Set B

Week One Exercise

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.
Classification
Normal Balance
a.
Amounts paid to a mall for rent.
E
Debit
b.
Amounts to be paid in 10 days to suppliers.
L
Credit
c.
A new fax machine purchased for office use.
A
Debit
d.
Land held as an investment.
A
Debit
e.
Amounts due from customers.
A
Debit
f.
Daily sales of merchandise sold.
R
Credit
g.
Promotional costs to publicize a concert.
E
Debit
h.
A long-term loan owed to Citizens Bank.
L
Credit
i.
The albums, tapes, and CDs held for sale to customers.
A
Debit

Set B
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
Land

25,000
15,000
Owners Equity
(Investment by owner)

40,000

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

Ratchford agreed to pay $800 in 15 days and the remaining amount in June.
Accounts receivable
1,000
Revenue
1,000
(Services on account)

Paid $1250 of salaries to an employee.

Salary expense
1,250
Cash
1,250
(Paid salary expense for xx/xx/xxxx

14

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

Computer equipment
4,200
Accounts payable
4,200
(Purchased computer on account)
Collected $800 from Jason Ratchford for services provided on May 5.
Cash
800
Accounts receivable
800
(Received $800 of the $1,000 owed by Ratchford)

20

24

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

Cash
2,500
Notes payable
2,500
(Borrowed $2500 from BestBanc, 6 months, X%)

Set B
3. Balance sheet preparation.
The following data relate to Preston Company as of December 31, 20XX:
Building
Cash
J. Preston, capital
Accounts payable ?

$44,000
17,000
65,000

Accounts receivable
Loan payable
Land

$24,000
30,000
21,000

Prepare a balance sheet in good form as of December 31, 20XX.

Preston Company
Balance Sheet
December 31, 20XX
Assets
Current assets
Cash
Accounts receivable
Total Current Assets

$21,000
24,000
45,000

Long-Term Liabilities:
Loan
payable
Total Long-Term Liabilities
Total
Liabilities

Long-Term Assets:
Building
Land
Total Long-Term Assets
Total Assets

Liabilities
Current Liabilities:
Accounts payable
Total Current liabilities

40,000
21,000
61,000
$ 106,000

Capital
J. Preston Capital
Total Liabilities and Capital

$11,000
11,000

30,000
30,000
41,000

65,000
$ 106,000

Set B
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 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
a. & b.
Assets
= Liabilities +

Cash
1
$32,000
2
($5,000)
3
4
5
($300)
6
$800
7
($500)
8
9
($800)
10
$250
$26,450

Accounts
Receivable

Office
Furniture Van

Accounts
Payable

Equity
(+)Com
Stock
(+) Rev
(-) Dividend (-) Exp
$32,000

$5,000
$1,800

$1,800

$2,100

$2,100
($300)

($800)
($500)
$150

($150)
($800)

$1,300

$1,800

$5,000

$1,450

$31,200

$250
$1,900

Set B
c.
1. Liabilities = $1,450. Liabilities appear on the balance sheet.
2. Revenue - Expenses = Net Profit. Revenue exceeded expenses by $1,900 and cash is positive, indicating a good month.

Set B
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
3/4
3/7
3/12
3/15
3/18

3/31

Joanne Burton, the owner, invested $20,000 cash into the business.
Performed $2,400 of services on account.
Acquired a small parcel of land by paying $6,000 cash
Received $500 from a client who was billed previously on March 4.
Paid $200 to the Journal Herald for advertising expense.
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).
Received $300 cash from clients for services.
Paid $1,500 on account to Park Central Outfitters in partial settlement of
the balance due from the transaction on March 18.
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.
Paid $600 for March wages

3/31

Processed a $600 cash withdrawal (dividend) from the business for Joanne
Burton

3/22
3/24
3/28

Assets

3/1
3/4
3/7
3/12
3/15
3/18
3/22

Cash
$20,000

Accounts
Receivable

Land

Equipment

Liabilities +
Accounts
Payable

$2,400
($6,000)
$500
($200)
($7,000)
$300

Equity
(+)Com
Stock
(+) Rev
(-) Dividend (-) Exp
$20,000
$2,400

$6,000
($500)
($200)
$9,000

$2,000
$300

Set B
3/24
3/28
3/31
3/31

($1,500)
($600)
($600)
$4,900

($1,500)
$125

$1,900

$6,000

$9,000

$625

Burton Enterprises
Income Statement
For the Period Ending March 20X1
Revenue
Expenses:
Advertising
Expense
Auto Expense
Wage Expense
Net Income

$2,700

$200
$125
$600

$925
$1,775

Burton Enterprises
Statement of Retained Earnings
For the Period Ending March 20X1
Beginning Retained Earnings Balance (3/1/20X1)
Add: Net Income
Sub total

$0

$1,775

Subtract: Dividends
Ending Retained Earnings Balance (3/31/20X1)

$1,775
$600
$1,175

($125)
($600)
($600)
$19,400

$1,775

Set B
Burton Enterprises
Balance Sheet
March 31, 20X1
Assets:
Cash
Accts Rec
Land

$4,900
$1,900
$6,000

Equipment
Total Assets

$9,000
$21,800

Liabilities:
Accts Pay
Total Liabilities
Stockholders Equity:
Common Stock
Retained Earnings
Total Stockholders Equity
Total Liabilities & Equity

$625
$625

$20,000
$1,175
$21,175
$21,800

Set B

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 #
110
120
130
140
210
310
320
410
510
520
540

The general Ledger also revealed account # 530, Legal & 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
6/15
6/27
6/30

Received a $300 invoice from the accountant for preparing last quarter's
financial Statements.
Paid $1,900 to creditors on account.
Adkins withdrew $2,000 cash for personal use.
Billed a customer $3,000 for a portrait painted this month.

Account Name
Cash
Accounts Receivable
Equipment & Supplies
Studio
Accounts Payable
Lee Adkins, Capital
Lee Adkins, Drawing
Professional Fee Revenue
Advertising Expense
Salaries Expense
Utilities Expense

Debit
Credit
2,700
12,100
2,800
45,000
2,600
57,400
30,000
39,000
2,300
2,100
2,000
99,000

99,000

Set B

a.
Date
20XX
6/2

6/7

6/10

6/15

6/27

6/30

Adkins Studio - General Journal

Page 2
Post
Acct Titles & Explanation
Ref.
Debit
Credit
Cash
110
3,000
Accounts Receivable
120
3,000
Received Cash on Acct
Cash
110
700
Equipment & Supplies
130
700
Sold Equip & Supplies
Legal & Accounting Exp
530
300
Accounts Payable
210
300
Received Bill for Accting Services
Accounts Payable
210
1,900
Cash
110
1,900
Paid Creditors on Account
Lee Adkins, Drawing
320
2,000
Cash
110
2,000
Owner Withdrawal
Accounts Receivable
120
3,000
Professional Fees
410
3,000

Set B

b. & c
Date 20XX
5/31
6/2
6/7
6/15
6/27

Date 20XX
5/31
6/2
6/30

Date 20XX
5/31
6/7

Date 20XX
5/31

Exp.
Balance

Cash
Post Ref.

Debit

J2
J2
J2
J2

Exp.
Balance

3,000
700

3,000

Equipment & Supplies

Post Ref.
Debit
J2

Exp.
Balance

Studio
Post Ref.

Debit

Balance
2,700
5,700
6,400
1,900
4,500
2,000
2,500

Acct.
120
Credit

Accts Receivable
Post Ref.
Debit
J2
J2

Exp.
Balance

Acct.
110
Credit

Balance
12,100
3,000
9,100
12,100

Acct.
130
Credit

Balance
2,800
700
2,100

Acct.
140
Credit

Balance
45,000

Set B

Date 20XX
5/31
6/10
6/15

Date 20XX
5/31

Date 20XX
5/31
6/27

Date 20XX
5/31
6/30

Exp.
Balance

J2
J2

Exp.
Balance

Exp.
Balance

1,900

Balance
2,600
300
2,900
1,000

Lee Adkins, Capital

Post Ref.
Debit

Acct.
310
Credit

Lee Adkins, Drawing

Post Ref.
Debit

Acct.
320
Credit

J2

Exp.
Balance

Acct.
210
Credit

Accounts Payable
Post Ref.
Debit

2,000

Professional Fee Revenue

Post Ref.
Debit
J2

Advertising Expense

Acct.
410
Credit

Balance
57,400

Balance
30,000
32,000

Balance
39,000
3,000
42,000

Acct.
510

Set B
Date 20XX
5/31

Date 20XX
5/31

Date 20XX
6/10

Date 20XX
5/31

Exp.
Balance

Exp.
Balance

Exp.

Exp.
Balance

Post Ref.

Debit

Credit

Salaries Expense
Post Ref.
Debit

Acct.
520
Credit

Legal & Accting Expense

Post Ref.
Debit
J2
300

Utilities Expense
Post Ref.
Debit

Acct.
530
Credit

Acct.
540
Credit

Balance
2,300

Balance
2,100

Balance
300

Balance
2,000

Set B

d.
Adkins Studio
Trial Balance
June 30, 20XX
Cash
Accounts Receivable
Equipment & Supplies
Studio
Accounts Payable
Lee Adkins, Capital
Lee Adkins, Drawing
Professional Fee Revenue
Advertising Expense
Salaries Expense
Legal & Accounting Exp
Utilities Expense

2,500
12,100
2,100
45,000
1,000
57,400
32,000
42,000
2,300
2,100
300
2,000
100,400

100,400

Set B

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
4600
Note payment
500
Salaries expense
2300
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.

a.

Present journal entries that reflect MuniServ's January transactions, including the $80,000 raised from the owner investment and loan.

a.

Present journal entries that reflect MuniServ's January transactions, including the $80,000 raised
from the owner investment and loan.
Cash

80,000
Loan payable
Peter Houston, Capital

Land
Building
Vehicles

30,000
50,000
10,000
40,000
10,000

Cash
Accounts payable

45,000
15,000

Set B
Store equipment

4,600
Cash

Note payable

4,600
500

Cash
Salary expense

500
2,300

Cash
Advertising expense

2,300
700

Cash
Utility expense

700
200

Accounts payable
Accounts receivable

200
9,400

Revenue
Cash

9,400
3,700

Accounts receivable

3,700

Set B

b. Compute the total debits, total credits, and ending balance that would be found in the company's Cash account.
General Ledger
Cash Account
Date

Description

1/1/20xx
1/X/20XX

Investment
Purchase assets
Purchase store
equip
Paid note
Paid salaries
Paid advertising
Collected A/R

1/X/20XX
1/X/20XX
1/X/20XX
1/X/20XX
1/X/20XX
Total

c.

Debit

Credit

Balance

80,000
45,000
store
equip

4,600
500
2,300
700
3,700
83,700

80,000
35,000
30,400
29,900
27,600
26,900
30,600

53,100

Determine the amount that would be shown on the January 31 trial balance for Accounts Payable. Is the balance a debit or a credit?

Accounts payable
Date

Description

1/1/20xx
1/X/20XX

Purchase assets
Utility expense

Debit

Credit

Balance
15,000
200

15,000
15,200