Chapter 3 2 Geens Alterations Shop Began Business Corporation

Document Type
Test Prep
Book Title
Financial ACCT2 (with CengageNOWTM-- 1 term Printed Access Card) 2nd Edition
Authors
C. Wayne Alderman, Norman H. Godwin
78. Listed below are selected accounts from the financial statements of Ellison Company for the year ended
December 31. In the blank spaces provided for each account, indicate what type of account it is, its normal
balance, and the debit/credit rules for increasing and decreasing it. Use the following abbreviations for your
answer:
Normal
Rules to Increase or
Account Balance
Decrease the Account
Dr = Debit
Dr = Debit
Cr = Credit
Cr = Credit
Type of
Normal
Rule to
Rule to
Account
Balance
Increase
Decrease
Example
: Cash
A
Dr
Dr
Cr
a.
Accounts payable
b.
Retained earnings
c.
Prepaid insurance
d.
Service revenues
e.
Notes payable
f.
Intangibles
g.
Common stock
h.
Salaries expense
i.
Accounts receivable
j.
Unearned revenues
79. M. Shay & Company, Inc.
The bookkeeper for M. Shay & Company, Inc. prepared the following journal entries and posted them to the
general ledger as indicated in the T-accounts presented. Assume that the dollar amounts and descriptions of the
entries are correct.
Journal (partial):
Date
Account
s and
Explana
tions
Debit
Credit
May 5
Account
s
Receivab
le
1,600
Service Revenue
1,600
Billed
customer
s for
services
complete
d
May 11
Cash
500
Service Revenue
500
Collecte
d from a
customer
billed on
May 1
for
services
rendered
May 15
Office
Supplies
700
Accounts Payable
700
Purchase
d
furniture
on
credit;
payment
due in 30
days
May 25
Office
Furniture
700
Cash
700
Paid the
furniture
bill
received
on May
15
General Ledger (partial):
Accounts Receivable
Servic
e
Reven
ue
Office Furniture
5/5
5/5
5/11
5/25
1,600
1,600
500
700
Cash
Accou
nts
Payabl
e
Office Supplies
5/11
5/15
5/15
500
700
700
Refer to the information presented for M. Shay & Company, Inc. Identify the transactions that the bookkeeper recorded incorrectly in the journal.
Prepare the journal entry that the bookkeeper should have made for each transaction that you identify as being made incorrectly. For this problem,
assume that all explanations provided are correct.
The May 11, 15, and 25 entries were recorded incorrectly. The correct entries are:
80. M. Shay & Company, Inc.
The bookkeeper for M. Shay & Company, Inc. prepared the following journal entries and posted them to the
general ledger as indicated in the T-accounts presented. Assume that the dollar amounts and descriptions of the
entries are correct.
Journal (partial):
Date
Account
s and
Explana
tions
Debit
Credit
May 5
Account
s
Receivab
le
1,600
Service Revenue
1,600
Billed
customer
s for
services
complete
d
May 11
Cash
500
Service Revenue
500
Collecte
d from a
customer
billed on
May 1
for
services
rendered
May 15
Office
Supplies
700
Accounts Payable
700
Purchase
d
furniture
on
credit;
payment
due in 30
days
May 25
Office
Furniture
700
Cash
700
Paid the
furniture
bill
received
on May
15
General Ledger (partial):
Accounts Receivable
Servic
e
Reven
ue
Office Furniture
5/5
5/5
5/11
5/25
1,600
1,600
500
700
Cash
Accou
nts
Payabl
e
Office Supplies
5/11
5/15
5/15
500
700
700
Refer to the information presented for M. Shay & Company, Inc. Identify the postings to the general ledger that were made incorrectly. Describe
how each incorrect posting should have been made. For this problem, assume that the journal entries have been correctly recorded.
81. M. Shay & Company, Inc.
The bookkeeper for M. Shay & Company, Inc. prepared the following journal entries and posted them to the
general ledger as indicated in the T-accounts presented. Assume that the dollar amounts and descriptions of the
entries are correct.
Journal (partial):
Date
Account
s and
Explana
tions
Debit
Credit
May 5
Account
s
Receivab
le
1,600
Service Revenue
1,600
Billed
customer
s for
services
complete
d
May 11
Cash
500
Service Revenue
500
Collecte
d from a
customer
billed on
May 1
for
services
rendered
May 15
Office
Supplies
700
Accounts Payable
700
Purchase
d
furniture
on
credit;
payment
due in 30
days
May 25
Office
Furniture
700
Cash
700
Paid the
furniture
bill
received
on May
15
General Ledger (partial):
Accounts Receivable
Servic
e
Reven
ue
Office Furniture
5/5
5/5
5/11
5/25
1,600
1,600
500
700
Cash
Accou
nts
Payabl
e
Office Supplies
5/11
5/15
5/15
500
700
700
Refer to the information presented for M. Shay & Company, Inc. Would the errors in recording journal entries and in posting the journal entries to
the general ledger be discovered by preparing a trial balance? Explain why or why not for both the journal entry errors and the posting errors.
82. Inferex Corporation
The following transactions were incurred by the Inferex Corporation during June 2012.
June 1
Inferex purchased a vehicle for $19,400, paying $1,400 now and issuing a note payable for the balance; the note is due in
monthly installments of $500 plus 10% interest on the unpaid principal balance.
June 8
Inferex recorded service revenue earned; $25,000 cash from customers and $45,000 for customers billed for completed
services.
June 22
Inferex issued common stock in exchange for land having a fair value of $65,000.
June 30
An invoice for $1,400 was received from the company's advertising agency for radio and television ads which were run
during June; the invoice is due in 30 days.
Refer to the information presented for Inferex Corporation. Indicate the economic effects of each transaction above on the accounting equation. Use
the following format for your answers. Show the dollar amounts in the appropriate columns and use a plus (+) sign to indicate an increase and a
minus (-) sign to indicate a decrease.
83. Inferex Corporation
The following transactions were incurred by the Inferex Corporation during June 2012.
June 1
Inferex purchased a vehicle for $19,400, paying $1,400 now and issuing a note payable for the balance; the note is due in
monthly installments of $500 plus 10% interest on the unpaid principal balance.
June 8
Inferex recorded service revenue earned; $25,000 cash from customers and $45,000 for customers billed for completed
services.
June 22
Inferex issued common stock in exchange for land having a fair value of $65,000.
June 30
An invoice for $1,400 was received from the company's advertising agency for radio and television ads which were run
during June; the invoice is due in 30 days.
Refer to the information presented for Inferex Corporation. Record each transaction in proper journal entry format in the journal provided. A written
explanation for each journal entry is not required.
84. Inferex Corporation
The following transactions were incurred by the Inferex Corporation during June 2012.
June 1
Inferex purchased a vehicle for $19,400, paying $1,400 now and issuing a note payable for the balance; the note is due in
monthly installments of $500 plus 10% interest on the unpaid principal balance.
June 8
Inferex recorded service revenue earned; $25,000 cash from customers and $45,000 for customers billed for completed
services.
June 22
Inferex issued common stock in exchange for land having a fair value of $65,000.
June 30
An invoice for $1,400 was received from the company's advertising agency for radio and television ads which were run
during June; the invoice is due in 30 days.
Refer to the information presented for Inferex Corporation. Set up T-accounts and post each transaction to the T-accounts. (Ignore beginning
balances.)
85. Inferex Corporation
The following transactions were incurred by the Inferex Corporation during June 2012.
June 1
Inferex purchased a vehicle for $19,400, paying $1,400 now and issuing a note payable for the balance; the note is due in
monthly installments of $500 plus 10% interest on the unpaid principal balance.
June 8
Inferex recorded service revenue earned; $25,000 cash from customers and $45,000 for customers billed for completed
services.
June 22
Inferex issued common stock in exchange for land having a fair value of $65,000.
June 30
An invoice for $1,400 was received from the company's advertising agency for radio and television ads which were run
during June; the invoice is due in 30 days.
86. The T-accounts presented below are taken from the general ledger of Battern Corporation on March 31,
2011. Determine the balance of each account and present them in proper trial balance format.
Cash
Accou
nts
Payabl
e
Common Stock
10,000
1,200
5,000
8,500
30,000
17,000
20,000
24,000
45,000
1,200
36,000
21,000
10,000
1,200
Salaries Payable
Servic
e
Reven
ue
5,000
20,500
6,000
25,000
24,000
5,000
17,000
7,750
30,000
36,000
Accounts Receivable
Unear
ned
Reven
ue
Advertising Expense
25,000
10,000
30,000
45,000
8,500
5,000
Prepaid Insurance
Notes
Payabl
e
Salaries Expense
2,400
200
17,500
20,000
200
21,000
200
20,500
6,000
Equipment
Rent
Expen
se
35,100
1,200
1,200
1,200
Insurance Expense
200
200
200
Dividends
7,750
Battern Corporation
87. Geen's Alterations Shop began business as a corporation in 2011. Several transactions which occurred early
in 2011 are described below. Record each transaction in proper journal form, excluding written explanations.
A)
Jan. 23, 2011
Stockholders invested $100,000 in the business and received shares of common stock as evidence of
ownership.
B)
Feb. 1, 2011
Rent of $2,000 was paid for the month of February.
C)
Feb. 7, 2011
Equipment with a cost of $14,000 was purchased on credit; payment is due in 30 days.
D)
Feb. 14, 2011
Bills totaling $9,500 were presented to customers for alterations projects completed and delivered;
$4,500 was collected immediately and the balance of $5,000 is due within 30 days.
E)
Feb. 18, 2011
Full payment was made for the equipment purchased on Feb. 7th.
F)
Feb. 22, 2011
$2,000 was collected from customers with balances due from Feb. 14th.
G)
Feb. 28, 2011
Employee salaries of $4,500 were paid.
88. Presented below are several accounts from the financial statements of Byron, Inc. for the year ended
December 31, 2011:
Account
1.
Cash
2.
Accounts receivable
3.
Prepaid insurance
4.
Accounts payable
5.
Common stock
6.
Service revenues
7.
Advertising expense
8.
Salaries expense
9.
Interest expense
10.
Income tax expense
Each of Byron's accounts has been assigned an identification number which you will use as answers for the transactions described below. Enter the
account numbers in the blank spaces under the headings Debit and Credit to indicate the accounts debited and credited when each transaction is
recorded in a general journal.
Debit
Credit
A)
Byron issues common stock for cash.
B)
Byron receives a bill for advertisements placed by the company's ad agency;
payment is due in 30 days
C)
Byron pays interest due on the notes payable.
D)
Byron sells services to a customer and agrees to accept payment in 30 days.
89. The list of accounts presented below are from the accounting records of Grammerle, Inc. on September 30,
2011. Assume that each account balance is normal, and present them in proper trial balance format.
Cash
$ 4,200
Short-term Investments
13,000
Accounts Receivable
4,500
Inventory
23,000
Land
90,000
Building
700,000
Furniture
450,000
Equipment
281,700
Accounts Payable
7,200
Salaries Payable
4,100
Unearned Revenue
17,000
Interest Payable
2,000
Notes Payable
70,000
Common Stock
460,000
Retained Earnings
977,000
Sales
158,000
Cost of Goods Sold
78,000
Salaries Expense
24,000
Rent Expense
6,000
Insurance Expense
1,000
Depreciation Expense
11,000
Utility Expense
900
Dividends
8,000
Grammerle, Inc.
90. Several terms which represent components of an accounting system are listed below. For each term, write a
brief explanation of how that component is used in the accounting cycle.
A)
Accounts
B)
Chart of Accounts
C)
Double-entry system with debits and credits
D)
General Journal
E)
General Ledger
F)
Trial Balance
91. Four journal entries are presented below. Write an explanation for each entry.
A)
Cash
12,200
Service Revenue
12,200
B)
Account
s
Receivab
le
17,500
Service Revenue
17,500
C)
Cash
16,900
Accounts Receivable
16,900
D)
Cash
1,830
Unearned Revenue
1,830
92. The accountant for Brumley Solutions, Inc. made the following errors while recording transactions for the
period:
A)
A purchase of equipment for $450 cash was recorded as a debit to Equipment for $540 and a credit to Cash for $540.
B)
The sale of services for cash in the amount of $4,134 was recorded as a debit to Cash for $4,134 and a credit to Service Revenue for
$4,314.
C)
A purchase of supplies for $200 cash was recorded correctly in the general journal but was omitted from the general ledger.
D)
The sale of services for credit in the amount of $3,800 was recorded correctly in the general journal but was posted twice to the
general ledger.
E)
$5,500 cash paid for salaries was recorded in the journal as a $5,500 debit to Cash and a $5,500 credit to Salaries Expense.
Indicate whether or not the debit and credit columns of Brumley's trial balance will be equal after recording each of these erroneous entries. Then
identify the account(s) that will be misstated as a result of these errors and the direction of the misstatement (i.e., understatement or overstatement).
93. A(n) ____________________ is a list of all the accounts used that an entity uses to capture its business
activities.
94. The ____________________ side of a liability account is used to record decreases in the account balance.
95. For assets, expenses, and dividend accounts, credit entries represent ____________________.
96. For liabilities, equity, and revenue accounts, debit entries represent ____________________.
97. Credits are always on the ____________________ side of a T-account.
98. The normal balance of a revenue account is a ____________________.
99. A(n) ____________________ is a chronological record of all transactions entered into by a business.
100. The ____________________ is the file or book that contains both the activity and balances of all company
accounts.
101. A(n) ____________________ is a list of each active account and its debit or credit balance at a specific
point in time.
102. The payment of salaries to employees will debit salaries expense account and credit
____________________.

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