.00

-

BASIC ACCOUNTING 5

Total long-term liabilities 30,000.00

-

Owner's equity: 2007 2008

J. Preston, Capital 65,000.00

-

Accumulated retained earnings -

-

Total owner's equity 65,000.00

-

Total liabilities and owner's equity 106,000.00 -

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.

BASIC ACCOUNTING 6

(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.

Assets = Liabilities + Owner’s Equity

Cash Acct. Rec Office Fur. Van Acct Pay Common/Div Revenue/Exp

32000 32000

-5000 5000

1800 1800

2100 2100

-300 -300

800 -800

-500 -500

150 -150

-600 -600

250 250

26650 1300 1800 5000 1450 31400 1900

(Assets) 34750=1450 (Liabilities)+33300(Owner’s Equity)

C) 1. Current liabilities equal $1,450 and would appear on the balance sheet.

2. Since revenue-expenses= net profit and since revenue is more than expenses by $450 and cash is

positive this would qualify as a good month because the business made money.

5. Transaction analysis and statement preparation. The transactions

that follow

relate to Burton Enterprises for March 20X1, the company’s first month

of activity.

BASIC ACCOUNTING 7

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 cash3/12 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

3/31Processed 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 EquityCash, 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)

Assets =Liabilities + Owner’s Equity

Cash Acct.

Rec.

Land Equipment Acct.

Payable

Common

Stock

Dividends Revenue Exp.

3/1 20,000 20,000

BASIC ACCOUNTING 8

3/4 2400 2400

3/7 -6,000 6,000

3/12 500 -500

3/15 -200 -200

3/18 -7,000 9,000 2,000

3/22 300 300

3/24 -1,500 -1,500

3/28 125 -125

3/31 -600 -600

3/31 -600 -600

Total 4,900 1,900 6,000 9,000 625 19,400 1,775

Burton Enterprises

Income Statement

For the Period Ending March 20X1

Revenue 2700

Expense

Advertising

expense

200

Auto expense 125

Wage Expense 600

Total Expense 925

Total Net

Income

1775

Barton Enterprises

Statement of Retained Earnings

For Period Ending March 20X1

Beginning Retained Earnings (3/1/20X1) $0

Add: Net Income $1775

Subtotal $1775

BASIC ACCOUNTING 9

Subtract: Dividends $600

Ending Retained Earnings Balance (3/1/20X1) $1175

Barton Enterprises

Balance Sheet

March 31, 20X1

Assets

Cash 4,900

Acct. Rec. 1,900

Land 6,000

Equipment 9,000

Total

Assets

21,800

Liabilities

Accts. Pay 625

Total

Liabilities

625

Owner’s Equity

Common

Stock

20,000

Retained

Earnings

1,175

Total

Owner’s

equity

21,175

Total

Liabilities

and

Owner’s

Equity

21,800

BASIC ACCOUNTING 10

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 customers6/7 Sold 25% of the equipment and supplies to a young artist for $700 cash

6/10Received 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)

BASIC ACCOUNTING 11

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)

Adkins Studio General Journal page 2

Date

20XX

Account Title and

explanation

Ref number Debit Credit

6/2

6/7

6/10

6/15

6/27

6/30

Cash

Account Rec.

Received cash on

Accounts from

customers

Cash

Equipment and

Supplies

Sold equip and

supplies

Cash

Accounts

Payable

Received

accounting

services bill

Accounts Payable

Cash

Paid creditors

Lee Adkins,

Drawing

Cash

Owner withdrew

cash

110

120

110

130

530

210

210

110

320

110

3,000

700

300

1,900

2,000

3,000

700

300

1,900

2,000

BASIC ACCOUNTING 12

Accounts

Receivable

Professional Fee

Revenue

Billed customer for

portrait

120

410

3,000

3,000

Cash Account 110

Date 20XX Exp. Ref. Debit Credit Balance

5/31 Balance 2,700

6/2 J2 3,000 5,700

6/7 J2 700 6,400

6/15 J2 1,900 4,500

6/27 J2 2,000 2,500

Accounts Receivable Account 120


5/31 Balance 12,100

6/2 J2 3,000 9,100

6/30 J2 3,000 12,100

Equipment and Supplies Account 130


5/31 Balance 2,800

6/7 J2 700 2,100

Studio Account 140


5/31 Balance 45,000

Accounts Payable Account 210

BASIC ACCOUNTING 13


5/31 Balance 2,600

6/10 J2 300 2,900

6/15 J2 1,900 1,000

Lee Adkins, Capital Account 310


5/31 Balance 57,400

Lee Adkins, Drawing Account 320


5/31 Balance 30,000

6/27 J2 2,000 32,000

Professional Fee Revenue Account 410


5/31 Balance 39,000

6/30 J2 3,000 42,000

Advertising Expense Account 510


5/31 Balance 2,300

Salaries Expense Account 520


5/31 Balance 2,100

Legal and Accounting Expense Account 530


6/10 J2 300 300

Utilities Expense


BASIC ACCOUNTING 14

5/31 Balance 2,000

Adkins Studio

Balance Sheet

June 30, 20XX

110 Cash $ 2,500

120 Accounts Receivable 12,100

130 Equipment and Supplies 2,100

140 Studio 45,000

210 Accounts Payable $1,000

310 Lee Adkins, Capital 57,400

320 Lee Adkins, Drawing 32,000

410 Professional Fee Revenue 42,000

510 Advertising Expense 2,300

520 Salaries Expense 2,100

530 Legal and Accounting 300

540 Utilities Expense 2,000

$100,400 $100,400

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

BASIC ACCOUNTING 15

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)

MuniServ

General Journal

January 20XX

Cash

Notes Payable

Peter Huston, Capital

Invested money using capital

and loan

Land

Building

Vehicles

Acquired assets

Cash

Accounts Payable

Paid for part of acquisition got

billed for rest of payment due

2/15

Store Equipment

Cash

Purchased store equipment

Notes Payable

Cash

Paid note

$80,000

10,000

40,000

10,000

4,600

500

30,000

50,000

45,000

15,000

4,600

500

BASIC ACCOUNTING 16

Salaries Exp.

Cash

Paid Salaries

Advertising Exp.

Cash

Paid for Advertising

Utility Expense

Accounts payable

Billed for Utility

Accounts Receivable

Revenue

Rendered Services to clients on

account

Cash

Account Receivables

Received settlement on account

balances

2,300

700

200

9,400

3,700

2,300

700

200

9,400

3,700

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)

MuniServ General Ledger Cash Account

Date Description Debit Credit Balance

1/1/20XX Investment $80,000 $80,000

1/X/20XX Purchase Assets 45,000 35,000

1/X/20XX Purchased Store

equipment

4,600 30,400

1/X/20XX Paid note 500 29,900

1/X/20XX Paid salaries 2,300 27,600

1/X/20XX Paid for

advertising

700 26,900

1/X/20XX Received money

on accounts

3,700 30,600

BASIC ACCOUNTING 17

Total 83,700 53,100

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?

MuniServTrial Balance January 31, 20XX

Account Name Debit Credit

Cash $30,600

Accounts Receivable 5,700

Land 10,000

Building 40,000

Vehicle 10,000

Equipment 4,600

Accounts Payable 15,200

Note Payable 29,500

Peter Houston, Capital 50,000

Service Revenue 9,400

Salaries Expense 2,300

Advertising Expense 700

Utilities Expense 200

Total 104,100 104,100

Documents

Free Acc 205 Week One Exercise Assignment