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Chapter 9: Cash vs. Accrual

The document provides sample journal entries to record various business transactions for accounting practice questions. This includes entries for rent expense, accounts receivable, sales, cost of goods sold, notes payable, interest expense, and closing entries to income summary and retained earnings. The questions at the end ask about reporting land value at historical cost rather than appraised value on the balance sheet according to GAAP, and whether a transaction of moving business funds to personal accounts should be recorded.

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Edlyn Liwag
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48 views4 pages

Chapter 9: Cash vs. Accrual

The document provides sample journal entries to record various business transactions for accounting practice questions. This includes entries for rent expense, accounts receivable, sales, cost of goods sold, notes payable, interest expense, and closing entries to income summary and retained earnings. The questions at the end ask about reporting land value at historical cost rather than appraised value on the balance sheet according to GAAP, and whether a transaction of moving business funds to personal accounts should be recorded.

Uploaded by

Edlyn Liwag
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 9: Cash vs.

Accrual
Questions 1-5: Prepare journal entries to record each of the following events.

Question 1: Tom’s Tax Prep’s monthly rent is $3,500. At the end of February, they had not
yet received their monthly rent invoice.

Question 2: In early March, Tom’s Tax Prep receives and pays their rent bill for February.

Question 3: Marla, a marketing consultant, performs services for a client. The agree-upon
price was $10,000, due 30 days from the date the services were completed.

Question 4: ABC Hardware makes a sale (on credit) for $2,500 worth of lumber. The
lumber originally cost them $1,300.

Question 5: Julie takes out a $10,000 loan for her business. Repayment is due in one year
along with $1,200 interest.

Answer to Question 1:

Dr. Rent Expense 3,500


Cr. Rent Payable 3,500
Answer to Question 2:

Dr. Rent Payable 3,500


Cr. Cash 3,500
Answer to Question 3:

Accounts Receivable 10,000


Sales 10,000
Answer to Question 4:

Accounts Receivable 2,500


Sales 2,500
Cost of Goods Sold 1,300
Inventory 1,300
Answer to Question 5:
When the loan is taken out:

Cash 10,000
Note Payable 10,000
At the end of each month during the year:

Interest Expense 100


Interest Payable 100
When the loan is repaid:

Note Payable    10,000


Interest Payable    1,200
Cash    11,200

Chapter 10: The Accounting Close Process


Prepare closing journal entries for Mario’s Mobile Products, which has the following end-of-
year trial balance:

Cash 40,000
Accounts Receivable 8,000
Property, Plant, and Equipment 150,000
Inventory 30,000
Accounts Payable 15,000
Wages Payable 22,000
Common Stock 50,000
Retained Earnings 60,000
Sales 380,000
Cost of Goods Sold 120,000
Rent Expense 60,000
Wages and Salary Expense 110,000
Advertising Expense 9,000

Answer:
Sales 380,000
Income Summary 380,000
Income Summary 120,000
Cost of Goods Sold 120,000
Income Summary 60,000
Rent Expense 60,000
Income Summary 110,000
Wages and Salary Expense 110,000
Income Summary 9,000
Advertising Expense 9,000

Alternatively, the above can be combined into one journal entry:

Sales 380,000
Cost of Goods Sold 120,000
Rent Expense 60,000
Wages and Salary Expense 110,000
Advertising Expense 9,000
Income Summary 81,000

In either case, the following closing journal entry is also required in order to close out the
Income Summary account and transfer the balance — representing the business’s net
income for the period — into Retained Earnings:

Income Summary 81,000


Retained Earnings 81,000

Chapter 11: Other GAAP Concepts and Assumptions


Question 1: Andy runs a real estate development firm. Five years ago, he purchased a piece
of land for $250,000. This year, an appraiser tells Andy that the land is worth $300,000. At
what value should Andy report the land on his balance sheet? Why?

Question 2: Andy is the sole owner of his firm. In June, he moves $30,000 from his
business checking account to his personal checking account. If Andy wants his financial
records to be in accordance with GAAP, should he record the transaction or not? Why?

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