Revision Set 1

EA1. Match the correct term with its definition.

A. cost principle i. if uncertainty in a potential financial estimate, a company should err on the side of caution and report
the most conservative amount

B. full disclosure ii. also known as the historical cost principle, states that everything the company owns or controls
principle (assets) must be recorded at their value at the date of acquisition

C. separate entity concept iii. (also referred to as the matching principle) matches expenses with associated revenues in the period
in which the revenues were generated

D. monetary iv. business must report any business activities that could affect what is reported on the financial
measurement concept statements

E. conservatism v. system of using a monetary unit by which to value the transaction, such as the US dollar

F. revenue recognition vi. period of time in which you performed the service or gave the customer the product is the period in
principle which revenue is recognized

G. expense recognition vii. business may only report activities on financial statements that are specifically related to company
principle operations, not those activities that affect the owner personally

EA2.  Consider the following accounts, and determine if the account is an asset (A), a liability (L), or equity (E).

A. Accounts Payable
B. Cash
C. Dividends
D. Notes Payable

EA3.Provide the missing amounts of the accounting equation for each of the following companies.

EA4.  Identify the financial statement on which each of the following accounts would appear: the income statement
(IS), the retained earnings statement (RE), or the Balance Sheet (BS).

A. Insurance Expense
B. Accounts Receivable
C. Office Supplies
D. Sales Revenue
E. Common Stock
F. Notes Payable
EA5. Cromwell Corporation has the following trial balance account balances, given in no certain order, as of
December 31, 2018. Retained Earnings at January 1, 2018, was $3,600. Using the information provided, prepare
Cromwell’s annual financial statements (omit the Statement of Cash Flows).

EA6.  From the following list, identify which items are considered original sources:

A. prepaid insurance
B. bank statement
C. sales ticket
D. general journal
E. trial balance
F. balance sheet
G. telephone bill
H. invoice from supplier
I. company sales account
J. income statement

EA7.  Indicate what impact the following transactions would have on the accounting equation, Assets = Liabilities +
Equity. (Overstated or Understated)
 

  Impact 1 Impact 2

Received cash from issuance of common stock    

Sold goods to customers on account    

Collected cash from customer sales made in previous month    

Paid cash to vendors for supplies delivered last month    

Purchased inventory on account    

Table3.4
EA8.  For the following accounts please indicate whether the normal balance is a debit or a credit.

A. Sales
B. Dividends
C. Office Supplies
D. Retained Earnings
E. Accounts Receivable
F. Prepaid Rent
G. Prepaid Insurance
H. Wages Payable
I. Building
J. Wages Expense

EA9. Indicate what impact the following transactions would have on the accounting equation, Assets = Liabilities +
Equity. (Overstated or Understated)

  Impact 1 Impact 2

Paid monthly note payment to bank    

Sold inventory on account    

Bought supplies, to be paid for next month    

Received cash from sales this month    

Paid for inventory purchased on account last month    

Table3.5

EA10. Identify the normal balance for each of the following accounts. Choose Dr for Debit; Cr for Credit.
 

  Normal balance

Utilities Expense  

Cash  

Equipment  

Rent Revenue  

Preferred Stock  

Interest Payable  
Table3.6
EA11.  Identify whether each of the following transactions would be recorded with a debit (Dr) or credit (Cr) entry.
 

  Debit or credit?

Cash increase  

Supplies decrease  

Accounts Payable increase  

Common Stock decrease  

Interest Payable decrease  

Notes Payable decrease  

Table3.7

EA12.  Identify whether each of the following transactions would be recorded with a debit (Dr) or credit (Cr) entry.
Debit or credit?

Equipment decrease  

Common Stock Sold increase  

Gas and Oil Expense increase  

Service revenue decrease  

Miscellaneous Expense decrease  

Bonds Payable decrease  

Table3.8

EA13.  Identify whether ongoing transactions posted to the following accounts would normally have only debit
entries (Dr), only credit entries (Cr), or both debit and credit entries (both). 
  Type of entry

Accounts Payable  

Cash  

Gas and Oil Expense  

Rent Revenue  

Supplies Expense  

Common Stock  
Table3.9
EA14.  Determine whether the balance in each of the following accounts increases with a debit or a credit.

A. Cash
B. Common Stock
C. Equipment
D. Accounts Payable
E. Fees Earned
F. Electricity Expense

EA15.  Journalize for Harper and Co. each of the following transactions or state no entry required and explain why.
Be sure to follow proper journal writing rules.

A. A corporation is started with an investment of $50,000 in exchange for stock.

B. Equipment worth $4,800 is ordered.
C. Office supplies worth $750 are purchased on account.
D. A part-time worker is hired. The employee will work 15–20 hours per week starting next Monday at a rate of
$18 per hour.
E. The equipment is received along with the invoice. Payment is due in three equal monthly installments, with
the first payment due in sixty days.

EA16.  Discuss how each of the following transactions for Watson, International, will affect assets, liabilities, and
stockholders’ equity, and prove the company’s accounts will still be in balance.

A. An investor invests an additional $25,000 into a company receiving stock in exchange.

B. Services are performed for customers for a total of $4,500. Sixty percent was paid in cash, and the
remaining customers asked to be billed.
C. An electric bill was received for $35. Payment is due in thirty days.
D. Part-time workers earned $750 and were paid.
E. The electric bill in “C” is paid.

EA17.  For each item that follows, indicate whether a debit or a credit applies.

A. increase in prepaid insurance

B. increase in utilities expense
C. increase in commissions earned
D. increase in supplies
E. decrease in retained earnings
F. decrease in income taxes payable
G. increase in unearned revenue
H. increase in salaries expense
I. decrease in notes receivable
J. increase in common stock

EA18.  Indicate whether each account that follows has a normal debit or credit balance.

A. Unearned Revenue
B. Office Machines
C. Prepaid Rent
D. Cash
E. Legal Fees Earned
F. Salaries Payable
G. Dividends
H. Accounts Receivable
I. Advertising Expense
J. Retained Earnings
EA19.  A business has the following transactions:

 The business is started by receiving cash from an investor in exchange for common stock $20,000
 The business purchases supplies on account $500
 The business purchases furniture on account $2,000
 The business renders services to various clients on account totaling $9,000
 The business pays salaries $2,000
 The business pays this month’s rent $3,000
 The business pays for the supplies purchased on account.
 The business collects from one of its clients for services rendered earlier in the month $1,500.

What is total income for the month?

EA20.  Prepare journal entries to record the following transactions.

A. January 22, purchased, an asset, merchandise inventory on account for $2,800.

B. February 10, paid creditor for part of January 22 purchase, $1,600

EA21.  Prepare journal entries to record the following transactions.

A. July 1, issued common stock for cash, $15,000

B. July 15, purchased supplies, on account, $1,800
C. July 25, billed customer for accounting services provided, $950

EA22.  Prepare journal entries to record the following transactions.

A. March 1, purchased land for cash, $20,000

B. March 11, purchased merchandise inventory, on account, $18,500
C. March 15, Sold merchandise to customer for cash, $555

EA23.  Post the following February transactions to T-accounts for Accounts Receivable and Cash, indicating the
ending balance (assume no beginning balances in these accounts).

A. provided legal services to customers for cash, $5,600

B. provided legal services to customers on account, $4,700
C. collected cash from customer accounts, $3,500

EA24.  Post the following November transactions to T-accounts for Accounts Payable and Inventory, indicating the
ending balance (assume no beginning balances in these accounts).

A. purchased merchandise inventory on account, $22,000

B. paid vendors for part of inventory purchased earlier in month, $14,000
C. purchased merchandise inventory for cash, $6,500
EA25.  Prepare an unadjusted trial balance, in correct format, from the alphabetized account information as follows.
Assume all accounts have normal balances.