Brief Exercises 7. Indicate all correct answers. Inthe accounting cycle: a, ‘Transactions are posted before they are journalized, 1. A tral balance is prepared after journal enries have been posted. e. The Retained Eamings account is not shown as an up-to- date figure inthe tial balance. 4. Joumal entries are posted to appropriate ledger accounts, [Baker Construction is a small corporation owned and managed by Tom Baker. The corporation has 21 employees, few cred> itors, and no investor other than Tom Baker. Thus, like many small businesses, it has no obligation to issue financial stale iments to creditors or investors. Under these circumstances, js there any reason for this corporation to maintain account- ing records? 2. What relationship exists between the position of an account in the balance sheet equation and the rules for recording increases in that account? 43. State briefly the rules of debit and credit as applied to asset accounts and as applied to liability and owners’ equity accounts, 44. Does the term debit mean increase and the term eredit mean decrease? Explain, What requirement is imposed by the double-entry system in the recording of any business transaction? 66, Explain the effect of operating profitably on the balance sheet of a business entity, 7. Does netincome represent a supply of cash that could be dis- tributed to stockholders in the form of dividends? Explain, pias Discussion Questions 8. Indicate all correct answers. Dividends: a, Decrease owners’ equity. b. Decrease net income. ‘c Are recorded by debiting the Dividend account. i Are a business expense. 8, What is the meaning of the term revenue? Does the receipt ‘of cash by a business indicate that revenue has been eared? Explain. 9. What is the meaning of the term expenses? Does the pay- ‘ment of cash by a business indicate that an expense has been incurred? Explain. 10. When do accountants consider revenue to be realized? ‘What basic question about recording revenue in accounting records is answered by the realization principle? 11, In what accounting period does the matching principle indi- cate that an expense should be recognized’? 12, Explain the rules of debit and credit with respect to transac tions recorded in revenue and expense accounts 13, What are some of the limitations of atrial balance? 14, How do dividends affect owners’ equity? Ate they treated as ‘a business expense? Explain, 15. List some of the more analytical functions performed by professional accountants ( Brief Exercises wr Brier Lise below in andom ode ae te eight tps comprising complete accounting ele EXERCISE 3.1 Prepare a tl balance fi Vive Accosnng Jouralie and post th closing sates Cycle Danie imecileea Poot ramectin dt te edger. us Prepare an juste ial lance Mate ent of perio adjusinents S Tournaliug waeucsons Prepare an after-closing trial balance, a. List these steps in the sequence in which they would normally be performed. (A detailed understanding of these eight steps isnot required until Chapters 4 and 5.) b. Describe ways in which the information produced through the accounting cycle is used by @ ‘company's management and employees, See ‘ m= a Journal, eee Record the following selected transactions in general journal form for Sun Orthopedic Clinic, Ine. Include a brief explanation of the transaction as par of each journal entry. ‘The clinic issued 4,000 additional shares of eapital stock to Doctor Soges at $50 per ‘The clinic purchased diagnostic equipment. The equipment cost $75,000, of which '$25,000 was paid in cash; 2 note payable was issued for the balance.118 3 BRIEF EXERCISE 9.5 toe Changes in Retained Earnings, (oe BRIEF EXERCISE 2.6 Realzation and Ww Matching Principles (08 BRIEF EXERCISE 3.7 When Is Revenue Realzed? Chapter 3 The Accounting Cycle: Capturing Economic Events Oct. 12 Issued a check for $9,000 in full payment of an account payable to Zeller Laboratories Oct. 19 Purchased surgical supplies for $2,600, Payment is not duc until November 28, Oct. 25 Collected a $24,000 account receivable from Health One Insurance Company. Oct. 30 Declared and paid $300,000 cash dividend to stockholders. Brown Consulting Services organized as 2 corporation on January 18 and engaged in the following ‘ransactions during is first avo Weeks of operation: Jan. 18. Issued capital stock in exchange for $30,000 cash. Jan.22 Borrowed $20,000 from its bank by issuing a note payable. Jan.23._ Paid $100 for a radio advertisement aired on January 24 Jan.25 Provided $1,000 of services to clients for cash, Jan. 26 Provided $2,000 of services to clients on account, Jan. 31 Collected $800 cash from clients forthe services provided on January 26. ‘a. Record each of these transactions. . Determine the balance in the Cash account on January 31. Be certain to state whether the bal- ance is debit or credit. Five account classifications are shown as column headings in the table below. For each account classification, indicate the manner in which increases and decreases are recorded (i... by debits ot by credits), ‘owners’ Revenue Expenses Assets Liabilities Equity Increases recorded by: Decreases recorded by: Jackson Corporation's Retained Earnings account balance was $75,000 on January 1. During January, the company recorded revenue of $100,000, expenses of $60,000, and dividends of $5,000. ‘The company also purchased land during the period for $20,000 cash, Determine the company's Retained Earnings account balance on January 31 (On May 26, Breeze Camp Ground paid KPRM Radio $500 cash for ten 30-second advertisements. ‘Two of the ads were aired in May, seven in June, and one in July a. Apply the realization principle to determine how much advertising revenue KPRM Radio ceamed from Breeze Camp Ground in May, June, and July 1b. Apply the matching principle to determine how much advertising expense Breeze Camp Ground incurred ia May, June, and July. ‘The following transactions were carried out during the month of May by M. Palmer and Company, a firm of design architects. For each ofthe five transactions, you are to state whether the transac= tion represented revenue to the firm during the month of May. Give reasons for your decision in cach case 1. -M, Palmer and Company received $25,000 cash by issuing additional shares of capital stock. b. Collected cash of $2,400 from an account receivable. The receivable originated in April from services rendered to a client Borrowed $12,800 from Century Bank to be repaid in three months. Earned $83 interest on a company bank account during the month of May. No withdrawals were made from this account in May. Completed plans for guesthouse, pool, and spa for a client. The $5,700 fee for this project was billed tothe cient in May, but will not be collected until June 25.EXERCISE 3.9 Effects of Transactions on the Financia’ Statements Chapter 3 The Accounting Cycle: Capturing Economic Events Listed below are eight transactions the Foster Corporation made during November: Issued stock in exchange for cash, Purchased land, Made partial payment with cash and issued a note payable for the remaining, balance. Recorded utilities expense for November. Payment is due in mid-December. Purchased office supplies with eash. Paid outstanding salaries payable owed to employees for wages earned in October. Declared a cash dividend that will not be paid until late December, Sold land for cash at an amount equal tothe land's historical cost, Collected cash on account from customers for services provided in September and October. a t B a Indicate the effects of the above transactions on each of the Financial statement elements shown in the column headings below. Use the following symbols: I= Increase, D = Decrease, and NE = no effect, Transaction _Net Income Assets Liabilities Equity b. a “Traffet Enterprises incorporated on May 3, 2011. The company engaged in the following transac- tons during ils first month of operations: ‘May 3 Issued capital stock in exchange for $800,000 cash. May 4 Paid May office rent expense of $1,000. May 5 Purchased office supplies for $400 cash, The supplies will last for several months. May 15 Purchased office equipment for $8,000 on account, The entire amount is due June 15. May 18 Purchased a company car for $27,000. Paid $7,000 cash and issued a note payable for the remaining amount owed, ‘May 20 Billed clients $32,000 on account. May 26 Declared a $5,000 dividend. The entire amount will be distributed to sharcholders on June 26. May 29 Paid May utilities of $200, ‘May 30 Received $30,000 from clients billed on May 20. May 31 Recorded and paid salary expense of $14,000. ‘A partial list of the account titles used by the company includes: Cash Dividends Payable Accounts Receivable Dividends Office Supplies Capital Stock Office Equipment Client Revenue Vehicles fice Rent Expense Notes Payable Salary Expense Accounts Payable Utilities ExpenseExercises 123 a. Prepare journal entries, including explanations, for the above transactions. 'b. Post each entry to the appropriate ledger accounts (use the TT account format illustrated in Exhibit 3-8 on page 108). e Prepare a trial balance dated May 31, 2011. Assume accounts with zero balances are not Jncluded in the tral balan. ‘The MeMillan Corporation incorporated on September 2, 2011. The company engaged in the following transactions during its frst month of operations: Sept. 2 Issued capital stock in exchange for $900,000 cash. Sept. 4 Purchased land and a building for $350,000. The value of the land was $50,000, and the value ofthe building was $300,000. The company paid $200,000 cash and issued a note payable for the balance. Sept. 12 Purchased office supplies for $600 on account. The supplies will last for several months. Sept. 19 Billed clients $75,000 on account. Sept.29 Reconded and paid salary expense of $24,000. Sept. 30. Received $30,000 from clients billed on September 19. A partial list of the account tiles used by the company includes: Cash Notes Payable Accounts Receivable Accounts Payable Office Supplies Capital Stock Land Client Revenue Building Salary Expense 1a, Prepare jourmal entries, including explanations, forthe above transactions. Db. Post each entry to the appropriate ledger accounts (use the T uecount format illustrated in Exhibit 3-8 on page 108), Prepare a tal balance dated September 30, 2011. Assume accounts with zero balances are not included in the trial balance. Herrold Consulting incorporated on February 1, 2011. The company engaged in the following {transactions during is first month of operations: Feb. 1 Issued capital stock in exchange for $750,000 cash, Feb. 5 Borrowed $50,000 from the bank by issuing a note payable. Feb. 8 Purchased land, building, and office equipment for $600,000. The value of the land ‘was $100,000, the value ofthe building was $450,000, and the value ofthe office equipment was $50,000. The company paid $300,000 cash and issued a note payable forthe balance. Feb.11 Purchased office supplies for $600 on account, ‘The supplies will last for several months, Feb. 14 Paid the local newspaper $400 fora full-page advertisement. The ad will appear in print on February 18. Feb.20 Several of the inkjet printer cartridges that Herrald purchased on February LI were defective. The cartridges were returned and the office supply store reduced Herrold’s catstanding balance by $100. Feb.22 Performed consulting services for $6,000 cash. Feb.24 Billed clients $9,000, Feb.25 Paid salaries of $5,000. Feb. 28 Paid the entre outstanding balance owed for office supplies purchased on February U1Problem Set A EXERCISE 9.15 Using the Financial Statements of Home Depot, Inc. Transaction Revenue Expenses Assets Liabilities Owners’ Equity 8 NE 1 NE 1 D b, NE H > NE D . NE NE D NE D J NE NE 1 NE ' e ' NE 1 NE ' 1 NE NE NE NE NE ‘Throughout this text, we have many assignments based on the financial statements of Home Depot, Inc., in Appendix A. Refer tothe financial statements to respond tothe following items: ‘a. Does the company's fiseal year end on December 31? How ean you tell? 'b. State the company's most recent balance sheet in terms of A = L +E. e. Did the company post more debits tothe Cash account during the year than credits? How ean you tell? om Transactions) 05 Xcel Problem Set A connect’ acount Glenn Grimes is the founder and president of Heartland Construction, a real estate development venture, The business transactions during February while the company was being organized are listed below. Feb. 1 Grimes and several others invested $500,000 cash in the business in exchange for 25,000 shares of capital stock. Feb. 10 The company purchased office facilites for $300,000, of which $100,000 was appli- cable (othe land and $200,000 to the building. A cash payment of $60,000 was made and a note payable was issued for the balance of the purchase price Feb. 16 Computer equipment was purchased from PCWorld for $12,000 cash, Feb. 18 Office furnishings were purchased from Hi-Way Furnishings a a cost of $9,000. AS1,000 cash payment was made at the time of purchase, and an agreement Was ‘made to pay the remaining balance in two equal installments due March 1 and April 1 Hi Way Furnishings did not require that Heartland sign a promissory note. Feb. 22. Office supplies were purchased from Office World for $300 cash. Feb,23 Heartland discovered that it paid too much for a computer printer purchased on February 16. The unit should have cost only $359, but Heartland was charged $395. PCWorld promised to refund the difference within seven days, Feb.27_ Mailed Hi-Way Furnishings the first installment due on the account payable for office furnishings purchased on February 18, Feb. 28 Received $36 from PCWorld in full settlement ofthe account receivable created on February 23, Instructions ‘a, Prepare journal entries to record the above transactions, Select the appropriate account titles from the following chart of accounts Cash Land Accounts Receivable Office Building Office Supplies Notes Payable Office Fumishings Accounts Payable Computer Systems Capital Stock126 Chapter 3 The Accounting Cycle: Capturing Economic Events 1b. Indicate the effects ofeach transaction on the company’s assets, liabilities, and owners’ equity for the month of February. Organize your analysis in tabular form as show for the Febeuary 1 transaction: ‘Transaction As = Liabititie Owners’ Equity Feo. “$500,000 (Gash) 30 “$500,000 (Capital Stock) (03 PROBUEMISIZA §— Environmental Services, Inc, performs various tests on wells and septic systems, A few of the ton CTE company’s business transactions occurring during August are described belo Journalizing | 1. On August 1, the company billed customers $2,500 on account for services rendered. Custom. we Transactions: es are requited to make fll payment within 30 days 2. On August 3, the company purchased testing supplies costing $3,800, paying S400 cash and charging the remainder on the company's 30-day account at Penn Chemical. Te testing sup- plies ae expected to las several months. 3. On August 5, the company returned to Penn Chemicals $100 of testing supplies that were not needed, The return of these supplis reduced by $100 the amount owed to Penn Chemicals. 4. On August 17, the company issued an aditonal 2,500 shares of capital stock a SB per share “The cash rise willbe used to purchase new testing equipment in September. 5. On August 22, the company received $600 cash from customers it had billed on August 1. 6. On August 29, the company paid its outstanding account payable to Penn Chemicals 7, On August 30, a cash dividend totaling $6,800 was declared and paid to the company's: sHockholders Instructions 4. Prepare an analysis ofeach ofthe above transactions. Transaction 1 serves a an example of the form of analysis to be used 1. (a) The asset Accounts Receivable was increased, Increases in asses are recorded by debits: Debit Accounts Receivable $2,500, (@) Revenue has been earned, Revenue increases owners’ equity Increases in owners? equity are recorded by credits. Credit Testing Service Revenue $2,500. 1 Prepare joural entries, including explanations, forthe above transactions. ‘How does the realization principle influence the manner in which the August I billing o us- tomers is recorded in the accounting records? 4. How does the matching principle influence the mannet in which the August 3 purchase of testing supplies is recorded inthe accounting records? 08 PROBLEM 'S.9A, ‘Weida Surveying, Inc., provides land surveying services. During September, its transactions inclu- vn Me ded the following: Sept. 1 Paid ret fr the month of September, $4,400. we Sept. 3. Billed Fine Line Homes $5,620 for surveying services. The entire amount is due on. or before September 28. (Weida uses an account entitled Surveying Revenue when billing cients.) Sept. 9 Provided surveying services to Sunset Ridge Developments for $2,830. The entire ‘amount was collected on this date, Sept. 14 Placed a newspaper advertisement in the Daily Item to be published in the September 20 issue. The cost ofthe advertisement was $165. Payment is due in 30 days. Sept.25 Received a check for $5,620 from Fine Line Homes for the amount billed on September 3. Sept. 26 Provided surveying services to Thompson Excavating Company for $1,890. Weida collected $400 cash, with the balance duc in 30 days, Sept.29 Senta check to the Daily Jtem in full payment ofthe liability incurred on September 14, Sept.30 Declared and paid a $7,600 cash dividend to the company's stockholders.Problem Set A yx. Joumalizing, Posting, _and Preparing a Trial 10 Balances: Xcel Instructions ‘Analyze the effects that each of these transactions will have on the following six components of the company's financial statements for the month of September. Organize your answer in \abular form, using the column headings shown. Use for increase, D for decrease, and NE for ro effect. The September I transaction is provided for you Income Statement Transaction Revenue ~ Expenses = Net Income Assets, Sept.1 NE ' D D 'b. Prepare a journal entry (including explanation) for each of the above transactions. Three of Seplemiber’s transactions involve cash payments, yet only one ofthese transactions is recorded as an expense. Describe three situations in which a cash payment would not involve recognition of an expense. ‘In June 2011, Wendy Winger organized a corporation to provide aerial photography services. The ‘company, called Aerial Views, began operations immediately. Transactions during the month of June were as follows: June 1 The corporation issued 60,000 shares of capital stock to Wendy Winger in exchange for $60,000 cash. June 2 Purchased « plane from Utility Aircraft for $220,000, Made a $40,000 cash down payment and issued a note payable for the remaining balance. June 4 Paid Woodrow Airport $2,500 to rent office and hangar space for the month. June 1S Billed customers $8,320 for aerial photographs taken during the frst half of June. June 15 Paid $5,880 in salaries earned by employees during the first half of June. June 18 Paid Hannigan's Hangar $1,890 for maintenance and repair services on the company plane. June 25 Collected $4,910 ofthe amounts billed to customers on June 15, Jane 30 Billed customers $16,450 for aerial photographs taken during the second half of the month, June 30 Paid $6,000 in salaries earned by employees during the second half of the month, June 30 Received a $2,510 bill from Peatree Petroleum for aircraft fuel purchased in June. ‘The entire amount is due July 10. June 30 Declared a $2,000 dividend payable on July 15. ‘The account titles used by Aerial Views are: Cash Retained Earnings Accounts Receivable Dividends Aieraft Acrial Photography Revenue Notes Payable ‘Maintenance Expense Accounts Payable Fuel Expense Dividends Payable Salaries Expense Capital Stock Rent Expense Instructions ‘a. Analyze the effects that each ofthese transactions will have on the following six components of the company’s Financial statements for the month of June. Organize your answer in tabular form, using the column headings shown. Use| for increase, D for decrease, and NE for no effect, The June 1 transaction is provided for you: Income Statement Balance Sheet ‘Transaction Revenue — Expenses = Net income Assets = Liabilities ~ Owners’ Equity June 1 NE NE NE 1 NE '128 ino i Chapter 3 The Accounting Cycle: Capturing Economic Events F Prepare journal entries (including explanations) for each transaction. ‘c. Post each transaction to the appropriate ledger accounts (use a running balance format as illustrated in Exhibit 3-4 on page 95). 4. Prepare atrial balance dated June 30, 2011 Using figures from the tial balance prepared in part d, compute total assets, total liabilities, and owners’ equity. Are these the figures that the company will report in its June 30 balance sheet? Explain your answer briefly. Dr. Schekter, DVM, opened a veterinary clinic on May 1, 2011. The business transactions for May are shown below: May 1 Dr. Schekter invested $400,000 cash in the business in exchange for 5,000 shares of capital stock. May 4 Land and a building were purchased for $250,000. Of this amount, $70,000 applied to the land, and $180,000 to the building. A cash payment of $100,000 was made atthe time of the purchase, and a note payable was issued for the remaining balance. ‘May 9 Medical instruments were purchased for $130,000 cash. May 16 Office fixtures and equipment were purchased for $50,000, Dr, Schekter paid $20,000 at the time of purchase and agreed to pay the entire remaining balance in 15 days, May 21 Office supplies expected to last several months were purchased for $5,000 cash, May 24 Dr ScheKter billed clients $2,200 for services rendered, Of this amount, $1,900 was received in cash, and $300 was billed on account (due in 30 days). ‘May 27 A $400 invoice was received for several radio advertisements aired in May. The entire amount is due on June 5. May 28 Received a $100 payment on the $300 account receivable recorded May 24 ‘May 31 Paid employees $2,800 for salaries earned in May. A partial list of account titles used by Dr. Schekter includes: Cash Notes Payable Accounts Receivable Accounts Payable Office Supplies Capital Stock Medical Instruments, ‘Veterinary Service Revenue Office Fixtures and Equipment Advertising Expense Land Salary Expense Building Instructions a, Analyze the effects that each of these transactions will have on the following six components of the company's financial statements for the month of May. Organize your answer in tabular form, using the column headings shown below. Use I for increase, D for decrease, and NE for no effect, The May 1 transaction is provided for you: Income Statement Balance Sheet Transaction Revenue — Expenses = Net Income Assets = Liabilities + Owners’ Equity May 4 NE NE NE 1 NE 1 1b. Prepare journal entries (including explanations) for each transaction. ‘c. Post each transaction tothe appropriate ledger accounts (use the T account format illustrated in Exhibit 3-8 on page 108), 4. Prepare atrial balance dated May 31, 2011 Using figures from the trial balance prepared in part d, compute total assets, total list and owners’ equity. Did May appear to be a profitable month?130 (03 PROBLEM 3.80 Analyzing the Etfects tne 01 Accounting Errors Chapter 3 The Accounting Cycle: Capturing Economic Events June 10 Purchased $150 of inspection supplies on account. June 17 Billed home owners $1,650 for inspection services. The entre amount is due on July 17, June 25 Paid WLIR Radio $200 for ads to be aired on June 27, June 28 Recorded and paid $1,300 for testing expenses incurred in June June 30 Recorded and paid June salaries of $1,100. Instructions 1a. Record the company’s June transactions in general journal form. Include a brief explanation of the wansaction as part of each journal entry 1b. Post each entry to the appropriate ledger accounts (use the TT account format illustrated in Exhibit 3-8 on page 108). ‘c.Prepare a trial balance dated June 30, 2011. (Hint: Retained Eamings will be reported a the same amount as on June 1, Accounting for changes in the Retained Earnings account resulting. from revenue, expense, and dividend activites is discussed in Chapter 5.) 4. Has the company paid all ofthe dividends tht it has declared? Explain. Home Team Corporation recently hired Steve Willits as its bookkeeper. Mr. Willits is somewhat inexperienced und has made numerous errors recording daily business transactions. Indicate the effects of the errors described below on each of the financial statement elements shown in the column headings. Use the following symbols: O for overstated; U for understated, and NE for no effect. Net Total Total Owners’ Error Income Assets Liabilities Equity Recorded the lesuance of capital stock by ‘debiting Capital Stock and crediting Service Revenue, Recorded the declaration and payment of ‘a dividend by debiting Capital Stock and ‘tediting Cash, Recorded the payment of an account payable by dobiting Cash and crediting Rent Expense, Recorded the collection of an outstanding account receivable by debiting Cash and crediting Service Revenue. Recorded cent ilings on account by ‘debling Accounts Receivable and crediting Advertising Expense. Recorded the cash purchase of land by ‘debiing Supplies Expense and crediting Notes Payable. Recorded the purchase ofa bulking on account by debiting Cash and credting Dividends Payable, ( (03 PROBLEM 3.18 Problem Set B ) Chis North isthe founder and president of North Enterprises, areal estate development venture. ‘The business transactions during April while the company was being organized ar listed below. Ape. 1 North and several others invested $650,000 cash in the business in exchange for 10,000 shares of capital stock, Apr. 6 The company purchased office facilities for $300,000, of which $60,000 was applicable to the land and $240,000 to the building. A eash payment of $100,000 was made and a note payable was issued forthe balance of the purchase price. Apr. 10 Computer equipment was purchased from Comp Central for $6,000 cash,Problem Set 8 131 Apr 12 Office furnishings were purchased from Sam’s Furniture at a cost of $12,000. A'S1,000 cash payment was made atthe time of purchase, and an agreement was ‘made to pay the remaining balance in two equal installments due May 1 and June 1 Sam’s Fumiture did not require that North sign a promissory note Apr.20 Office supplies were purchased from Office Space for $750 cash. ‘Apr. 25 North discovered that it paid too much for a computer printer purchased on April 10, ‘The unit should have cost only $600, but North was charged $800. Comp Central promised to refund the difference within seven days. ‘Apr. 28 Mailed Sam's Furniture the first installment due on the account payable for office furnishings purchased on April 12, Apr.29 Received $200 from Comp Central in settlement ofthe account receivable created oon April 25. Instructions a, Prepare journal entries to record the above transactions. Select the appropriate account titles from the following chart of accounts Cash Land Accounts Receivable Office Building Office Supplies Notes Payable Office Furnishings Accounts Payable Computer Systems Capital Stock . Indicate the effects ofeach transaction on the company’s assets, liabilities, and owners’ equity for the month of April. Organize your analysis in tabular form as shown below for the April 1 transaction: ‘Transaction Assets Liabilities + Owners’ Equity Apr +¥8650,000(Cash) — $0 “$650,000 (Capital Stock) Lyons, Inc., provides consulting services. A few ofthe company’s business transactions occurring during June are described below: 1. On June 1, the company billed customers $5,000 on account for consulting services rendered. Customers are required to make full payment within 30 days. 2. On June 3, the company purchased office supplies costing $3,200, paying $800 cash and ‘charging the remainder on the company's 30-day account at Office Warehouse. The supplies are expected to last several months, On June 5, the company returned to Office Warehouse $100 of supplies that were not needed. ‘The relur of these supplies reduced by $100 the amount owed to Office Warehouse. 4. On June 17, the company issued an additional 1,000 shares of capital stock at $5 per share, ‘The cash raised will be used to purchase new equipment in September. 5. On June 22, the company received $1,200 cash from customers it had billed on June 1 (On June 29, the company paid its outstanding account payable o Office Warehouse. 7. On June 30, a cash dividend totaling $1,800 was declared and paid to the company’s stockholders, a Instructions ‘a, Prepare an analysis of each of the above transactions, Transaction 1 serves as an example of the form of analysis to be used. 1, (a) The asset Accounts Receivable was increased. Increases in assets are recorded by debits. Debit Accounts Receivable $5,000. (b) Revenue has been eared. Revenue ineveases owners’ equity. Increases in owners" ‘equity are recorded by credits, Credit Consulting Revenue $5,000. 1b, Prepare journal entries, including explanations, for the above transactions.192 Chapter 3 The Accounting Cycle: Capturing Economic Events 6 How does the realization principle influence the manner in which the June 1 billings to cus- tomers are recorded in the accounting records? 4. How does the matching principle influence the manner in which the June 3 purchase of sup- plies is recorded in the accounting records? Dana, Inc., provides civil engineering services. During October, its transactions included the following Ock. 1 Paid rent for the month of October, $4,000. Oct. 4 Billed Milton Hotels $8,500 for services. The entire amount is due on or before October 28. (Dana uses an account entitled Service Revenue when billing clients.) Oct. 8 Provided services to Dist Valley Development for $4,700. The entire amount was collected on this dat. Oct, 12 Placed a newspaper advertisement in the Daily Reporter to be published in the October 25 issue. The cost of the advertisement was $320. Payment is due in 30 days. Oct. 20 Received a check for $8,500 from Milton Hotels forthe mount billed on October 4 Oct. 24 Provided services to Dudley Company for $3,600. Dana collected $300 cash, withthe balance due in 30 days. Oct. 25 Senta check to the Daily Reporter in full payment ofthe liability incurred on October 12. Oct. 29 Declared and paid a $2,600 cash dividend to the company's stockholders, Instructions ‘a. Analyze the effects that each of these transactions will have on the Fllowing six components of the company’s financial statements for the month of October. Organize your answer in tabular form, using the column headings shown below. Use I for increase, D for decrease, and INE for no effect. The October I transaction is provided for you: Income Statement Balance Sheet Transaction Revenue — Expenses = Net Income Assets = Liabltes + Owners’ Equity ct.1 NE ' D > NE > 'b. Prepare a journal entry (including explanation) foreach of the above transactions, Three of October's transactions involve cash payments, yet only one of these transactions is recorded as an expense. Deseribe three situations in which a cash payment would not involve recognition of an expense. (PROBUEWISINE | tn March 2011, Mary Tone organized a corporation to provide package delivery services. The com- (THIAGSOURANGIOVEI pany, called Tone Deliveries, Inc, began operations immediatly. Transaetions during the month co URERMTESMTMED of March were as follows (GRGIPFEEAINGIATA) © Mar. 2 The corporation issued 40,000 shares of capital tock to Mary Tone in exchange ‘Balance: for $80,000 cash, Mar. 4 Purchased a ruck for $45,000, Made a $15,000 cash down payment and issued a note payable forthe remaining balance. Mar. 5 Paid Sloan Properties $2,500 to rent office space for the month Mar, 9 Billed customers $11,300 for services for the first half of March. Mar, 15 Paid $7,100 in salaries earned by employees during the first half of March Mar. 19 Paid Bills Auto $900 for maintenance and repair services on the company truck. Mar. 20 Collected $3,800 ofthe amounts billed to customers on March 9 Mar. 28 Billed customers $14,400 for services performed during the second half of the month. ‘Mar. 30 Paid $7,500 in salaries eared by employees during the second half of the month, ‘Mar. 30 Received an $830 bill rom SY Petroleum for fuel purchased in March. The entire amount is due by April 15, Mar. 30 Declared a $1,200 dividend payable on April 30,Problem Set 8 es ama ‘The account titles used by Tone Deliveries are: Cash Retained Famings Accounts Receivable Dividends ‘Truck Service Revenue Notes Payable ‘Maintenance Expense Accounts Payable Fuel Expense Dividends Payable Salaries Expense Capital Stock Rent Expense Instructions ‘a, Analyze the effects that each of these transactions will have on the following six components of the company’s financial statements forthe month of March. Organize your answer in tabu- Jar form, using the column headings shown below. Use I for increase, D for decrease, and NE for no effect, The March 2 transaction is provided for you: Income Statement Balance Sheet ‘Transaction Revenue — Expenses = Net Income Assets ~ Liabiliies + Owners’ Equity Mar.2 NE NE NE 1 NE 1 Prepare journal entries (including explanations) for each transaction. Post each transaction to the appropriate ledger accounts (use a running balance format as shown in Exhibit 3-4, page 95) Prepare a trial balance dated March 31, 2011 Using figures from the trial balance prepared in part d, compute total assets, total liabilities, and owners’ equity. Are these the figures thatthe company will report in its March 31 balance sheet? Explain your answer briely. Dr. Cravati, DMD., opened a dental clinic on August 1, 2011. The business transactions for August are shown below: Aug. 1 Dr. Cravai invested $280,000 cash inthe business in exchange for 1,000 shares of capital stock. ‘Aug. 4 Land and a building were purchased for $400,000. Of this amount, $60,000 applied {o the land and $340,000 to the building. A cash payment of $80,000 was made atthe time of the purchase, and a note payable was issued for the remaining balance. ‘Aug. 9 Medical instruments were purchased for $75,000 cash, ‘Aug. 16 Office fixtures and equipment were purchased for $25,000. Dr. Cravati paid $10,000 at the time of purchase and agreed to pay the entie remaining balance in 15 days. Aug. 21 Office supplies expected to last several months were purchased for $4,200 cash. ‘Aug. 24 Dr. Cravati billed patients $13,000 for services rendered, Of this amount, $1,000 was received in cash, and $12,000 was billed on account (due in 30 days). ‘Aug. 27 A $450 invoice was teceived for several newspaper advertisements placed in August. ‘The entire amount is due on September 8, ‘Aug. 28 Received a $500 payment on the $12,000 account receivable recorded August 24 ‘Aug. 31 Paid employees $2,200 for salaries eared in August, A partial lst of account titles used by Dr. Cravati includes: Cash Office Fixtures and Equipment Accounts Receivable Land Office Supplies Building Notes Payable Service Revenue Accounts Payable Advertising Expense Capital Stock Salary Expense Medical Instruments