Exam 3: The Accounting Cycle: Capturing Economic Events

Rules of debit and credit as applied to balance sheet accounts Items in the balance sheet are classified into three categories: assets, liabilities, and owners' equity. (A.) Identify by name two ledger accounts in each of the first two categories above (assets and liabilities) and one owners' equity account. State whether each account would normally have a debit or credit balance. (B.) Describe briefly the rules of debits and credits as applied to the three categories of balance sheet accounts: asset accounts, liability accounts, and owners' equity accounts.

Revenues increase owners' equity and are, therefore, recorded by crediting the revenues account.

Wilson Trucking, Inc. reports these account balances at January 1, 2012 (shown in alphabetical order): On January 5, Wilson Trucking collected $175,000 of its accounts receivable, paid $150,000 on its accounts payable, and paid $11,000 on its note payable. Accounts Payable \ 220,000 Accounts Receivable \ 200,000 Buildings \ 480,000 Capital Stock \ 680,000 Cash \ 160,000 Equipment \ 320,000 Land \ 400,000 Notes Payable \ 520,000 Retained Earnings \1 40,000 -On January 5, 2012, total liabilities are:

Montauk Oil Co. reports these account balances at December 31, 2010 On January 2, 2011, Montauk Oil collected $50,000 of its accounts receivable and paid $20,000 of its accounts payable. Accounts Payable \ 110,00 0 Land \ 200,00 0 Notes Payable \ 260,00 0 Equipment \ 160,00 0 Cash \ 80,000 Accounts Receivable \ 100,00 0 Buildings \ 240,00 0 Capital Stock \ 340,00 0 Retained Earnings \ 70,000 -On January 3, 2011, total liabilities are:

Journalize and post basic transactions Precision Grading Co. was organized to grade construction sites. * On June 1, owner Dave Precision deposited $90,000 in a new bank account opened in the name of the business in exchange for stock. * On June 3, the company acquired grading equipment costing $89,000, paying $43,000 cash and signing a note payable for the balance. * On June 10, the company paid $13,000 of the amount owed for equipment acquired on June 3. Instructions: Journalize these three transactions and post to the ledger accounts.

Recording transactions in general journal Enter the following transactions in the two-column journal of Baumann Bathrooms. Include a brief explanation of the transaction as part of each journal entry. Mar 1 Borrowed \ 90,000 cash from the bank by signing a 90 -day note payable. 3 Issued an additional 5,000 shares of capital stock in exchange for \ 40,000 cash 4 Purchased an adjacent vacant lot for use as parking space. The price was \ 70,000, of which \ 30,000 was paid in cash; a note payable was issued for the balance. 8 Acquired shop equipment from Elite Baths for \ 5,400 cash. 8 Collected an account receivable of \ 2,900 from a customer, Beekman Art Shoppe. 9 Issued a check for \ 1,060 in full payment of an account payable to Austin Industries, Inc.

When making a general journal entry, there can only be one debit and one credit.

Transactions are recorded in the general journal in:

The following entry appears in 35,000 Martin Supply's general journal on March 10, 2010: Accounts Receivable Cash 21,000 Equipment 51,000 -This transaction involves:

Every transaction which affects an income statement account also affects a balance sheet account.

The general ledger is sometimes called the book of original entry because it is the accounting record where transactions are first recorded.

If a company purchases equipment on account:

Net income is:

The account balances for Creative Band, Inc. as of May 31, 2009, are listed below in alphabetical order: Accounts Payable $12,000 Equipment $18,000 Accounts Receivable $14,000 Land $52,000 Building $42,000 Notes Payable $30,000 Cash $8,000 Capital Stock $92,000 On June 3, Creative Band, Inc collected $4,000 of its accounts receivable and paid $7,000 of its accounts payable. In addition, 2,000 of additional shares of capital stock are issued for $5,600. -In a trial balance prepared on June 4, the sum of the credit column is:

Which of the following errors would be disclosed by preparation of a trial balance?

Recording transactions directly in T accounts; trial balance On July 20, Mollie Rose began a new business called MR Printing, which provides typing, duplicating, and printing services. The following six transactions were completed by the business during July. (A.) Issued to Rose 1,000 shares of capital stock in exchange for her investment of $200,000 cash. (B.) Purchased land and a small building for $450,000, paying $165,000 cash and signing a note payable for the balance. The land was considered to be worth $240,000 and the building $210,000. (C.) Purchased office equipment for $30,000 from Quality Interiors, Inc. Paid $17,000 cash and agreed to pay the balance within 60 days. (D.) Purchased a motorcycle on credit for $3,400 to be used for making deliveries to customers. Mollie agreed to make payment to Spokes, Inc. within 10 days. (E.) Paid in full the account payable to Spokes, Inc. (F.) Borrowed $30,000 from a bank and signed a note payable due in six months. Instructions (A.) Record the above transactions directly in the T accounts below. Identify each entry in a T account with the letter shown for the transaction. This exercise does not call for the use of a journal. (B.) Prepare a trial balance at July 31 by completing the form provided. MR PRINTING Trial Balance July 31, 20 $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Debit $\quad$$\quad$ Credit

Ceramic Products, Inc. reports these account balances at January 1, 2009 (shown in alphabetical order): On January 5, Ceramic Products collected $12,000 of its accounts receivable and paid $11,000 on its note payable. Accounts Payable. \ 28,000 Accounts Receivable. 20,000 Buildings. 153,000 Capital Stock 185,000 Cash. 13,000 Equipment 20,000 Land 80,000 Notes Payable. 24,000 Retained Earnings 49,000 -On January 5, 2009, total liabilities are:

The bookkeeper for Wood Mfg. made the following journal entry on January 30, 2009: Land 201,500 Building 84,500 Cash. 65,000 Notes Payable 221,000 -This transaction involves:

Recognizing revenue when it is earned and not when cash is received and recognizing expenses when the related goods or services are used rather than when they are paid for is called:

"I was just following orders" is an acceptable defense if you committed an unethical action during an audit.