Chapter 3 3 Increase in assets and increase in stockholders’ equity

Document Type
Test Prep
Book Title
Financial Accounting-- Binder Ready Version: Tools for Business Decision Making 8th Edition
Authors
Donald E. Kieso, Jerry J. Weygandt, Paul D. Kimmel
The Accounting Information System
FOR INSTRUCTOR USE ONLY
3-41
Solution 219 (5 min.)
Be. 220
At June 1, 2017, Massoth Industries had an Accounts Receivable balance of $18,000. During the
month, the company had credit sales of $25,000 and collected Accounts Receivable of $27,000.
What is the balance in Accounts Receivable at June 30, 2017?
Be. 221
For each item below, indicate whether a debit or credit applies.
1. Increase in Accounts Payable ____ __
2. Increase in Accounts Receivable ____ __
3. Increase in Retained Earnings ____ __
4. Decrease in Unearned Service Revenue ____ __
5. Decrease in Interest Payable ____ __
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
3-42
Be. 222
For each of the following accounts indicate the effect of a debit or a credit on the account and the
normal balance. Increase (+), Decrease ().
Debit _Credit_ Normal Balance
1. Salaries and Wages Expense. ______ ______ _______
2. Accounts Receivable. ______ ______ _______
3. Service Revenue. ______ ______ _______
4. Dividends ______ ______ _______
5. Retained Earnings. ______ ______ _______
Be. 223
Journalize the following business transactions in general journal form. Identify each transaction
by number. You may omit explanations of the transaction.
1. Owner invested $60,000 in exchange for common stock of the corporation.
2. Hired an employee to be paid $400 per week, starting tomorrow.
3. Paid two years’ rent in advance, $7,200.
4. Paid the worker’s weekly wage.
5. Recorded service revenue earned and received for the week, $1,500.
The Accounting Information System
FOR INSTRUCTOR USE ONLY
3-43
Be 224
Prepare a corrected trial balance for Shafer Company. All accounts should have a normal
balance
Shafer Company
Trial Balance
For the Quarter Ended March 31, 2017
Debit
Credit
Cash
$28,000
Accounts Receivable
$32,000
Prepaid Insurance
2,500
Equipment
60,000
Accounts Payable
15,000
Unearned Service Revenue
10,000
Notes Payable
20,000
Common Stock
30,000
Retained Earnings
27,000
Dividends
1,500
Service Revenue
52,000
Salaries and Wages Expense
15,000
Utilities Expense
5,000
Rent Expense
10,000
$157,500
$150,500
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
3-44
Be. 225
For each of the following transactions of Woods Inc., identify the account to be debited and the
account to be credited.
1. Purchased 18-month insurance policy for cash.
2. Paid weekly payroll.
3. Purchased supplies on account.
4. Received utility bill to be paid at later date.
Be. 226
Identify the impact on the accounting equation of the following transactions.
1. Purchased 24-month insurance policy for cash.
2. Purchased supplies on account.
3. Received utility bill to be paid at later date.
4. Paid utility bill previously accrued.
Be. 227
The transactions of the Stormont Store are recorded in the general journal below. You are to post
the journal entries to T-accounts and compute the August 31, 2017 balances.
General Journal
____________________________________________________________________________
Date Account Titles and Explanation Debit Credit
____________________________________________________________________________
2017
Aug. 5 Accounts Receivable 2,500
Service Revenue 2,500
10 Cash 3,000
Service Revenue 3,000
19 Rent Expense 1,000
Cash 1,000
25 Cash 1,400
Accounts Receivable 1,400
The Accounting Information System
FOR INSTRUCTOR USE ONLY
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Be. 227 (Cont.)
General Ledger
Cash Accounts Receivable
Service Revenue Rent Expense
Be. 228
Prepare a trial balance from the ledger accounts of Swisher Company as of January 31, 2017.
Accounts Payable
1,500
Rent Expense
$ 500
Accounts Receivable
2,500
Service Revenue
3,500
Cash
1,600
Supplies
200
Common Stock
2,200
Salaries and Wages Expense
1,000
Dividends
1,400
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
3-46
Exercises
Ex. 229
Selected transactions for the Sleezer Company are listed below. List the number of the
transaction and then describe the effect of each transaction on assets, liabilities, and
stockholders’ equity.
Sample: Made initial cash investment in the business.
The answer would beIncrease in assets and increase in stockholders’ equity.
1. Paid monthly utility bill.
2. Purchased new display case for cash.
3. Paid cash for repair work on security system.
4. Billed customers for services performed.
5. Received cash from customers billed in transaction 4.
6. Dividends paid to owners.
7. Incurred advertising expenses on account.
8. Paid monthly rent.
9. Received cash from customers when service was rendered.
The Accounting Information System
FOR INSTRUCTOR USE ONLY
3-47
Ex. 230
Selected accounts from the ledger of McDaniel Corporation appear below. For each account,
indicate the following:
(a) In the first column at the right, indicate the nature of each account, using the following
abbreviations:
Asset - A Liability - L None of the above - N
Expense - E Revenues - R
(b) In the second column, indicate the normal balance by inserting Dr. or Cr.
Type of Normal
Account Balance
1. Supplies ………………………………..
2. Notes Payable ………………………….
3. Service Revenue……………………….
4. Dividends……………………………….
5. Accounts Payable……………………..
6. Salaries and Wages Expense………
7. Common Stock…………………………
8. Accounts Receivable…………………..
9. Equipment……………………………..
10. Notes Receivable………………………
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
3-48
Ex. 231
Analyze the transactions of a business organized as a corporation described below and indicate
their effect on the basic accounting equation. Use a plus sign (+) to indicate an increase and a
minus sign () to indicate a decrease.
Stockholders’
Assets = Liabilities + Equity
1. Received cash for services rendered. ______ ______ _______
2. Purchased office equipment on credit. ______ ______ _______
3. Paid employees' salaries. ______ ______ _______
4. Received cash from customer in payment
on account. ______ ______ _______
5. Paid telephone bill for the month. ______ ______ _______
6. Paid for office equipment purchased in
transaction 2. ______ ______ _______
7. Purchased office supplies on credit. ______ ______ _______
8. Dividends were paid. ______ ______ _______
9. Obtained a loan from the bank. ______ ______ _______
10. Billed customers for services rendered. ______ ______ _______
The Accounting Information System
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Ex. 232
Sara Obermeyer decides to open a pizza parlor near the local college campus that will operate as
a corporation. Analyze the following transactions for the month of June in terms of their effect on
the basic accounting equation. Record each transaction by increasing (+) or decreasing () the
dollar amount of each item affected. Indicate the new balance of each item after a transaction is
recorded. It is not necessary to identify the cause of changes in stockholders’ equity.
Transactions
(1) Sara Obermeyer invests $25,000 cash in exchange for common stock to start a pizza
parlor business on June 1.
(2) Purchased equipment for $4,000 paying $2,000 in cash and the remainder due in 30
days.
(3) Purchased supplies for $1,200 cash.
(4) Received a bill from Campus News for $200 for advertising in the campus newspaper.
(5) Cash receipts from customers for pizza sales amounted to $1,500.
(6) Paid salaries of $200 to student workers.
(7) Billed the Tiger Football Team $300 for pizzas ordered.
(8) Paid $200 to Campus News for advertising that was previously billed in Transaction 4.
(9) Sara Obermeyer was paid dividends of $1,200.
(10) Incurred utility expenses for month on account, $100.
Trans- Accounts Accounts Common Retained
action Cash + Receivable + Supplies + Equipment = Payable + Stock + Earnings
(1)
___________________________________________________________________________________
Balance
(2)
___________________________________________________________________________________
Balance
(3)
___________________________________________________________________________________
Balance
(4)
___________________________________________________________________________________
Balance
(5)
___________________________________________________________________________________
Balance
(6)
___________________________________________________________________________________
Balance
(7)
___________________________________________________________________________________
Balance
(8)
___________________________________________________________________________________
Balance
(9)
___________________________________________________________________________________
Balance
(10)
___________________________________________________________________________________
Totals
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
3-50
The Accounting Information System
FOR INSTRUCTOR USE ONLY
3-51
Ex. 233
Analyze the following transactions in terms of their effect on the basic accounting equation.
Record each transaction by increasing (+) or decreasing () the dollar amount of each item
affected. Indicate the new balance of each item after a transaction is recorded.
(1) Issued stock to investors for $20,000 in cash.
(2) Purchased supplies on credit for $700.
(3) Billed customers $1,000 for services provided.
(4) Paid for supplies purchased in transaction 2.
(5) Paid dividends of $300 cash to stockholders.
(6) Received half from customers billed in transaction 3.
(7) Received and paid utility bill for $100.
Trans- Accounts Accounts Common Retained
action Cash + Receivable + Supplies = Payable + Stock + Earnings
(1)
________________________________________________________________________
Balance
(2)
________________________________________________________________________
Balance
(3)
________________________________________________________________________
Balance
(4)
________________________________________________________________________
Balance
(5)
________________________________________________________________________
Balance
(6)
________________________________________________________________________
Balance
(7)
________________________________________________________________________
Totals
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
3-52
Ex. 234
A tabular analysis of the transactions made during August 2017 by Baxter Company during its
first month of operations is shown below. Each increase and decrease in stockholders' equity is
explained.
Assets
= Liab.+
Stockholders' Equity
Retained Earnings
Cash
+ A/R
+ Supp.
+ Equip
= Accts Pay
Com. Stock
+ Rev.
- Exp.
- Div.
1. +$30,000
+$30,000
Com.
Stock
2. 1,000
+$5,000
+$4,000
3. 750
+$750
4. +2,400
+$5,900
+8,300
Serv. Rev.
5. 1,500
1,500
6. 1,000
1,000
Div.
7. 800
800
Rent Exp.
8. +450
450
9. 4,000
4,000
Sal. Exp.
10.
+500
500
Util. Exp.
Instructions
(a) Determine how much stockholders' equity increased for the month.
(b) Compute the net income for the month.
FOR INSTRUCTOR USE ONLY
Ex. 235
The tabular analysis of transactions for Baxter Company is presented below.
Assets
= Liab. +
Stockholders' Equity
Retained Earnings
Accts
Cash
+ A/R
+ Supp.
+ Equip.
= Payable
+ C/S
+ Rev.
- Exp.
- Div.
1. +$30,000
+$30,000
Com. Stock
2. 1,000
+$11,000
+$10,000
3. 950
+$950
4. +2,400
+$5,900
+8,300
Serv. Rev.
5. 1,500
1,500
6. 1,000
1,000
Div.
7. 800
800
Rent Exp.
8. +450
450
9. 4,000
4,000
Sal. Exp.
10.
+500
500
Util. Exp.
Instructions
Prepare a retained earnings statement for August and a classified balance sheet at August 31,
2017.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
3-54
Ex. 236
The accounts in the ledger of Dependable Delivery Service contain the following balances on July
31, 2017.
Accounts Receivable
$11,400
Prepaid Insurance
$ 1,800
Accounts Payable
7,400
Maintenance and Repairs Expense
1,200
Cash
15,940
Service Revenue
15,500
Equipment
59,360
Dividends
800
Utilities Expense
950
Common Stock
40,000
Insurance Expense
600
Salaries and Wages Expense
8,400
Notes Payable, due 2020
31,450
Salaries and Wages Payable
900
Retained Earnings
5,200
(July 1, 2017)
Instructions
Prepare an income statement and a retained earnings statement for the month of July 2017, and
a classified balance sheet for July 31.
The Accounting Information System
FOR INSTRUCTOR USE ONLY
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Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
3-56
Ex. 237
Selected transactions for Stockton Corporation during its first month in business are presented
below:
Sept. 1 Issued common stock in exchange for $30,000 cash received from investors.
5 Purchased equipment for $20,000, paying $2,000 in cash and the balance on account.
25 Paid $6,000 cash on balance owed for equipment.
30 Paid $1,000 cash dividend.
Stockton's chart of accounts shows: Cash, Equipment, Accounts Payable, Common Stock, and
Dividends.
Instructions
(a) Prepare a tabular analysis of the September transactions. The column headings should be:
Cash + Equipment = Accounts Payable + Stockholders' Equity. For transactions affecting
stockholders' equity, provide explanations in the right margin.
(b) Journalize the transactions. Do not provide explanations.
(c) Post the transactions to T-accounts.
The Accounting Information System
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Ex. 238
For each item below, indicate whether a debit or credit applies.
1. Decrease in Notes Payable ____ __
2. Increase in Dividends ____ __
3. Increase in Common Stock ____ __
4. Increase in Unearned Rent Revenue ____ __
5. Decrease in Interest Payable ____ __
6. Increase in Prepaid Insurance ____ __
7. Decrease in Salaries and Wages Expense ____ __
8. Decrease in Supplies ____ __
9. Increase in Revenues ____ __
10. Decrease in Accounts Receivable ____ __
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
3-58
Ex. 239
For each item below, indicate whether a debit or credit applies.
1. Decrease in Prepaid Rent ____ __
2. Increase in Service Revenue ____ __
3. Decrease in Unearned Rent Revenue ____ __
4. Increase in Dividends ____ __
5. Decrease in Interest Receivable ____ __
6. Increase in Depreciation Expense ____ __
7. Decrease in Accounts Payable ____ __
8. Increase in Supplies ____ __
9. Increase in Salaries and Wages Expense ____ __
10. Decrease in Accounts Receivable ____ __
The Accounting Information System
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Ex. 240
The chart of accounts used by Norton Printing Company is listed below. You are to indicate the
proper accounts to be debited and credited for the following transactions by writing the account
number(s) in the appropriate boxes.
CHART OF ACCOUNTS
1 Cash 8 Common Stock
2 Accounts Receivable 9 Retained Earnings
3 Supplies 10 Dividends
4 Equipment 11 Service Revenue
5 Accounts Payable 12 Advertising Expense
6 Notes Payable 13 Rent Expense
7 Unearned Service Revenue
___________________________________________________________________________
Number(s) Number(s)
of account(s) of account(s)
debited credited
1. Stockholders invest $90,000 cash to start the
business.
_______________________________________________________________________________________________________
2. Purchased three digital copy machines for
$400,000, paying $100,000 cash and signing a
5-year, 6% note for the remainder.
_______________________________________________________________________________________________________
3. Purchased $5,000 paper supplies on credit.
_______________________________________________________________________________________________________
4. Cash received for photocopy services amounted
to $7,000.
_______________________________________________________________________________________________________
5. Paid $500 cash for radio advertising.
_______________________________________________________________________________________________________
6. Paid $800 on account for paper supplies
purchased in transaction 3.
_______________________________________________________________________________________________________
7. Dividends of $1,500 were paid to stockholders.
_______________________________________________________________________________________________________
8. Paid $1,200 cash for rent for the current month.
_______________________________________________________________________________________________________
9. Received $2,000 cash advance from a customer
for future copying.
_______________________________________________________________________________________________________
10. Billed a customer for $450 for photocopy
services completed.
_______________________________________________________________________________________________________
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
3-60

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