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121
244)
You are reviewing the accounting records of Buddy's Foreign Automotive, owned by Bruce Jones.
You have uncovered the following situations. List the appropriate accounting principle related to
each independent scenario and suggest a correct action for each.
1. In August, a check for $500 was written to Community Sports. This amount represents soccer
camp for his daughter Cassie.
2. Bruce plans a Going Out of Business Sale for June, since he will be closing the business for a
month-long vacation in July. He plans to reopen August 1 and will continue operating Buddy's
Foreign Automotive indefinitely.
3. Buddy received a shipment of tools from Ontario, Canada. The invoice was stated in Canadian
dollars.
4. Sandy Lane paid $1,500 for a major repair services. The amount was recorded as revenue. The
parts for the repair must be ordered from overseas and the service won't be complete until the
following month.
122
SHORT ANSWER QUESTIONS
245)
At the beginning of the year, a company had $120,000 worth of liabilities. During the year, assets
increased by $160,000 and at year-end they equaled $360,000. Liabilities decreased $20,000 during
the year. Calculate the beginning and ending values of equity.
246)
At the beginning of the period, a company had $350,000 worth of assets, $110,000 worth of
liabilities, and $240,000 worth of equity. Assume the only change during the period was a $30,000
purchase of equipment by issuing a note payable. Show the accounting equation with the
appropriate amounts at the end of the period.
123
247)
The accounts of Odie Company with the increases or decreases that occurred during the past year
are as follows:
Account
Increase
Decrease
Cash
Accounts receivable
$25,000
$(5,000)
Accounts payable
Notes payable
16,000
(11,000)
Except for net income, an investment of $3,000 by the owner, and a withdrawal of $11,000 by the
owner, no other items affected owner's equity. Using the balance sheet equation, compute net income
for the past year.
124
248)
The accounts of Mason Company at the end of the past year report the following amounts:
Accounts
Amount
Owner Withdrawals, G. Mason…….
$15,500
Revenues……………………………
$97,000
Expenses……………………………
$43,800
Owner investments…………………
2,000
If the beginning equity for the year was $173,000, calculate the ending equity for Mason Company.
249)
Cornelia's Closet has the following account balances for the dates given:
October 1 October 31
Cash……………………………………… $40,000 60,000
Accounts Receivable……………………… 40,000 38,000
Accounts payable………………………… 6,000 ?
Also, its net income, for October 1 through October 31 was $20,000 and there were no investments
or withdrawals by the owner. Determine the equity at both October 1 and October 31.
250)
If the liabilities of a company increased $92,000 during a period of time and equity in the business
decreased $30,000 during the same period, did the assets of the company increase or decrease? By
what amount?
ESSAY QUESTIONS
125
251)
Soo Lin began an Internet Consulting practice and completed these transactions during April of the
current year:
April.
1
Invested $100,000 of her personal savings into a checking
account opened in the name of the business.
2
Rented office space and paid $1,200 cash for the month of
September.
3
Purchased office equipment for $30,000, paying $8,000 cash
and agreeing to pay the balance in one year.
4
Purchased office supplies for $750 cash.
8
Completed work for a client and immediately collected $2,700
cash for the services.
15
Completed $3,600 services for a client on credit.
20
Received $3,600 from a client for the work completed on
September 15.
30
Paid the office secretary's monthly salary, $3,000 cash.
30
Lin withdrew $2,000 for personal use.
Show the effects of the above transactions on the accounting equation of Soo Lin, Consultant. Use
the following format for your answers. The first item is shown as an example.
Increase = I Decrease = D No effect = N
Date
Assets
Liabilities
Equity
Example:
April 1
I
N
I
127
252)
For each of the following transactions, identify the effects as reflected in the accounting equation.
Use "+" to indicate an increase and "-" to indicate a decrease. Use "A", "L", and "E" to indicate
assets, liabilities, and equity, respectively. Part A has been completed as an example.
a.
L. Chester invested $100,000 in a sole
proprietorship
+A
+E
b.
Land was purchased for $50,000.
A down payment of $15,000 cash was
made and a note was signed for the
balance.
c.
Services were rendered to customers for
cash.
d.
A building was purchased for cash.
e.
Supplies were purchased for cash.
f.
Paid the office secretary’s salary.
g.
The amount owed on the land from Part
(b) was paid.
128
253)
The following schedule reflects shows the first month's transactions of the Green Construction
Company, owned by Jennifer Green:
Accounts Accounts
Cash + Receivable + Supplies + Equipment = Payable +
1. +20,000
2. -5,000 +5,000
3. +$1,500 +1,500
4. +3,000
5. +1,000 +1,500
6. -750 -750
7. +500 -500
8. -400
9. -2,000
Provide descriptions for each transaction.
254)
The accountant of Action Adventure Games prepared a balance sheet after every 10 day period.
The only resources invested by the owner were at the start of the company on June 1. During June,
the first month of operation, the following balance sheets were prepared:
ACTION ADVENTURE GAMES
Balance Sheet
June 10
Assets
Equity
Cash……………………..
$60,000
Owner, Capital……………..
$60,000
Total assets………………
$60,000
Total liabilities
and equity…………………
…..
$60,000
129
ACTION ADVENTURE GAMES
Balance Sheet
June 20
Assets
Liabilities
Cash…………………….
$48,000
Notes payable…….
$18,000
Land…………………….
10,000
Equity
Building…………………
20,000
Owner, Capital…..
60,000
Total assets…………..
$78,000
Total liabilities and
equity……………..
$78,000
ACTION ADVENTURE GAMES
Balance Sheet
June 30
Assets
Liabilities
Cash…………………….
$51,000
Accounts payable….
$2,000
Office supplies…………
2,000
Notes payable…….
18,000
Land…………………….
10,000
Equity
Building…………………
20,000
Owner, Capital…..
63,000
Total assets…………..
$83,000
Total liabilities and
equity……………..
$83,000
Required: Describe the nature of each of the four transactions that took place between the balance
sheet dates shown. Assume only one transaction affected each account.
June
10
20
30
255)
Identify the risk and the return in each of the following examples.
a. Investing $500 in a certificate of deposit at 4.5% interest.
b. Placing a $100 bet on an NBA game.
c. Investing $10,000 in Microsoft stock.
d. Borrowing $20,000 in student loans.
256)
Prepare a April 30 balance sheet in proper form for Two Rivers Vending Service from the following
alphabetical list of the accounts at April 30:
Accounts receivable……………………….
$10,000
Accounts payable…………………………..
18,000
Building……………………………………....
28,000
Cash………………………….……………....
10,000
Notes payable……………………………….
47,000
Office equipment……………...……………..
12,000
K. Fields, Capital…………………………….
?
Trucks………………………………………..
55,000
131
257)
Prepare a December 31 balance sheet in proper form for Smokey River Supplies from the following
list of the accounts:
Cash………………………….…………….........
$10,000
Accounts receivable……………………………..
8,000
Supplies………………………………………….
12,000
Equipment……………………………………..
35,000
Land……………………………………..............
18,000
Accounts payable……………………………..
13,000
Notes payable……………………………….….
41,000
L. Marks, Capital………………………….…..
29,000
258)
Prepare a December 31 balance sheet in proper form for Cane Property Management using the
following accounts and amounts:
Commissions earned……............
$40,000
Accounts payable………………
3,500
Accounts receivable……………
5,000
M. Bruno, Capital………………
104,500
Office equipment……………….
10,000
Advertising expense…………. …
3,200
Cash…………………………….
7,500
Land...............................................
35,000
132
Note payable.................................
50,000
Office supplies..............................
1,500
Salaries expense...........................
12,000
Salaries payable...........................
1,000
Building.........................................
100,000
259)
From the information given below, prepare a November income statement, a November statement
of owner's equity, and a November 30 balance sheet. On November 1 of the current year, Victoria
Garza began Garza Décor with an initial investment of $50,000 cash. On November 30, her records
showed the following (alphabetically arranged) items and amounts.
Accounts payable…………….
$12,000
Office furnishings………..
$40,000
Accounts receivable……….
19,000
Owner’s withdrawals…….
6,000
Cash………………………
21,200
Rent expense……………
9,600
Fees earned……………….
34,000
Salaries expense……….
4,200
Notes payable…………………
4,250
Telephone expense…….
250
