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Week One Exercise Assignment

Basic Accounting Equations

1. Basic concepts.Jean’s Marine Supply specializes in the sale of boating equipment and acces sories. Identify the items that follow as an asset (A), liability (L), revenue (R), or expense (E) from the firm’s viewpoint.

a. The inventory of boating supplies owned by the company.

b. Monthly rental charges paid for store space.

c. A loan owed to Citizens Bank.

d. New computer equipment purchased to handle daily record keeping.

e. Daily sales made to customers.

f. Amounts due from customers.

g. Land owned by the company to be used as a future store site.

h. Weekly salaries paid to salespeople.

2. Basic computations. The following selected balances were extracted from the accounting records of Rossi Enterprises on December 31, 20X3:

Accounts Payable \$3,200 Interest Expense \$2,500

Accounts Receivable 14,800 Land 18,000

Auto Expense 1,900 Loan Payable 40,000

Building 30,000 Tax Expense 3,300

Cash 7,400 Utilities Expense 4,100

Fee Revenue 56,900 Wage Expense 37,500

a. Determine Rossi s total assets as of December 31.

b. Determine the company s total liabilities as of December 31.

c. Compute 20X3 net income or loss.

3. Balance sheet preparation. The following data relate to Preston Company as of December 31, 19XX:

Building \$44,000 Accounts receivable \$24,000

Cash 17,000 Loan payable 30,000

J. Preston, Owners Equity 65,000 Land 21,000

Accounts payable ?

Prepare a balance sheet as of December 31, 19XX. (See Exhibit 1.1 and 1.4)

4. Basic transaction processing. On November 1 of the current year, Richard Parker established a sole proprietorship. The following transactions occurred during the month:

1: Parker invested \$19,000 into the business.

2: Paid \$9,000 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: Parker withdrew \$600 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 account ing equation: Cash, Accounts Receivable, Office Furniture, Van, Accounts Payable, Investments/Withdrawals, and Revenues/Expenses. (See Exhibit 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 Parker.

(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.

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: Joanne Burton, the owner invested \$20,000 into the business.

3/4: Performed \$2,400 of services on account.

3/7: Acquired a small parcel of land by paying \$6,000 cash.

3/12: Received \$700 from a client, who was billed previously on March 4.

3/15: Paid \$800 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 the next

2 weeks, (Accounts Payable).

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 \$75, with United billing Burton for the amount due.

3/31: Paid \$900 for March wages.

3/31: Processed a \$600 cash withdrawal 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 Equity

Cash, Accounts Receivable, Land, Equipment Accounts Payable (+)Investments (+) Revenues

(-) Withdrawals (-) 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 owner s equity, and a balance sheet, (See Exhibit 1.1, 1.3 and 1.4)

6. 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. The albums, tapes, and CDs held for sale to customers.

b. A long-term loan owed to Citizens Bank.

c. Promotional costs to publicize a concert.

d. Daily receipts for merchandise sold,

e. Amounts due from customers,

f. Land held as an investment,

g. A new fax machine purchased for office use.

h. Amounts to be paid in 10 days to suppliers,

i. Amounts paid to a mall for rent.

7.Basic journal entries

The following transactions pertain to the Jennifer Royall Company:

Apr. 1

Jenni fer Royall invested cash of \$15,000 and land valued at \$10,000 from into the business.

5

Provided \$1,200 of services to Jason Ratchford, a client, on account.

9

Paid \$250 of salaries to an employee.

14

Acquired a new computer for \$3,200, on account.

20

Collected \$800 from Jason Ratchford for services provided on April 5.

24

Borrowed \$7,500 from BestBanc by securing a six-month loan.

Prepare journal entries (and explanations) to record the preceding transactions and events.

8. Trial balance preparation. Brighton, a sole proprietorship began operation on March 1 of the current year. The following account balances were extracted from the general led ger on March 31; all accounts have normal balances.

Accounts Payable

\$ 12,000

Interest Expense

\$ 300

Accounts Receivable

8,800

Land

?

5,700

Loan Payable

26,000

Bob Brighton, Owners Equity

30,000

Salaries Expense

11,100

Cash

22,500

Utilities Expense

700

Fees Earned 18,900

a. Determine the cost of the company s land by preparing a trial balance. (Remember, the trial balance debits must equal the credits, see Exhibit 2.9)

b. Determine the firm s net income for the period ending March 31.

9. 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

57,400

320

30,000

410

Revenue

39,000

510

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 \$7,500 on account from customers.

6/7:

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

6/10:

Received a \$500 bill from the accountant for preparing last quarter s financial statements.

6/15:

Paid \$2,100 to creditors on account.

6/27:

Adkins withdrew \$1,000 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)

b. Open running balance ledger T accounts by entering account titles, account num bers, 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)

10. Journal entry preparation.On January 1 of the current year, Peter Houston invested \$100,000 cash into his company MuniServ. Shortly thereafter, the company ac quired selected assets of a bankrupt competitor. The acquisition included land (\$15,000), 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 \$20,000 (an account payable) by February 15.

Purchases of store equipment

\$4,600

Loan payment

500

Salaries expense

2,300