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“ I will not say I failed 1000 times, I

will say that I discovered there are

1000 ways that can cause failure

”Thomas Edison

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Principles Of Accounting (1)

Revision From Chapter 1 to Chapter 4

Mohamed Mahmoudmmahmoud@eelu.edu.eg

Tel: (+202) 33318449

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The following errors were discovered after the transactions had been journalized and posted. Prepare the correcting entries.

1. A collection on account from a customer was recorded as a debit to Cash and a credit to Service Revenue for $780.

Cash 780Incorrect entry Service revenue

780Cash 780Correct entry

Accounts receivable 780

Service revenue 780Correcting entry Accounts receivable

780

Correcting Entries

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The following errors were discovered after the transactions had been journalized and posted. Prepare the correcting entries.

2. The purchase of supplies on account for $1,570 was recorded as a debit to Store Supplies and a credit to Accounts Payable for $1,750.

Store Supplies 1,750

Accounts payable 1,750Store Supplies 1,570

Accounts payable 1,570

Accounts payable 180

Store Supplies180

Correcting Entries (continued)

Incorrect entry

Correct entry

Correcting entry

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Exercise 1M. El-Beheery, CPA, was asked by Omar to review the accounting records and prepare thefinancial statements for his upholstering shop. Elbeheery reviewed the records and found three errors.

1. Cash paid on accounts payable for $930 was recorded as a debit to Accounts Payable $390and a credit to Cash $390.2. The purchase of supplies on account for $500 was debited to Equipment $500 and credited to Accounts Payable $500.3. Omar withdrew $1,200 of cash and the bookkeeper debited Accounts Receivable for $120 and credited Cash $120.

Instructions:

Prepare an analysis of each error showing the (a) incorrect entry. (b) correct entry. (c) correcting entry.

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1. (a) Incorrect Entry: Accounts Payable.............................................................. 390 Cash ......................................................................... 390 (b) Correct Entry: Accounts Payable.............................................................. 930 Cash ......................................................................... 930 (c) Correcting Entry: Accounts Payable.............................................................. 540 Cash ......................................................................... 540 2. (a) Incorrect Entry: Equipment ......................................................................... 500 Accounts Payable..................................................... 500 (b) Correct Entry: Supplies............................................................................. 500 Accounts Payable..................................................... 500 (c) Correcting Entry: Supplies............................................................................. 500 Equipment ................................................................ 500

Answer

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3. (a) Incorrect Entry: Accounts Receivable......................................................... 120 Cash ......................................................................... 120 (b) Correct Entry: Omar, Drawing ................................................................ 1,200 Cash ......................................................................... 1,200 (c) Correcting Entry: Omar, Drawing ................................................................ 1,200 Accounts Receivable ................................................ 120

Answer

Barone’s Repair Shop was started on May 1 by Nancy. Prepare a tabular analysis of the following transactions for the month of May:

1) Invested $10,000 cash to start the repair shop.2) Purchased equipment for $5,000 cash.3) Paid $400 cash for May office rent.4) Received $5,100 from customers for repair service.5) Withdrew $1,000 cash for personal use.6) Paid part-time employee salaries of $2,000.7) Incurred $250 of advertising costs, on account.8) Provided $750 of repair services on account.9) Collected $120 cash for services previously billed.

Instructions :Prepare a tabular analysis of May transactions , the column headings should be as follows : cash + accounts receivable + equipment = Notes payable + Barone, Capital .

Exercise 2

Barone’s Repair Shop was started on May 1 by Nancy. Prepare a tabular analysis of the following transactions for the month of May.

+10,000

1. +10,000

CashAccounts Receivable Equipment

Accounts Payable

Barone, Capital+ + = +

1. Invested $10,000 cash to start the repair shop.

Investment

Assets Liabilities Equity

Answer

+10,000

1. +10,000

CashAccounts Receivable Equipment

Accounts Payable

Barone, Capital

2. Purchased equipment for $5,000 cash.

-5,0002. +5,000

+ + = +Investment

Assets Liabilities Equity

Answer

+10,000

1. +10,000

CashAccounts Receivable Equipment

Accounts Payable

3. Paid $400 cash for May office rent.

-5,0002. +5,000

+ + = +

-4003. -400 Expense

Barone, Capital

Investment

Assets Liabilities Equity

Answer

+10,000

1. +10,000

CashAccounts Receivable Equipment

Accounts Payable

4. Received $5,100 from customers for repair service.

-5,0002. +5,000

+ + = +

-4003. -400 Expense+5,1004. +5,100 Revenu

e

Barone, Capital

Investment

Assets Liabilities Equity

Answer

+10,000

1. +10,000

CashAccounts Receivable Equipment

Accounts Payable

5. Withdrew $1,000 cash for personal use.

-5,0002. +5,000

+ + = +

-4003. -400 Expense+5,1004. +5,100 Revenu

e-1,0005. -1,000 Drawings

Barone, Capital

Investment

Assets Liabilities Equity

Answer

+10,000

1. +10,000

CashAccounts Receivable Equipment

Accounts Payable

6. Paid part-time employee salaries of $2,000.

-5,0002. +5,000

+ + = +

-4003. -400 Expense+5,1004. +5,100 Revenu

e-1,0005. -1,000 Drawings-2,0006. -2,000 Expense

Barone, Capital

Investment

Assets Liabilities Equity

Answer

+10,000

1. +10,000

CashAccounts Receivable Equipment

Accounts Payable

7. Incurred $250 of advertising costs, on account.

-5,0002. +5,000

+ + = +

-4003. -400 Expense+5,1004. +5,100 Revenu

e-1,0005. -1,000 Drawings-2,0006. -2,000 Expense

+2507. -250 Expense

Barone, Capital

Investment

Assets Liabilities Equity

Answer

+10,000

1. +10,000

CashAccounts Receivable Equipment

Accounts Payable

8. Provided $750 of repair services on account.

-5,0002. +5,000

+ + = +

-4003. -400 Expense+5,1004. +5,100 Revenu

e-1,0005. -1,000 Drawings-2,0006. -2,000 Expense

+2507. -250 Expense+7508. +750 Revenu

e

Barone, Capital

Investment

Assets Liabilities Equity

Answer

+10,000

1. +10,000

CashAccounts Receivable Equipment

Accounts Payable

9. Collected $120 cash for services previously billed.

-5,0002. +5,000

+ + = +

-4003. -400 Expense+5,1004. +5,100 Revenu

e-1,0005. -1,000 Drawings-2,0006. -2,000 Expense

+2507. -250 Expense+7508. +750 Revenu

e+1209. -120

Barone, Capital

Investment

Assets Liabilities Equity

6,820 + 630 + 5,000 = 250 + 12,200

Answer

Transactions for Salem Company for the month of October are presented below.

1. Oct 1. Invested an additional $40,000 cash in the business.

2. Oct 3. Purchased land costing $28,000 for cash.

3. Oct 9. Purchased equipment costing $12,000 for $3,000 cash and the remainder on

credit.

4. Oct 13. Purchased supplies on account for $800.

5. Oct 17. Paid $1,000 for a one-year insurance policy.

6. Oct 22. Received $3,000 cash for services performed.

7. Oct 25. Received $4,000 for services previously performed on account.

8. Oct 28. Paid wages to employees for $2,500.

9. Oct 31. Salem withdrew $1,000 cash from the business.

InstructionsJournalize each transaction and post to the ledger accounts.

Exercise 3

Oct.1 Cash ......................................................................................... 40,000 E. Petry, Capital...................................................................... 40,000

Oct.3 Land ......................................................................................... 28,000 Cash ....................................................................................... 28,000

Oct.9 Equipment ................................................................................ 12,000 Cash ....................................................................................... 3,000 Accounts Payable................................................................... 9,000

1. Oct 1. Invested an additional $40,000 cash in the business.

2. Oct 3. Purchased land costing $28,000 for cash.

3. Oct 9. Purchased equipment costing $12,000 for $3,000 cash and the remainder on

credit.

Answer

Oct.13 Supplies .......................................................................................... 800 Accounts Payable .................................................................. 800

Oct.17 Prepaid Insurance ......................................................................... 1,000 Cash .................................................................................. 1,000

Oct.22 Cash .............................................................................................. 3,000 Service Revenue ................................................................ 3,000

4. Oct 13. Purchased supplies on account for $800.

5. Oct 17. Paid $1,000 for a one-year insurance policy.

6. Oct 22. Received $3,000 cash for services performed.

Answer

Oct.25 Cash............................................................................................. 4,000 Accounts Receivable........................................................... 4,000

Oct.28 Wages Expense........................................................................... 2,500 Cash................................................................................... 2,500

Oct.31 E. Petry, Drawing ....................................................................... 1,000 Cash................................................................................... 1,000

7. Oct 25. Received $4,000 for services previously performed on account.

8. Oct 28. Paid wages to employees for $2,500.

9. Oct 31. Salem withdrew $1,000 cash from the business.

Answer

1. Cash ................................................................................................ 40,000 E. Petry, Capital...................................................................... 40,000

2. Land ................................................................................................ 28,000 Cash ....................................................................................... 28,000

3. Equipment ....................................................................................... 12,000 Cash ....................................................................................... 3,000 Accounts Payable................................................................... 9,000

4. Supplies .......................................................................................... 800 Accounts Payable .................................................................. 800

5. Prepaid Insurance ........................................................................... 1,000 Cash ....................................................................................... 1,000

6. Cash ................................................................................................ 3,000 Service Revenue .................................................................... 3,000

7. Cash................................................................................................. 4,000 Accounts Receivable............................................................... 4,000

8. Wages Expense............................................................................... 2,500 Cash........................................................................................ 2,500

9. E. Petry, Drawing ............................................................................. 1,000 Cash........................................................................................ 1,000

Accounts PayableDr. Cr. Oct.9 9000

Oct.13 800

Balance 9800

CashDr. Cr.

Oct.1 40000

Oct.22 3000

Oct.25 4000

Balance 11500

Oct.3 28000

Oct.9 3000

Oct.17 1000

Oct.28 2500

Oct. 31 1000

AnswerService revenueDr. Cr.

Oct.22 3000

Balance 3000

Account receivableDr. Cr. Oct.25 4000

Balance 4000

Posting to ledger

Exercise 4Prepare adjusting entries for the following transactions. Omit explanations

1) Depreciation on equipment is $800 for the accounting period.

2) There was no beginning balance of supplies and purchased $500 of

office supplies during the period. At the end of the period $80 of

supplies were on hand.

3) Prepaid rent had a $1,000 normal balance prior to adjustment. By year

end $600 was unexpired.

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Answer1) Depreciation Expense...................................................................... 800 Accumulated Depreciation—Equipment.................................. 800

2) Supplies Expense ............................................................................ 420 Supplies .................................................................................. 420

($500 – $80)

3) Rent Expense................................................................................... 400 Prepaid Rent ........................................................................... 400 ($1,000 – $600)

B. Hans Albert Enterprises purchased computer equipment on May 1, 2009 for

$4,500. The company expects to use the equipment for 3 years. What

adjusting journal entry should the company make at the end of each month

if monthly financials are prepared (annual depreciation is $1,500)? What is

the book value of the equipment at May 31, 2009?

Exercise 5

Depreciation Expense ........................................................... 125

Accumulated Depreciation............................................... 125

 

2. Cost $4,500

Accumulated Depreciation (125)

Book value $4,375

Answer

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Exercise 6A. Prepare the necessary adjusting entry for each of the following:

1. Services provided but unrecorded totaled $900.

2. Accrued salaries at year-end are $1,000.

3. Depreciation for the year is $600.

Answer:1) Accounts Receivable........................................................................ 900 Service Revenue..................................................................... 900

2) Salaries Expense ............................................................................. 1,000 Salaries Payable ..................................................................... 1,000

3) Depreciation Expense...................................................................... 600 Accumulated Depreciation ...................................................... 600

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Exercise 7The following information is available for Amr Company for the year ended December 31, 2008:

Accounts payable $2,700Accumulated depreciation, equipment 4,000Amr, Capital 7,800Intangible assets 2,500Notes payable (due in 5 years) 7,500Accounts receivable 1,500Cash 2,600Short-term investments 1,000Equipment 7,500Long-term investments 6,900

Instructions:Use the above information to prepare a classified balance sheet for the year ended December 31, 2009.

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Amr COMPANYBalance Sheet

For the Year Ended December 31, 2009Assets Current Assets Cash $2,600 Short-term investments 1,000 Accounts receivable 1,500 Total Current Assets $5,100 Investments Long-term investments 6,900 Property, Plant, and Equipment Equipment 7,500 Less Accumulated depreciation, equipment 4,000 3,500 Intangible assets 2,500 Total Assets $18,000Liabilities and Owner’s Equity Current Liabilities Accounts payable $2,700 Long-term liabilities Notes payable 7,500 Total Liabilities $10,200 Owner’s equity Amr, Capital 7,800 Total owner’s equity 7,800 Total liabilities and owner’s equity $18,000

Answer

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