Basic Accounting Equations
1. Recognition of normal balances
The following items appeared in the accounting records of Triguero's, a retail music store that also sponsors concerts. Classify each of the items as an asset, liability, revenue, or expense from the company's viewpoint. Also indicate the normal account balance of each item.
a.The albums, tapes, and CDs held for sale to customers.
b.A long-term loan owed to Citizens Bank.
c.Promotional costs to publicize a concert.
d.Daily sales of merchandise sold,
e.Amounts due from customers,
f.Land held as an investment,
g.A new fax machine purchased for office use.
h.Amounts to be paid in 10 days to suppliers,
i.Amounts paid to a mall for rent.
2. Basic journal entries
The following April transactions pertain to the Jennifer Royall Company:
Apr. 1Jenni¬fer Royall invested cash of $15,000 and land valued at $10,000 into the business. Apr. 5Provided $1,200 of services to Jason Ratchford, a client, on account. Apr. 9Paid $250 of salaries to an employee.
Apr. 14Acquired a new computer for $3,200, on account.
Apr. 20Collected $800 from Jason Ratchford for services provided on April 5. Apr. 24Borrowed $7,500 from BestBanc by securing a six-month loan.
Prepare journal entries (and explanations) to record the preceding transactions and events.
3. Balance sheet preparation. The following data relate to Preston Company as of December 31, 20XX:
J. Preston, Capital65,000Land21,000
Prepare a balance sheet as of December 31, 20XX. (See Exhibit 1.1 and 1.4)
4. Basic transaction processing. On November 1 of the current year, Richard Parker established a sole proprietorship. The following transactions occurred during the month:
1: Parker invested $19,000 into the business for $19,000 in common stock. 2: Paid $9,000 to acquire a used minivan.
3: Purchased $1,800 of office furniture on account.
4: Performed $2,100 of consulting services on account.
5: Paid $300 of repair expenses.
6: Received $800 from clients who were previously billed in item 4. 7: Paid $500 on account to the supplier of office furniture in item 3. 8: Received a $150 electric bill, to be paid next month.
9: Parker withdrew $600 from the business.
10: Received $250 in cash from clients for consulting services rendered.
a. Arrange the following asset, liability, and owner’s equity elements of the account¬ing equation: Cash, Accounts Receivable, Office Furniture, Van, Accounts Payable, Common Stock/Dividends, and Revenues/Expenses. (See Exhibit 1.5) b. Record each transaction on a separate line. After all transactions have been recorded, compute the balance in each of the preceding items. c. Answer the following questions for Parker.
(1) How much does the company owe to its creditors at month-end? On which financial statement(s) would this information be found? (2) Did the company have a “good” month from an accounting viewpoint? Briefly explain. 5. Transaction analysis and statement preparation. The transactions that follow relate to Burton Enterprises for March 20X1, the company’s first month of activity.
3/1: Joanne Burton, the owner invested $20,000 into the business for $20,000 of Common Stock. 3/4: Performed $2,400 of services on account.
3/7: Acquired a small parcel of land by paying $6,000 cash.
3/12: Received $700 from a client, who was billed previously on March 4. 3/15: Paid $800 to the Journal Herald for advertising expense. 3/18: Acquired $9,000 of equipment from Park Central Outfitters by paying $7,000 down and agreeing to remit the balance owed within the next 2 weeks, (Accounts Payable).
3/22: Received $300 cash from clients for services.
3/24: Paid $1,500 on account to Park Central Outfitters in partial settlement of the balance due from the transaction on...