HM Chps 1 To 4

KATERIN HENAO
ACCT 101
PROF: EVA SOLARSH
CHAPTER ONE
Assignments: BRF EX. 4, 6, 8 EX. 3, 4, 12 15.
BRIEF EXERCISES
1.4 What are the two primary organizations in the United States that are responsible
for setting standards related to the preparation of accounting information?
-The Securities and Exchange Commission (SEC)
-The Financial Accounting Standards Board (FASB)
1.6 Use the web to find the home page of the PCAOB. What are the four primary
activities of the PCAOB?
- Registration of accounting firms (including non-US firms) that audit public

companies (including non-US issuers) trading in US securities markets.
- Inspections of registered public accounting firms.
- Establishment of auditing and related attestation, quality control, ethics,

and independence standards for registered public accounting
firms.
- Investigation and discipline of registered public accounting firms and

their associated persons for violations of specified laws or
professional standards. (iasplus.com)
1.8 List three professional certifications offered in accounting and the organizations
that offer them.
- Certified public accountants (CPAs) ; American Institute of CPAs

(AICPA).
- Certified Management Accountant (CMA) ; Institute of Management

Accountants (IMA).
- Certified Internal Auditor (CIA) ; Institute of Internal auditors (IIA).
EXERCISES
1.3 A major focus of this course is the process of financial reporting.
a. What is meant by the term financial reporting?
- provide specific information about economic resources that is useful in

making investment and credit decisions as well for external users
assisting potential investors or creditors in deciding where to place their
scarce investment recourses.
b. What are the principal accounting reports involved in the financial reporting
process? In general terms, what is the purpose of these reports?
 Statement of financial position (Balance Sheet) - Shows where the

company stands in financial terms at a specific date.
 Income Statement - Shows details and results of the company's profit-
related activities for a period of time.
 Statement of Cash Flows - Shows the details of the company's activities
involving cash during a period of time.
c. Do all business entities engage in financial reporting? Explain.
- Not all, only large companies that require investors and need to
communicate business practices.
d. How does society benefit from the financial reporting process?
- through this information potential investors may provide their resources

to make a company grow and creating a mutually beneficial,
generating more productivity; therefore; more economic activity which can
benefit the citizens of the area.
1.4 Generally accepted accounting principles play an important role in financial
reporting.
a. What is meant by the phrase generally accepted accounting principles?
- Standards that are understood by the preparers and users of the

accounting information.
b. What are the major sources of these principles?
 The international Accounting Standards Board (IASB)

 The Security and Exchange Commission (SEC)
 The Financial Accounting Standards Board (FASB)

c. Is there a single comprehensive list of generally accepted accounting

principles? Explain.
- No, the three principal organizations in the United states that establish
accounting principles, develop their own set of accounting principles.
d. What types of accounting reports are prepared in conformity with generally

accepted accounting principles?
- The reports, called financial statements. The assurance of this reports is

provided by an audit that is an investigation of a company's financial
statements.
1.12 Audits of financial statements are an important part of the accounting process to
ensure integrity in financial reporting.
a. What is the purpose of an audit?
- Determine that the financial statements are reliable and complete,

conform to generally accepted accounting principles.
b. As an external user of accounting information, what meaning would you
attach to an audit that concludes that the financial statements are fairly
presented in conformity with generally accepted accounting principles?
- That the financial position of the company is reliable and this information
determine an investment decision or any economic activity with it.
c. Would your interest in investing in this same company be affected by an

auditor's report that concluded the financial statements were not fairly presented?
Why or why not?
- No, because it could represent a risk for my investment resources since

the company is not providing accurate information of its financial
position.
1.15 Four accounting majors, Maria Acosta, Kenzo Nakao, Helen Martin, and Anthony
Mandella, recently graduated from Central University and began professional
accounting careers. Acosta entered public accounting, Nakao became a
management accountant, Martin joined a governmental agency, and Mandella
(who had completed a graduate program) became an accounting faculty
member.
Assume that each of the four graduates was successful in his or her chosen
career. Identify the types of accounting activities in which each of these
graduates might find themselves specializing several years after graduation.
 Public Accounting: Acosta is going to serve many clients, auditing financial

statements, income tax work, and management advisory services
(management consulting).
 Management Accountant: Nakao is going to work for a company and he is
going to develop and interpret accounting information designed
specifically to meet the various needs of management, also he is going to
operate the company's accounting system recording transactions and the
preparation of financial statements, tax returns, and other accounting
reports.
 Governmental Accounting: Martin is going to have his specialization
depending on the governmental agencies that he chose. If he works for
the GAO (Audits the Government), he is going to have audit many
agencies of the federal government, as well as some private organizations
doing business with the government. If he chose works for the IRS (Audits
of Income Tax Returns), he is going to audit the income tax returns filed
annually by individuals and business organizations, verifying data
contained in these returns. Finally if he chose work for The SEC (The
'Watchdog" of Financial Reporting), he is going to work with The FASB
(The Financial Accounting Standards Board), establishing generally
accepted accounting principles and making sure that the audited financial
statements that companies present every year are well prepare according
to this principles also if a company does not meet this criteria the SEC
initiates legal action against the company.
 Accounting Education: Mandela is going to teach, research and
consulting, working as an accounting faculty member is going to give him
a some sort of freedom in developing individual skills.
CHAPTER TWO
Assignments: BRF EX. 2, 4, 7 EX. 1, 4, 5, 6, 7 PROB: 2A, 3A, 4A, 9A
BRIEF EXERCISES
2.2 Foster, Inc., purchased a truck by paying $5,000 and borrowing the remaining
$30,000 required to complete the transaction. Briefly state how this transaction
affects the company's basic accounting equation.
Accounting Equation:
Assets = Liabilities + Owner's Equity
$35,000 = $30,000 + 5,000
Vehicles .........................................$35,000
Cash .................................................. $ 5,000
Accounts Payable .............................. $30,000
Purchased of a truck by paying
$5,000 cash and borrowing
$30,000
2.4 White Company's assets total $780,000 and its owners' equity consists of capital
stock of $500,000 and retained earnings of $150,000. Does White Company
have any outstanding liabilities and, if so what is the total amount of its liabilities?
Assets Liabilities & Owners' Equity___________________
Total
Liabilities ........................... $130,000
Owners' equity
Capital Stock .............. $500,000
Retained Earnings ..... 150,000 650,000
Total ............ $780,000 Total .................................. $780,000
 White Company have $130,000 in outstanding liabilities.
2.7 Wilkes Company had the following transactions during the current year:
 Earned revenues of $100,000 and incurred expenses of $56,000, all in

cash.
 Purchased a truck for $25,000.
 Sold land for $10,000.
 Borrowed $15,000 from a local bank.
What was the total change in cash during the year?
WILKES COMPANY
STATEMENT OF CASH FLOWS
FOR THE PERIOD OF FEBRUARY 17 - 29, 2016
Cash flows from operating activities:

Cash received from revenue transactions ................. $ 100,000
Cash paid for expenses ............................................. (56,000)
Net cash provided by operating activities .................. $ 44,000
Cash flows from investing activities:
Sale of land ............................................................... $ 10,000
Purchase of truck ...................................................... (25,000)
Net cash used by investing activities ......................... (15,000)
Cash flows from financing activities:
Cash received for Loan of a local bank ..................... 15,000
Increase in cash for the period ............................................. $ 44,000
Beginning Cash balance, February 17, 2016 ....................... -0-__
Ending cash balance, February 29, 2016 ............................. $ 44,000
EXERCISES
2.1 Assets and liabilities are important elements of a company's financial position.
a. Define assets. Give three examples of assets other than cash that might
appear in the balance sheet of (1) American Airlines and (2) a professional
sports team, such as the Boston Red sox.
- Assets are economic resources owned by a business and are expected

to benefit future operations. Assets can be converted into cash as
well as they can be used in
operating the business to create other assets, so assets represent
positive future cash flows.
Examples:
Assets for American Airlines might be
 Property Plant and Equipment

 Investments.
Assets for Boston Red Sox might be
 Tickets sales.
b. Define liabilities. Give three examples of liabilities that might appear in the
balance sheet of (1) American Airlines and (2) a professional sports team, such
as the Boston Red Sox.
- Liabilities are what the company owe (financial obligations or debts), so

they represent negative future cash flows.
Examples:
Liabilities for American Airlines might be
 Accounts Payable
 Income Tax Payable
Liabilities for Boston Red Sox might be

 Employee's Salaries.
2.4 The following cases relate to the valuation of assets. Consider each case
independently. In each case, indicate the appropriate balance sheet amount of
the asset under generally accepted accounting principles. If the amount
assigned by the company is incorrect, briefly explain the accounting principles
that have been violated. If the amount is correct, identify the accounting
principles that justify this amount.
a. World-Wide Travel Agency has office supplies costing $1,400 on hand at the
balance sheet date. These supplies were purchased from a supplier that does
not give cash refunds. World-Wide's management believes that the company
could sell these supplies for no more than $500 if it were to advertise them for
sale. However, the company expects to use these supplies and to purchase
more when they are gone. In its balance sheet, the supplies were present at
$500.
- The amount in World-Wide Travel Agency balance sheet is incorrect. The

company have been violated the Cost Principle because the amount
shown of this asset is not the original amount that they paid to acquire the
asset.
b. Perez Corporation purchased land in 1957 for $40,000. In 2015, it purchased

a similar parcel of land for $300,000. In its 2015 balance sheet, the company
presented these two parcels of land at a combined amount of $340,000.
-The amount in the Perez Corporation balance sheet is correct, since it

agrees with The Cost principle (historical cost) of accounting. According
to this principle assets such as land, buildings, merchandise, and
equipment are resources that are required in producing revenue for the
business so they should be presented at their cost in the balance sheet.
Additionally, the amount presented in this balance sheet is also based on
the Going-Concern Assumption which consist in that the assets like land
is acquired for use and not for resale so this balance sheet was prepared
on the assumption that Perez Corporation is a continuing company (a
going concern). The amount presented in the balance sheet of Perez
Corporation also agrees with The Objectivity Principle because the land
that they purchased can be verified with objective evidence that this asset
(land) was actually purchased at the cost shown in the financial statement
c. At December 30, 2015, Felix, Inc., purchased a computer system from a mail-
order supplier for $14,000. The retail value of the system---according to the mail-
order supplier----was $20,000. On January 7, however, the system was stolen
during a burglary. In its December 31, 2015, balance sheet, Felix showed this
computer system at $14,000 and made no reference to its retail value or to the
burglary. The December balance sheet was issued in February 2016.
- The amount in Felix, Inc., balance sheet is incorrect. The company have
been violated the Objectivity Principle because the retail value provide for
the mail-order supplier is different to the value shown in the balance sheet.
The company also violated The Cost Principle since neither the amount
shown in the balance is the original amount that they paid to acquire the
asset nor they did any adjustment for value changes.
2.5 Compute the missing amounts in the following table:
Assets = Liabilities + Owners' Equity
a. $635,000 $342,000 ? (293,000)
b. ? (1,172,500) 562,500 $610,000
c. 307,500 ? (120,300) 187,200
2.6 A number of business transactions carried out by Smalling Manufacturing

Company are as follows:
a. Borrowed money from a bank.
b. Sold land for cash at a price equal to its cost.
c. Paid a liability.
d. Returned for credit some of the office equipment previously purchased on

credit but not yet paid for: (Treat this the opposite of a transaction in
which you purchased office equipment on credit.)
e. Sold land for cash at a price in excess of cost. (Hint: The difference between
cost and sales price represents a gain that will be in the company's
income statement.)
f. Purchased a computer on credit.
g. The owner invested cash in the business.
h. purchased office equipment for cash.
i. Collected an account receivable.
Indicate the effects of each of these transactions on the total amounts of the
company's assets, liabilities, and owner's equity. Organize your answer in tabular
form, using the following column headings and the code letters I for increase, D
for decrease, and NE for no effect. the answer for transaction a is provide as an
example:
Transaction Assets = Liabilities + Owners' Equity
(a) I I NE
(b) I NE I
(c) D D NE
(d) D D NE
(e) I NE I
(f) I I NE
(g) I NE I
(h) NE NE NE
(i) NE NE NE
2.7 For each of the following categories, state concisely a transaction that will have
the required effect on the elements of the accounting equation.
a. Increase an asset and increase a liability.
- Purchase of an Asset on Account (credit).

b. Decrease an asset and decrease a liability.
- Payment in cash of a Liability like Notes Payable or Accounts

Payable.
c. Increase one asset and decrease another asset.
- Purchase of an Asset for Cash.
d. Increase an asset and increase owners' equity.
- Investments of cash or other assets by owners.
e. Increase one asset, decrease another asset, and increase a liability.
- Purchase of an asset and financing part of the cost.
PROBLEMS
2.2A The following six transaction of Memphis moving Company, a corporation, are
summarized in equation form, with each of the six transactions identified by a
letter. For each of the transactions (a) through (f) write a separate statement
explaining the nature of the transaction. For example, the explanation of
transaction (a) could be as follows: Purchased equipment for cash at a cost of
$3,200.
Assets = Liabilities + Owners'

Equity _
Accounts Accounts Capital

Cash + Receivable + Equipment + Building + Land = Payable + Stock
Balances $26,000 $39,000 $36,000 $110,000 $45,000 $42,000 $214,000

(a) -3,200 +3,200
Balances $22,800 $39,000 $39,200 $110,000 $45,000 $42,000 $214,000

(b) +900 -900
Balances $23,700 $38,100 $39,200 $110,000 $45,000 $42,000 $214,000

(c) -3,500 +13,500 +10,000
Balances $20,200 $38,100 $52,700 $110,000 $45,000 $52,000 $214,000

(d) -14,500 -14,500
Balances $ 5,700 $38,100 $52,700 $110,000 $45,000 $37,500 $214,000

(e) -15,000 +15,000
Balances $20,700 $38,100 $52,700 $110,000 $45,000 $37,500 $229,000
(f) +7,500 +7,500
Balances $20,700 $38,100 $60,200 $110,000 $45,000 $45,000 $229,000
 (a) Purchased equipment for cash at a cost of $3,200.

 (b) Collection of an Account Receivable at a cost of $900.
 (c) Purchased equipment made a cash down payment of $3,500 and Financed
part of the cost, account payable for $10.00.
 (d) Payment of a liability , the company made a payment of $14,500 on its
account payable.
 (e) Investment of cash at a cost of $15,000.
 (f) Purchased equipment on credit at a cost of $7,500.
2.3A Maxwell Communications was organized on December 1 of the current year and
had the following account balances at December 31, listed in tabular form:

Equity_
Office Notes Account Capital

Cash + Equipment + Building + Land = Payable + Payable + Stock
Balances $37,000 $51,250 $125,000 $95,000 $80,000 $28,250 $200,000
Early in January, the following transactions were carried out by Maxwell

communications :
1. Sold capital stock to owners for $35,000.
2. Purchased land and a small office building for a total price of $90,000, of
which $35,000 was the value of the land and $55,000 was the value of the
building. Paid $22,500 in cash and signed a note payable for the
remaining $67,500.
3. Bought several computer systems on credit for $9,500 (30-day open

account).
4. Obtained a loan from Capital Bank in the amount of $20,000. Signed a

note payable.
5. Paid the $22,250 account payable due as of December 31.
Instructions
a. List the December 31 balances of assets, liabilities and owners' equity in

tabular form as shown.
b. Record the effects of each of the five transactions in the format illustrated in
Exhibit 2-11. Show the totals for all columns after each transaction.
MAXWELL COMMUNICATIONS
EXPANDED ACCOUNTING EQUATION
DECEMBER 31, 2015

Equity_
Office Notes Account Capital

Cash + Equipment + Building + Land = Payable + Payable + Stock
Balances $37,000 $51,250 $125,000 $95,000 $80,000 $28,250 $200,000
(1) +35,000 +35,000
Balances $72,000 $51,250 $125,000 $95,000 $80,000 $28,250 $235,000
(2) -22,500 +55,000 +35,000 +67,500
Balances $49,500 $51,250 $180,000 $130,000 $147,500 $28,250 $235,000
(3) +9,500 +9,500
Balances $49,500 $60,750 $180,000 $130,000 $147,500 $37,750 $235,000
(4) +20,000 +20,000
Balances $69,500 $60,750 $180,000 $130,000 $167,500 $37,750 $235,000
(5) -22,250 -22,250
Balances $47,250 $60,750 $180,000 $130,000 $167,500 $15,500 $235,000
Total Assets: $418,000 = Total Liabilities + Owners' equity: $418,00
2.4A The items making up the balance sheet of Phillips Truck Rental at December 31
are listed below in tabular form similar to the illustration of the accounting
equation in Exhibit 2-11.

Equity_
Account Office Notes Account Capital

Cash + Receivable + Equipment + Trucks = Payable + Payable + Stock
Balances $9,500 $13,900 $3,800 $68,000 $20,000 $10,200 $65,000

During a short period after December 31, Phillips Truck rental had the following
transactions:
1. Bought office equipment at a cost of $2,700. Paid cash.

2. Collected $4,000 of accounts receivable.
3. Paid $3,200 of accounts payable.
4. Borrowed $10,000 from a bank, Signed a note payable for that amount.
5. Purchased two trucks for $30,500. Paid $15,000 cash and signed a note
payable for the balance.
6. Sold additional stock to investors for $85,000.
Instructions
a. List the December 31 balances of assets, liabilities, and owners' equity in

tabular form as shown above.
b. Record the effects of each of the six transactions in the preceding tabular
arrangement. Show the totals for all columns after each transaction.
PHILLIPS TRUCK RENTAL

EXPANDED ACCOUNTING EQUATION
DECEMBER 31, 2015

Equity_
Accounts Office Notes Accounts Capital

Cash + Receivable + Equipment + Trucks = Payable + Payable + Stock
Balances $ 9,500 $13,900 $3,800 $68,000 $20,000 $10,200 $65,000
(1) -2,700 +2,700
Balances $ 6,800 $13,900 $6,500 $68,000 $20,000 $10,200 $65,000
(2) +4,000 -4,000
Balances $10,800 $ 9,900 $6,500 $68,000 $20,000 $10,200 $65,000
(3) -3.200 -3,200
Balances $ 7,600 $ 9,900 $6,500 $68,000 $20,000 $ 7,000 $65,000
(4) +10,000 +10,000
Balances $17,600 $ 9,900 $6,500 $68,000 $30,000 $ 7,000 $65,000
(5) -15,000 +30,500 +15,500
Balances $ 2,600 $ 9,900 $6,500 $98,500 $45,500 $ 7,000 $65,000
(6) +85,000 +85,000
Balances $87,600 $ 9,900 $6,500 $98,500 $45,500 $ 7,000 $150,000
Total Assets: $202,500 = Total Liabilities + Owners' equity: $205,500

2.9A Anita Spencer is the founder and manager of Spencer Playhouse. The business
needs to obtain a bank loan to finance the production of its next play. As part of
the loan application, Anita Spencer was asked to prepare a balance sheet for the
business. She prepared the following balance sheet, which is arranged correctly
but which contains several errors with respect to such concepts as the business
entity and the valuation of assets, liabilities, and owner's equity.
SPENCER PLAYHOUSE
BALANCE SHEET
SEPTEMBER 30, 2015
Assets Liabilities & Owner's Equity
Cash ......................... $ 21,900 Liabilities:

Accounts Receivable ...... 132,200 Accounts Payable ............. $ 6,000
Props and Costumes ...... 3,000 Salaries Payable .............. 29,200
Theater Building ........... 27,000 Total liabilities .............. $ 35,200
Lighting Equipment ........ 9,400 Owner's equity:
Automobile .................. 15,000 Anita Spencer, Capital ....... 173,300
Total .......................... $208,500 Total .............................. $ 208,500
In discussions with Anita Spencer and by reviewing the accounting records of

Spencer playhouse, you determine the following facts:
1. The amount of cash, $21,900, includes $15,000 in the company's bank

account, $1,900 on hand in the company's safe, and $5,00 in anita Spencer's
personal savings account.
2. The accounts receivable, listed as $132,200, include $7,200 owed to the

business by Artistic Tours. The remaining $125,000 is Anita Spencer's
estimate of future ticket sales from September 30 through the end of the year
(December 31).
3. Anita Spencer Explains to you that the props and costumes were purchased
several days ago for $18,000. The business paid $3,000 of this amount in
cash and issued a note payable to Actor's Supply Co. for the remainder of the
purchase price ($15,000). As this note is not due until January of next year, it
was not included among the company's liabilities.
4. Spencer Playhouse rents the theater building from Kievits International at a
rate of $3,000 a month. The $27,000 shown in the balance sheet represents
the rent paid through September 30 of the current year. Kievits International
acquired the building seven years ago at a cost of $135,000.
5. The lighting equipment was purchased on September 26 at a cost of $9,400,
but the stage manager says that is isn't worth a dime.
6. The automobile is Anita Spencer's classic 1978 Jaguar, which she purchased
two years ago for $90,000. She recently saw a similar car advertised for sale
at $15,000. She does not use the car in the business, but it has a
personalized license plate that reads "PLAHOUS."
7. The accounts payable include business debts of $3,900 and the $2,100
balance of Anita Spencer's personal Visa card.
8. Salaries payable include $2,500 offered to Mario Dane to play the lead role in
a new play opening next December and $4,200 still owed to stagehands for
work done through September 30.
9. When Anita Spencer founded Spencer Playhouse several years ago, she
invested $20,000 in the business. However, Live Theatre, Inc., recently
offered to buy her business for $173,300. Therefore, she listed this amount as
her equity in the above balance sheet.
Instructions
a. Prepare a corrected balance sheet for Spencer Playhouse at September 30,

2015.
b. for each of the nine numbered items above, explain your reasoning in
deciding whether or not to include the items in the balance sheet and in
determining the proper dollar valuation.
a. Corrected Balance:
SPENCER PLAYHOUSE
BALANCE SHEET
SEPTEMBER 30, 2015
Assets Liabilities & Owner's Equity
Cash ......................... $ 16,900 Liabilities:

Accounts Receivable ...... 7,200 Accounts Payable ............. $ 3,900
Props and Costumes ...... 18,000 Notes Payable ................. 15,000
Lighting Equipment ....... 9,400 Salaries Payable .............. 4,200
Total liabilities ................... $ 23,100
Owner's equity:
Anita Spencer, Capital ....... 20,000
Total .......................... $51,500 Total .............................. $ 43,100
b. Why whether or not include the items in the balance sheet and their proper
dollar valuation.
1. The balance sheet only includes the amounts of cash that is use for the
economic activities of the company which are $15,000 in the company's
bank account and $1,900 on hand in the company's safe. Therefore, the
$5,000 in Anita Spencer's personal savings account are not included in the
statement.
2. In Accounts receivable only can appear the $7,200 owe to the business
because this is a real value that is going to turn to cash in the future. The
remaining $125,000 cannot appear in the balance sheet since this value is
an estimate and not a real sale or asset.
3. The props and costumes account, have to show the real value of the
costumes purchased for $18,000 and since this is a debt that the business
acquired, Notes payable have to be included in the company's liabilities for
the remaining price of $15,000 in order to maintain the accounting
equation and the financial statement (balance sheet) in proper balance.
4. I assume that the $27,000 that the account "Theater Building" shows is
the accumulated rent from January to September but neither this amount
nor this account have to appear in the balance sheet because the
company did not buy the building so it does not represent an asset to the
business but this represents an obligation. Therefore, the only value that
must have been registered is $ 3,000, representing the monthly payment
of the rent of the building and this value must have been registered in the
accounts payable. The cost of $ 135,000, representing the value of the
purchase of the building does not belong to Spencer playhouse because
this building was purchased by another company so the other company
must have registered this purchase in its own balance sheet.
5. Even though the stage manager says that the lighting equipment wasn't
worth a dime this was well recorded in the balance sheet since according
to the cost principle, this type of assets (equipment) should be presented
in their original cost because this asset is required in producing revenue
for the business and it has to be shown at its historical cost.
6. Anita's automobile cannot appear in the balance sheet because it is not

related to the company it is only for personal use.
7. In the Accounts Payable can be only reflected $ 3,900 because this value
represents the debts incurred by the company. Therefore, Anita's personal
expenses for $ 2100 cannot be included in the balance sheet since this
value does not represent economic activities for the company.
8. In Salaries payable only the amount owed to stagehand for work done
through September 30 for the value of $4,200 can be included because
the salary of $25,000 offered to Mario Dane in not a real value since this is
an expense that is going to be acquired for the company in the future.
9. Anita's equity is wrong since it does not reflect the real value of the initial
investment $20,000
CHAPTER 3
Assignments: EX. 3, 7, 8, 11 PROB: 1A, 2A, 3A, 4A
EXERCISES
3.3 Transactions are first journalized and then posted to ledger accounts. In this
exercise, however, your understanding of the relationship between the journal
and the ledger is tested by asking you to study some ledger accounts and
determine the journal entries that probably were made to produce these ledger
entries. The following accounts show the first six transactions of Avenson
Insurance Company. Prepare a journal entry (including a written explanation) for
each transaction.
Cash Vehicles
Nov. 1 120,000 Nov. 8 33,600 Nov. 30 9,400
Nov. 25 12,000
Nov. 30 1,400
Land Notes payable
Nov. 8 70,000 Nov. 25 12,000 Nov. 8 95,000
Nov. 30 8,000
Building Accounts payable

Nov. 8 58,600 Nov. 21 480 Nov. 15 3,200
Office Equipment Capital Stock

Nov. 15 3,200 Nov. 21 480 Nov. 1 120,000
AVENSON INSURANCE COMPANY

GENERAL JOURNAL
NOVEMBER 1-30,2015
Date Account Titles and Explanation Debit Credit
2015
Cash
Nov. 1 ………………………………………………. 120,000
Capital Stock ……………….….. 120,000
Owners invest cash in the business.
8 Land …………………………………….…. 70,000
Building …….…………………………..…. 58,600
Cash …….……………….……… 33,600
Notes Payable …………….…… 95,000
Purchased Land & Building for $128,600. Paid
part Cash $33,600; Balance payable for $95,000.
15 Office Equipment …………………………….. 3,200
Accounts Payable …………...……. 3,200
Purchase of Office Equipment on credit for
$3,200.
21 Accounts Payable …………………...………. 480
Office Equipment ……………….… 480
Return some Office Equipment of $480
purchased on Nov.21.
25 Notes Payable …………………............…… 12,000
Cash …………………………...…… 12,000
Made partial payment of $12,000 to the liability in
Notes Payable.
30 Vehicles ……………………………………….. 9,400
Cash ……………………………....… 9,400
Purchased Vehicle on Cash for $9,400.
3.7 A number of transactions of Claypool Construction are described below in terms

of accounts debited and credited:
1. Debit Wages Expense; credit Wages Payable.

2. Debit Accounts Receivable; credit Construction Revenue
3. Debit Dividends; credit Cash.
4. Debit Office Supplies; credit Accounts Payable.
5. Debit Repairs Expense; credit Cash.
6. Debit Cash; credit Accounts Receivable.
7. Debit Tools and Equipment; credit Cash and Notes Payable.
8. Debit Accounts Payable; credit cash.
a. Indicate the effects of each transaction upon the elements of the income
statement and the balance sheet. use the code letters I for increase, D for
decrease, and NE for no effect. Organize your answer in tabular form using
the column headings shown below. The answer for transaction 1 is provided
as an example.
Income Statement Balance Sheet

Asset Liabilitie
Transaction Revenue - Expenses = Net Income = + Owners' Equity
s s
1 NE I D NE I D
2 I NE I I NE I
3 NE NE NE D NE D
4 NE I D I NE I
5 NE I D D NE D
6 I NE I I NE I
7 NE I D I NE I
8 NE D I D NE D
b. Write a one-sentence description of each transaction.

1. Salaries are expenses and liabilities so Net income and owners equity
decrease.
2. Earn Revenue increases Net Income ; Debit account receivable

increase assets and Equity .
3. Dividends are not expenses so the income statement is no affected /

Credit Cash decrease assets and equity.
4. Debit office supplies increase assets and equity (Balance Sheet);

Credit account payable Increase expenses and decrease net income
(income statement)
5. Debit repair expenses increases expenses and decreases net income

(income statement); Credit Cash decreases assets and equity
(balance sheet).
6. Debit cash increase assets and equity (balance sheet); Credit account
receivable increase revenue and net income (income statement).
7. Debit tools and equipment increase assets and equity (Balance sheet);
Credit cash and notes payable increases expenses and decreases net
income (income statement).
8. debit accounts payable decrease expenses and increase net income
(income statement); Credit cash, decrease assets and equity.
3.8 Shown below are selected transactions of the architectural firm of Baxter,
Claxter, and Stone, Inc.
April 5 Prepared building plans for Spangler Construction Company. Sent

Spangler an invoice for $11,000 requesting payment within
30 days. (The appropriate revenue account is entitled Drafting
Fees Earned.)
May 17 Declared a cash dividend of $2,000. The dividend will not be paid
until June 25.
May 29 Received a $4,500 bill from Bob Needham, CPA, for accounting
services performed during May. Payment is due by June 10.
( the appropriate expense account is entitled Professional
Expenses.)
June 4 Received full payment from Spangler Construction Company for the
invoice sent on April 5.
June 10 Paid Bob Needham, CPA, for the bill received on May 29.
June 25 Paid the Cash dividend declared on May 17.
a. Prepare journal entries to record the transactions in the firm's accounting

records.
BAXTER CLAXTER AND STONE INC.

GENERAL JOURNAL
APRIL 1- JUN 25, 2015
2015
Apr. 1 Accounts Receivable ……………………………. 11,000
Drafting Fees Earned …………........... 11,000
Prepared building plans for Spangler Construction
Company for $11,000
May. 17 Dividends 2,000
Accounts Payable …………………….. 2,000
Declared dividend of $2,000; Balance payment until
June 25
29 Professional Expenses …………………………. 4,500

Accounts Payable …………………….. 4,500
Accounting services performed during May bill from
Bob Needham CPA for $4,500; payment due by Jun
10.
Jun . 4 Cash …………………………………………….... 11,000
Accounts Receivable …………………. 11,000
Receive full payment from Spangler Construction
Company for the invoice sent on April 5.
10 Accounts Payable …………………...…………... 4,500
Cash ……………………………….…… 4,500
Paid Bob Needham, CPA, for the bill received on
May 29.
25 Accounts Payable ……………………………...... 2,000
Cash ………………………………….… 2,000
Paid the cash dividend declared on May 17.
b. Identify any of the above transactions that will not result in a change in the
company's net income.
 The transaction on May 17, does not change the income because
dividends are not expenses.
3.11 Georgia Corporation incorporated on September 2, 2015. The company engaged

in the following transactions during its first month of operations:
Sept. 2 Issued capital stock in exchange for $975,000 cash.
Sept. 4 Purchased land and a building for $900,000. The value of the land
was $200,000, and the value of the building was $700,000.
the company paid $100,000 cash and issued a note payable for
the balance.
Sept. 12 Purchased office supplies for $500 on account. The supplies will
last for several months.
Sept. 19 Billed clients $180,000 on account.
Sept. 29 Recorded and paid salary expense of $60,000.
Sept. 30 Received $110,000 from clients billed on September 19.

A partial list of the account titles used by the company includes:
Cash Notes Payable
Accounts Receivable Accounts Payable
Office Supplies Capital Stock
Land Client Revenue
Building Salary Expense
a. Prepare journal entries, including explanations, for the above transactions.
GEORGIA CORPORATION
GENERAL JOURNAL
SEPTEMBER 2- 30, 2015
2015
Sept. 2 Cash …………………………………………... 975,000
Capital Stock ………………………. 975,000
Owners invest cash in the business
4 Land …………………………………………... 200,000
Building ……………………………………….. 700,000
Cash ………………………………... 100,000
Notes Payable …………………….. 800,000
Purchased Land & Building for $900,000; Partial
payment in cash of $100,000 and Issued Note
payable for $800,000.
12 Office Supplies ……………………………….. 500
Accounts Payable ……………….... 500
Purchased of office supplies on account for
$500.
19 Accounts Receivable ………………………... 180,000
Client Revenue …………………..... 180,000
Billed clients on account for $180,000
29 Salary Expense …………………...…………. 60,000
Cash ………………………………... 60,000
Recorded and paid salary expense of $60,000
30 Cash …………………………………………... 110,000
Accounts Receivable ……………... 110,000
Received $110,000 from clients billed on Sept.
19.
b. Post each entry to the appropriate ledger accounts (use the T account format
illustrated in Exhibit 3-8 on page 110).
GEORGIA CORPORATION
THE LEDGER
Asset Accounts Liability and Owners' Equity Accounts
Cash Notes payable
100,00 800,00
Sept. 2 975,000 Sept. 4 0 Sept. 4 0
Sept.2
9 60,000
Sept.3
0 110,000 Bal. $800,000
Bal
. $925,000
Accounts Receivable Accounts payable
Sept.1 Sept.3 110,00 Sept.1
9 180,000 0 0 2 500
Bal
. $ 70,000
Bal. $ 500
Office Supplies
Sept.1
2 500 Capital Stock
Bal 975,00
. $ 500 Sept. 2 0
Bal. $975,000
Land Clients Revenue
Sept.1 180,00
Sept. 4 200,000 9 0
Bal. $180,000
Bal
. $200,000
Salary Expense
Sept.2 60,00
Building 9 0
$60,00
Sept. 4 700,000 Bal. 0
Bal
. $700,000
c. Prepare a trial balance dated September 30, 2015. Assume accounts with
zero balances are not included in the trial balance.
GEORGIA CORPORATION
TRIAL BALANCE
SEPTIEMBRE 30, 2015
Cash …………………………… $ 925,000
Accounts Receivable ………… 70,000
Office Supplies ……………….. 500
Land …………………………… 200,000
Building ………………………… 700,000
Notes Payable ………………… $ 800,000
Accounts Payable ……………. 500
Capital Stock …………………. 975,000
Clients Revenue ……………… 180,000
Salary Expense ………………. 60,000
1,955,500 1,955,500
PROBLEMS
3.1A 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 other invested $500,000 cash in the business
in exchange for $25,000 shares of capital stock.
Feb. 10 The company purchased office facilities for $300,000, of which

$100,000 was applicable to the 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 at a cost

of $9,000. A $1,000 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 april1.
Hi-Way Furnishings did not require that heartland sing a
promissory note.
Feb.22 Offices 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 of the account

receivable created on February 23.
Instructions
1. Prepare journal entries to record the above transactions. Select the
appropriate account titles from the following char of accounts:
Cash Land
Accounts Receivable office Building
Office Supplies Notes Payable
Office Furnishings Accounts Payable
Computer Systems Capital Stock
HEARTLAND CONSTRUCTION
GENERAL JOURNAL
FEBRUARY 1- 28, 2015
2015
Feb. 1 Cash ……………………………………………................ 500,000
Capital Stock ……………………………........... 500,000
Owners invest cash in the business
10 Office Building……………………………….................... 300,000
Cash ……………………………………............. 60,000
Notes Payable ……………………………........ 240,000
Purchased Land for $100,000 & Building for $200,000;
Partial payment in cash of $60,000; Issued Note payable for
$240,000.
16 Computer Systems……………………………................. 12,000

Cash ………………………............................... 12,000
Purchased of Computer equipment from PCWorls for
$12,000 cash.
18 Office Furnishings …………………………..................... 9,000

Cash ……………………………………............. 1,000
Accounts Payable ……………………………... 8,000
Purchased office furnishings to Hi-Way Furnishings; Partial

payment in cash of $1000 and agreement made to bay
balance in two equal installments due March 1 and April1.
22 Office Supplies …………………...……………............... 300
Cash ………………………………….……........ 300
purchased office supplies from Office World for $300 cash.
23 Accounts Receivable …………………………………….. 36

Computer Systems ……………………............ 36
Promise made for PCWorld to refund the extra payment that

was made for a computer printer on February 16.
27 Accounts Payable ……………………………................. 4,000

Cash ………………………………….……........ 4,000
Payment of the first installment due on the account payable
for office furnishings purchased on February 18.
28 Cash ………………………………….……...................... 36
Accounts Receivable ………………………….. 36
Received $36 from Pcworld in full settlement of the account
receivable created on February 23.
2. Indicate the effects of each transaction on the company's assets, liabilities,

and owner's equity for the month of February. Organize your analysis in
tabular form as shown for the February 1.
Transactio
n Assets = Liabilities + Owners' Equity
$500,00 $500,00 (Capital
Feb. 1 + 0 (Cash) $0 + 0 Stock)
$300,00
$0
Feb. 10 + 0 (Office Building) $0
$240,00
$0
- $60,000 (Cash) + 0 (Notes payable)
(Computer
Feb. 16 + $12,000 Systems) $0 $0
- $12,000 (Cash) $0 $0
(Office
Feb. 18 + $9,000 Furnishings) $0 $0
- $1,000 (Cash) + $8,000 (Accounts Payable) $0
Feb. 22 + $300 (Office Supplies) $0 $0
- $300 (Cash) $0 $0
(Account
Feb. 23 + $36 Receivable) $0 $0
(Computer
- $36 Systems) $0 $0
Feb. 27 - $4,000 (Cash) - $4,000 (Accounts payable) $0
Feb. 28 + $36 (Cash) $0 $0
(Account
- $36 Receivable) $0 $0
Total $744,00
Assets = 0 Total liabilities $744,00
= 0
Plus Owners' Equity
3.2A Environmental Services, Inc, performs various tests on wells and septic systems.
A few of the company's business transactions occurring during August are
described below:
1. On August 1, the company billed customers $2,500 on account for services

rendered. Customers are required to make full payment within 30 days.
(Environmental services uses an account entitled Testing Service Revenue
when billing customers.)
2. On August 3, the company purchased testing supplies costing $3,800, paying

$800 cash and charging the remainder on the company's 30-day account at
Penn Chemicals. The testing supplies are expected to last several months.
3. On August 5, the company returned to Penn Chemical $100 of testing

supplies that were not needed. The return of these supplies reduced by $100
the amount owed to Penn Chemicals.
4. On August 17, the company issued an additional 2,500 shares of capital stock
at $8 per share the cash raised will be used to purchase new testing
equipment in September.
5. On August 22, the company received $600 cash from customer 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 stockholders.
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 $2,500.
(b) revenue has been earned. Revenue increases owners' equity.
Increases in owners' equity are recorded by credits. Credit
Testing Service Revenue $2,500.
2. (a) The Expense Testing Supplies was increased. expenses decreases

owner's equity. decreases in owners' equity are recorded by debits.
Debit expense Testing Supplies $3,800.
(b) The asset Cash was decreased. Decreases in assets are recorded
by credits. Credit Cash $800.
(c) The liability Accounts Payable was increased. Increases in liabilities

are recorded by Credits. Credit Accounts Payable $3,000.
3. (a) The liability Account Payable was decreased. Decreases in

liabilities are recorded by debits. Debit Account Payable $100.
(b) The asset Testing Supplies was decreased. Decreases in assets

are recorded by credits. Credit Testing Supplies $100.
4. (a) The asset Cash was increased. Increases in assets are recorded
by debits. Debit Cash $20,000.
(b) Owners' Equity was increased. Increases in Owners' Equity are

recorded by credit. Credit Owner's Equity $20,000.
5. (a) The asset Cash was increased. increases in assets are recorded
by debits. Debit Cash $600.
(b) The asset Accounts Receivable was decreased. Decreases in

assets are recorded by credit. Credit Accounts Receivable
$600.
6. (a) The liability Accounts Payable was decreased. Decreases in

liabilities are recorded by debits. Debit Accounts Payable $2900.
(b) The asset cash was decreased. Decreases in assets are recorded
by credits. Credit Cash $2,900.
7. (a) Dividends had been declared. Dividends decreases owner's equity.

decreases in owner's equity are recorded by debits. Debit
Dividends $6,800.
(b) The asset cash was decreased. Decreases in assets are recorded
by credits. Credit Cash $6,800.
b. Prepare journal entries, including explanations, for the above transactions.
ENVIRONMENTAL SERVICES, INC.

GENERAL JOURNAL
AUGUST 1- 30, 2015
2015
Aug. 1 Accounts Receivable ……………………………............. 2,500
Testing Service Revenue ….……………......... 2,500
Billed customers $2,500 on account for services rendered.
3 Testing Supplies……………………………….................. 3,800

Cash ……………………………………............. 800
Accounts Payable ………………………........... 3,000
Purchased testing supplies costing $3,800, paying $800 cash
and charging the reminder on the company's 30-day account
at Penn Chemicals.
5 Accounts Payable……………………………................... 100

Expense Testing Supplies ……………............. 100
Returned to Penn Chemicals $100 of testing supplies that
were not needed.
17 Cash ……………………………………............................ 20,000
Capital Stock …………………………............... 20,000
To record the issued an additional 2,500 shares of capital
stock at $8 per share.
22 Cash ……………………………………............................ 600
Accounts Receivable …………………………... 600
Received $600 cash from customers billed on August 1.
29 Accounts Payable ………………………………............... 2,900

Cash ………………………………….……......... 2,900
Paid outstanding account payable to Penn Chemicals.
30 Dividends ……………………………............................... 6,800

Cash ………………………………….……......... 6,800
Declared and Paid A cash dividends totaling $6,800 to the
c. How does the realization principle influence the manner in which the August 1
billing to customers is recorded in the accounting records?
 The realization principle indicates that revenue should be recognizes at

the time goods are sold or services are rendered. The company billed
customers in August 1 because they already have earned the revenue
since the service was already rendered. The only step that remains is to
collect from the customers.
d. How does the matching principle influence the manner in which the August 3
purchase of testing supplies is recorded in the accounting records?
 Testing supplies is and expense incurred for the purpose of producing

revenue. In order to measure net income of a period, revenue should be
offset by all the expenses incurred.
3.3A Weida Surveying, Inc., provides land surveying services. During September, its
transactions included the following:
Sept. 1 Paid rent for the month of September, $4,400.
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 clients.)
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 of the
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 4400 cash, with the balance due
in 30 days.
Sept. 29 Sent a check to the Daily Item in full payment of the liability incurred
on September 14.
Sept. 30 Declare and paid a $7,600 cash dividend to the company's

stockholders.
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
September. Organize your answer in tabular form, using the column headings
shown. Use I for increase, D for decrease, and NE for no effect. the
September 1 transaction is provided for you:

Transacti Reven Expens Net Asset Liabiliti Owners'
on ue - es = Income s = es + Equity
Sept. 1 NE I D D NE D
Sept. 3 I NE I I NE I
Sept. 14 NE I D NE I D
Sept. 25 NE NE NE NE NE NE
Sept. 29 NE NE NE D D NE
Sept. 30 NE NE NE D NE D
b. Prepare a journal entry (including explanation) for each of the above
transactions.
WEIDA SURVEYING, INC.

GENERAL JOURNAL
SEPTEMBER 1- 30, 2015
2015
Sept. 1 Rent Expense ……….……………………….. 4,400
Cash ………………………………... 4,400
Paid rent for the month of September.
3 Accounts Receivable .……………………….. 5,620
Surveying revenue ………………... 5,620
Billed Fine Line homes $5,620 for surveying
services. The entire amount is due on or before
September 28.
9 Cash …………………………………………... 2,830

Received $2,830 cash for rendered surveying
services to Sunset Ridge Developments.
14 Advertisement Expense …………………….. 165
Accounts Payable …………………. 165
Placed a newspaper advertisement in the Daily
Item to be published in the September 20 issue
for $165; payment due in 30 days.
25 Cash ………………………………………....... 5,620
Accounts Receivable ……………… 5,620
Received a check for $5,620 from Fine Line
Homes for the amount billed on September 3.
26 Cash …………………………………………... 400
Accounts Receivable .……………………….. 1,490
Provided surveying services to Thompson
Excavating Company for $1,890. Collected $400
cash, with the balance due in 30 days.
29 Accounts Payable ……………………………. 165
Cash ………………………….…….. 165
Sent a check to the Daily Item in full payment of
the liability incurred on September 14.
30 Dividends ………….………………………...... 7,600

Cash ………………………….…….. 7,600
Declared and Paid a $7,600 cash dividend to the
c. Three of September's transactions involve cash payments, yet only one of

these transactions is recorded as an expense. Describe three situations in
which a cash payment would not involve recognition of an expense.
 Payments of dividends because dividends are not expenses.

 Payments liabilities are not expenses.
 Purchased or fix and asset.
Expenses are the costs of the goods and services used up in the process
of earning revenue.
3.4A In June 2015, 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 a 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 15 Billed customers $8,320 for aerial photographs taken 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 of the amounts billed to customers on June 15.
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 accounts titles used by Aerial Views are:
Cash Retained Earnings
Accounts Receivable Dividends
Aircraft Aerial Photography Revenue
Notes 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 for the month of June.
Organize your answer in tabular form, using the column headings shown. Use
I for increase, D for decrease, and NE for no effect. The June 1 Transaction is
provided for you:

Transacti Reven Expens Net Asset Liabiliti Owners'
on ue - es = Income s = es + Equity
June. 1 NE NE NE I NE I
June. 2 NE NE NE I I NE
June. 4 NE I D D NE D
June. 15 I NE I I NE I
June. 25 NE NE NE NE NE NE
June. 30 I NE I I NE I
June. 30 NE I D NE I D
June. 30 NE NE NE NE I D
b. Prepare journal entries (including explanations) for each transaction.
AERIAL VIEWS
GENERAL JOURNAL
JUNE 1- 30, 2015
2015
June. 1 Cash ………………………………………….. 60,000
Capital Stock ………………………. 60,000
The corporation issued 60,000 shares of capital
stock to Wendy Winger in exchange for $60,000
cash.
2 Aircraft ………………..……………………….. 220,000
Cash ………………………….……... 40,000
Notes Payable ……………………… 180,000
Purchased a plan from utility Aircraft for
$220,000. Cash down payment for $40,000 and
issued Note payable for $180,000.
4 Rent Expense ………………………………… 2,500

Cash …………………………….….. 2,500
Paid Woodrow Airport $2,500 to rent office and
hangar space for the month.
15 Accounts Receivable .………………………. 8,320
Aerial Photography Revenue…… 8,320
Billed customer $8,320 for aerial photographs
taken during the first half of June.
15 Salaries Expense ...………………………….. 5,880

Cash ……………………………….. 5,880
Paid $5,880 in salaries earned by employees
during the first half of June.
18 Maintenance Expense ..……………………… 1,890
Cash …………………………….….. 1,890
Paid Hannigan's Hangar $1,890 for maintenance
and repair services on the company plane.
25 Cash ………………………………………….... 4,910

Accounts Receivable .…………..…. 4,910
Collected $4,910 of the amounts billed to
customers on June 15.
30 Accounts Receivable .………………………. 16,450

Aerial Photography Revenue …… 16,450
Billed customer $16,450 for aerial photographs
taken during the second half of the month.
30 Salaries Expense ...………………………….. 6,000

Cash …………………………….….. 6,000
Paid $6,000 in salaries earned by employees
during the second half of the month.
30 Fuel Expense ...………………………………. 2,510

Accounts Payable ……………….... 2,510
Bill of $2,510 from peatree Petroleum for aircraft
fuel purchased in Jun. the entire amount is due
July 10.
30 Dividends ………….…………………………. 2,000
Dividends Payable ………….……. 2,000
Declared a $2,000 dividend payable on July 15.
c. Post each transaction to the appropriate ledger accounts (use a running

balance format as illustrated in Exhibit 3-4 on page 97).
d.
CASH
Date Debit Credit Balance
2015
June 1 60,000 60,000
2 40,000 20,000
4 2,500 17,500
15 5,880 11,620
18 1,890 9,730
25 4,910 14,640
30 6,000 8,640
ACCOUNTS RECEIVABLE
2015
June 15 8,320 8,320

25 4,910 3,410
30 16,450 19,860
AIRCRAFT
2015
June 2 220,000 220,000
ACCOUNTS PAYABLE
2015
June 30 2,510 2,510
NOTES PAYABLE
2015
June 2 180,000 180,000
DIVIDENDS PAYABLE
2015
June 30 2,000 2,000
CAPITAL STOCK
2015
June 1 60,000 60,000

RETAINED EARNINGS
2015
June 30 $0
DIVIDENDS
2015
June 30 2,000 2,000
AERIAL PHOTOGRAPHY REVENUE
2015
June 15 8,320 8,320
30 16,450 24,770
MAINTENANCE EXPENSE
2015
June 18 1,890 1,890
FUEL EXPENSE
2015
June 2,510 2,510

SALARIES EXPENSE
2015
June 15 5,880 5,880
30 6,000 11,880
RENT EXPENSE
2015
June 4 2,500 2,500
e. Prepare a trial balance dated June 30, 2015.
AERIAL VIEWS
TRIAL BALANCE
JUNE 30, 2015
Cash ………………………………................ $8,640
Accounts Receivable ……………................ 19,860
Aircraft ………..………………….................. 220,000
Notes Payable ……………………............... $180,000
Accounts Payable ………………................. 2,510
Dividends Payable ….……………............... 2,000
Capital Stock ……………………................. 60,000
Retained earnings ………………................. 0
Dividens ………………………….................. 2,000
Aerial Photography Revenue ……………… 24,770
Maintenance Expense …………................. 1,890
Fuel Expense ……………………................. 2,510
Salaries Expense ……………….................. 11,880
Rent Expense ………………....................... 2,500
$269,280 $269,280
f. Using figures from the trial balance prepared in part d, compute total assets,
total liabilities, and owner's equity. Are these the figures that the company will
report in its June 30 Balance sheet? Explain your answer briefly.
Total Assets : $248,500
Total Liabilities + Owners' equity: $244,510
No because the accounting equation is not balance.
CHAPTER FOUR
Assignments: EX. 2, 7, PROB. 1A, 2A, 4A.
EXERCISES
4.2 Security Service Company adjusts its accounts at the end of the month. On
November 30, adjusting entries are prepared to record:
a. Depreciation expense for November

b. Interest expense that has accrued during November
c. Revenue earned during November that has not yet been billed to customer.
d. Salaries, payable to company employees, that have accrued since the last
payday in November.
e. The portion of the company's prepaid insurance that has expire during
November.
f. Earning a portion of the amount collected in advance from a customer, Harbor
Re8staurant.
Indicate the effect of each of these adjusting entries on the major
elements of the company's income statement and balance sheet- that is, on
revenue, expenses, net income, assets, liabilities, and owners' equity. Organize
your answer in tabular form, using the column headings shown and the symbols I
for increase, D for decrease, and NE for no effect. The answer for adjusting entry
a is provided as an example.
Adjusting Revenu Expens Net Asset Liabiliti Owners'
Entry e - es = Income s = es + Equity
a. NE I D D NE D
b. NE I D NE I D
c. I NE I I NE I
d. NE I D NE I D
e. NE I D D NE D
f I NE I NE D I
4.7 Sweeney & Allen, a large marketing firm, adjusts its accounts at the end of each
month. The following information is available for the year ending December
31,2015.
1. A bank loan had been obtained on December 1. Accrued interest on the loan
at December 31 amounts to $1,500. No interest expense has yet been
recorded.
2. Depreciation of the firm's office building is based on an estimated life of 30

years. The building was purchased in 2011 for $450,000.
3. Accrued, but unbilled, revenue during December amounts to $75,000.
4. On March 1, the firm paid $2,400 to renew a 12-month insurance policy. The
entire amount was recorded as Prepaid Insurance.
5. The firm received $15,000 from King Biscuit Company in advance of

developing a sic-month marketing campaign. The entire amount was initially
recorded as unearned Revenue. At December 31, $9,000 had actually been
earned by the firm.
6. The company's policy is to pay its employees every Friday. Since December
31 fell on a Wednesday, there was an accrued liability for salaries amounting
to $1,900.
a. Record the necessary adjusting journal entries on December 31, 2015.
SWEENEY & ALLEN

ADJUSTING JOURNAL
DECEMBER 31, 2015
2015
Dec. 31 Interest Expense …………………………….. 1,500
Interest payable ……………………. 1,500
Adjusting entry to accrue December 31 Interest
Expense
31 Depreciation Expense: Building ……………. 1,250

Accumulated Depreciation: Building. 1,250
December building depreciation adjusting entry
($45,000 / 360 months.
31 Accounts Receivables ………………………. 75,000

Rendered Revenue ………………… 75,000
Adjusting entry to record accrued Revenue
earned in December.
31 Insurance Expense ........................................ 200

Prepaid Insurance ........................... 200
December Insurance Expense adjusting entry.
31 Unearned Revenue …………………………… 9,000
Revenue Earned …………………. 9,000
December adjusting entry to convert Unearned
Revenue to Revenue Earned.
31 Salaries Expense ..………………………….. 1,900
Salaries Payable …………………… 1,900
Adjusting entry to accrue salaries owed but
unpaid as of December 31.
b. By how much did Sweeney & Allen's net income increase of decrease as a
result of the adjusting entries performed in part a? (Ignore income taxes.)
Rendered Revenue 75,000
Revenue Earned 9,000
TOTAL REVENUES 84,000
Interest Expense 1,500
Depreciation Expense: Building 1,250
Insurance Expense 200
Salaries Expense 1,900
TOTAL EXPENSES 4,850
NET
REVENUE - EXPENSES = INCOME
84,000 4,850 79,150
PROBLEMS
4.1A Florida Orange Country Club adjusts its accounts monthly and closes its
accounts annually. Club members pay their annual dues in advance by January
4. The entire amount is initially credited to Unearned Membership Dues. At the
end of each month, an appropriate portion of this amount is credited to
Membership Dues Earned. Guests of the Club normally pay green fees before
being allowed on the course. The amounts collected are credited to Green Fee
Revenue at the time of receipt. Certain guests, however, are billed for green
fees at the end of the month. The following information is available as a source
for preparing adjusting entries at December 31:
1. Salaries earned by golf course employees that have not yet been recorded or
paid amount to $14,200.
2. The Orlando University golf team used Florida Orange for a tournament played
on December 30 of the current year. At December 31, the $2,000 owed by the
team for green fees had not yet been recorded or billed.
3. Membership dues earned in December, for collections received in January,
amount to $120, 000.
4. Depreciation of the country club’s golf carts is based on an estimated life of 10
years. The carts had originally been purchased for $160,000. The straight-line
method is used.
(Note: The clubhouse building was constructed in 1866 and is fully depreciated.)
5. A 12-month bank loan in the amount of $50,000 had been obtained by the
country club on October 4. Interest is computed at an annual rate of 12%. The
entire $50,000, plus all of the interest accrued over the 12-month life of the loan,
is due in full on September 30 of the upcoming year. The necessary adjusting
entry was made on November 30 to record the first two months of accrued
interest expense. However, no adjustment has been made to record interest
expense accrued in December.
6. A one-year property insurance policy had been purchased on March 31. The
entire premium of $9,600 was initially recorded as Unexpired Insurance.
7. In December, Florida Orange Country Club entered into an agreement to host the
annual tournament of the Florida Juniors Golf Association. The country club
expects to generate green fees of $6,000 from this event.
8. Unrecorded Income Taxes Expense accrued in December amounts to $14,000.
This amount will not be paid until January 15.
Instructions
a. For each of the above numbered paragraphs, prepare the necessary adjusting
entry (including an explanation). If no adjusting entry is required, explain why.
1.
2015
Dec.
31 Salaries Expense …………………………….. 9,600
Salaries payable …………………. 9,600
Adjusting entry to accrue Salaries owed but
2.
2015
Dec.
31 Accounts Receivables ………………………. 1,800
Green fees Revenue ……………… 1,800
Adjusting entry to record accrued Green fees
Revenue earned in December 30.
3.
2015
Dec.
31 Unearned Memberships Revenue……………. 106,000
Memberships Revenue Earned …… 106,000
December Adjusting entry to convert unearned
memberships to Memberships Revenue earned.
4. No adjusting entry is required because the building is fully depreciated.
5.
2015
Dec.
31 Interest Expense ….……..………………. 300
Interest Payable ……………..….. 300
Adjusting entry to accrue December interest
Expense ($45,000 x .08 x1/12)
6.
2015
Dec.
31 Unexpired Insurance Expense ..……………. 650
Unexpired Insurance ……………… 650
December Unexpired Insurance Expense
adjusting entry
7. No adjusting entry is required because the company have not yet earned
a revenue or received cash since the business only is expecting
something that is going to happen in the future.
8.
2015
Dec.
31 Income Tax Expense ……………................. 19,000
Income Tax Payable …………....... 19,000
Adjusting entry to record income taxes accrued
in December.
b. Four types of adjusting entries are described in Chapter 4 of the text. Using
these descriptions, identify the type of each adjusting entry prepared in part a
above.
1. Accruing Unpaid Expenses.

2. Accruing Uncollected Revenue.
3. Converting Liabilities to Revenue.
4. No adjusting entry required.
5. Accruing Unpaid Expenses.
6. Converting Assets to Expenses (Prepaid Expenses).
7. No Adjusting entry required.
8. Accruing Income Taxes Expense.
c. Although Florida Orange’s clubhouse building is fully depreciated, it is in
excellent physical condition. Explain how this can be.
 Because depreciations expense is only an estimate and is often difficult to

estimate in advance how long depreciable assets may remain in use.
4.2A Enchanted Forest, a large campground in South Carolina, adjusts its

accounts monthly . Most guests of the campground pay at the time they
check out, and the amounts collected are credited to Camper Revenue.
The following information is available as a source for preparing the
adjusting entries at December 31:
1. Enchanted Forest invests some of its excess cash in certificates of

deposit (CDs) with its local bank. Accrued interest revenue on its CDs
at December 31 is $400. None of the interest has yet been received.
(Debit Interest Receivable.)
2. A six-month bank loan in the amount of $12,000 had been obtained on
September 1. Interest is to be computed at an annual rate of 8.5
percent and is payable when the loan becomes due.
3. Depreciation on buildings owned by the campground is based on a 25-
year life. The original cost of the buildings was $600,000. The
Accumulated Depreciation: Buildings account has a credit balance of
$310,000 at December 31, prior to the adjusting entry process. The
straight-line method of depreciation is used.
4. Management signed an agreement to let Boy Scout Troop 538 of
Lewisburg, Pennsylvania, use the campground in June of next year.
The agreement specifies that Boy Scouts will pay a daily rate of $15
per campsite, with a clause providing a minimum total charge of
$1,475.
5. Salaries earned by campground employees that have not yet been
paid amount to $1,250.
6. As of December 31, Enchanted Forest has earned $2,400 of revenue
from current campers who will not be billed until they check out. (Debit
Camper Revenue Receivable.)
7. Several lakefront campsites are currently being leased on a long-term
basis by a group of senior citizens. Six months’ rent of $5,400 was
collected in advance and credited to Unearned Camper Revenue on
October 1 of the current year.
8. A bus to carry campers to and from town and the airport had been
rented the first week of December at a daily rate of $40. At December
31, no rental payment has been made, although the campground has
had a use of the bus for 25 days.
9. Unrecorded Income Taxes and Expense accrued in December
amounts to $8,400. This amount will not be paid until January 15.
Instructions
a. For each of the above numbered paragraphs, prepare the necessary
adjusting entry (including an explanation). If no adjusting entry is
required, explain why.
1.
2015
Dec.
31 Interest Receivable………………………….. 400
Interest Revenue …………………. 400
Adjusting entry to record accrued interest
revenue in December.
2.
2015
Dec.
31 Interest Expense ….……..………………. 85
Interest Payable ……………..….. 85
Adjusting entry to accrue December interest
Expense ($12,000 x .085 x1/12)
3.
2015
Dec.
31 Depreciation Expense: Building ……………… 2,000
Accumulated Depreciation: Building 2,000
December building depreciation adjusting entry
($600,000 / 300 months..
4. No adjusting entry is required because is only an agreement for a

future.
5.
2015
Dec.
31 Salaries Expense ..………………………… 1,250
Salaries Payable ………………… 1,250
6.
2015
Dec.
31 Camper Revenue Receivables …………… 2,400
Camper Revenue ……………… 2,400
Adjusting entry to record accrued Camper
Revenue earned in December 31.
7.
2015
Dec.
31 Unearned Camper Revenue………………… 900
Camper Revenue Earned …………. 900
December adjusting entry to convert Unearned
Revenue to Revenue Earned.
8.
2015
Dec.
31 Bus Rent Expense …...…………………….. 1,240
Bus Rental Payable ……………… 1,240
Adjusting entry to accrue Bus rental owed but
9.
2015
Dec.
in December.
b. Four types of adjusting entries are described in Chapter 4 of the text.

Using these descriptions, identify the type of each adjusting entry
prepared in part a above.
1. Accruing uncollected Revenue.
2. Accruing Unpaid Expense.
3. Converting Assets to Expenses.
4. No adjusting entry required is only an agreement.
5. Accruing Unpaid expense.
6. Accruing Uncollected Revenue.
7. Converting Liabilities to Revenues
8. Accruing unpaid expense.
9. Accruing income taxes expense.
c. Indicate the effects that each of the adjustments in part a will have
on the following six total amounts in the campground’s financial
statements for the month of December. Organize your answer in
tabular form, using the column headings shown below. Use the
letters I for increase, D for decrease, and NE for no effect. Adjusting
entry 1 is provided as an example.

Adjusting Revenu Net Liabilitie Owners'
Entry e - Expenses = Income
Assets = s + Equity
1 I NE I I NE I
2 NE I D I I NE
3 NE I D D NE D
4 NE NE NE NE NE NE
5 NE I D NE I D
6 I NE I NE NE NE
7 NE NE NE I I NE
8 NE I D NE I D
9 NE I D NE I D
d. what is the amount of interest expense recognized for the entire current year
on the $12,000 bank loan obtained September 1?
 12,000 x .085 x 1/12 = 85 month

85 month x 6 months = $ 12,510
e. Compute the book value of the campground's buildings to be reported in the
current year's December 31 balance sheet. (Refer to paragraph 3.)
 Building 600,000
Less: accumulated Depreciation Building 310,000
less: December depreciation 2,000
Book value 292,000
4.4A Campus Theater adjusts its accounts every month. Below is the
company’s unadjusted trial balance dated august 31, 2015. Additional
information is provided for use in preparing the company’s adjusting entries for
the month of August. (Bear in mind that adjusting entries have already been
made for the first seven months of 2015, but not for August.)
CAMPUS THEATER
UNADJUSTED TRIAL BALANCE
AUGUST 31, 2015
Cash ………………………………………….... $20,000
Prepaid film rental ……………………………. 31,200
Land ………..………………………………….. 120,000
Building …..……………………………………. 168,000
Accumulated depreciation: Building ………... $14,000
Fixtures and equipment ……………………… 36,000
Accumulated depreciation: Fixtures and equipment ...... 12,000
Notes Payable ………………………………… 180,000
Accounts Payable …………………………….. 4,400
Unearned admissions revenue (YMCA) ….... 1,000
Income taxes Payable ….……………………. 4,740
Capital Stock ………………........................... 40,000
Retained earnings ………………………........ 46,610
Dividends …………………………………....... 15,000
Admissions Revenue ………………………… 305,200
Concessions Revenue ……………………….. 14,350
Salaries Expense …………………………….. 68,500
Film rental Expense ………………………….. 94,500
Utilities Expense ……………………………… 9,500
depreciation expense: Building …………….. 4,900
depreciation expense: Fixtures and equipment........... 4,200
Interest Expense ……………………………… 10,500
Income taxes Expense ……………………… 40,000
$622,300 $622,300
Other Data
1. Film rental expense for the month is $15,200. However, the film rental
expense for several months has been paid in advance.
2. The building is being depreciated over a period of 20 years (240 months).
3. The fixtures and equipment are being depreciated over a period of 5 years
(60 months).
4. On the first of each month, the theater pays the interest which accrued in the
prior month on its note payable. At August 31, accrued interest payable on
this note amounts to $1,500.
5. The theater allows local YMCA to bring Children attending summer camp to
the movies on any weekday afternoon for a fixed price of $500 per month.
On June 28, the YMC made a $1,500 advance payment covering the months
of July, August, and September.
6. The theater receives a percentage of the revenue earned by Tastie
Corporation, the concessionaire operating the snack bar. For snack bar sales
in August, Tastie owes Campus Theater $2,250, payable on September 10.
No entry has yet been made to record this revenue. (Credit Concessions
Revenue.)
7. Salaries earned by employees, but not recorded or paid as of August 31,
amount to $1,700. No entry has yet been made to record this liability and
expense.
8. Income taxes expense for August is estimated at $4,200. This amount will be
paid in the September 15 installment payment.
9. Utilities expense is recorded as monthly bills are received. No adjusting
entries for utilities expense are made at month-end.
Instructions
a. For each of the numbered paragraphs, prepare the necessary adjusting

entry (including an explanation).
1.
2015
Aug. 15,20
31 Film rental Expense………………………….. 0
15,20
Film rental Payable ………………. 0
Adjusting entry to accrue Film rental of August.
2.
2015
Aug.
31 Depreciation Expense: Building ……………. 700
Accumulated Depreciation: Building ........ 700
August building depreciation adjusting entry
($168,000 / 240 months).
3.
2015
Aug.
31 Depreciation Expense: Fixtures and equipment ………… 600
Accumulated Depreciation: Fixtures and
equipment ........................................................................ 600
August Fixtures and equipment depreciation
adjusting entry ($36,000 / 60 months).
4.
2015
Aug.
31 Interest Expense …...……………………….. 1,500
Interest Payable ………….……… 1,500
Adjusting entry to accrued Interest payable of
August.
.
5.
2015
Aug.
31 Salaries Expense ..………………………… 1,250
Salaries Payable ………………… 1,250
6.
2015
Aug.
31 Accounts Receivables …………… 2,250
Concessions Revenue …………… 2,250
Adjusting entry to record accrued Concessions
Revenue earned
7.
2015
Aug.
31 Salaries Expense………………… 1,700
Salaries Payable…………. 1,700
Adjusting entry to accrued salaries owed but
unpaid as of August 31.
8.
2015
Aug.
in August.
9. No adjusting required because the utilities bill haven't received yet
b. Refer to the balances shown in the unadjusted trial balance at August 31.
How many months of expense are included in each of the following
balances? (Remember, Campus Theater adjusts its accounts monthly.
Thus, the accounts shown were last adjusted on July 31, 2015.)
1. Utilities Expense
 haven't included yet because the company have not receive the bill
yet.
2. Depreciation Expense
 One month.
3. Accumulated Depreciation: Building

 One month.
c. Assume the theater has been operating profitability all year. Although the
August 31 trial balance shows substantial income taxes expense, income
taxes payable is a much smaller amount. This relationship is quite normal
throughout much of the year. Explain.
 Because income taxes payable it the liability of the company
that has been paid during the year and the income taxes expense
is the accumulated amount of taxes during the year.


HM Chps 1 To 4

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

HM Chps 1 To 4

Uploaded by

Copyright:

Available Formats

KATERIN HENAO

Assignments: BRF EX. 4, 6, 8 EX. 3, 4, 12 15.

-The Securities and Exchange Commission (SEC)

-The Financial Accounting Standards Board (FASB)

- Registration of accounting firms (including non-US firms) that audit public

- Inspections of registered public accounting firms.

- Establishment of auditing and related attestation, quality control, ethics,

- Investigation and discipline of registered public accounting firms and

- Certified public accountants (CPAs) ; American Institute of CPAs

- Certified Management Accountant (CMA) ; Institute of Management

1.3 A major focus of this course is the process of financial reporting.

a. What is meant by the term financial reporting?

- provide specific information about economic resources that is useful in

 Statement of financial position (Balance Sheet) - Shows where the

c. Do all business entities engage in financial reporting? Explain.

d. How does society benefit from the financial reporting process?

- through this information potential investors may provide their resources

a. What is meant by the phrase generally accepted accounting principles?

- Standards that are understood by the preparers and users of the

b. What are the major sources of these principles?

 The international Accounting Standards Board (IASB)

c. Is there a single comprehensive list of generally accepted accounting

d. What types of accounting reports are prepared in conformity with generally

- The reports, called financial statements. The assurance of this reports is

a. What is the purpose of an audit?

- Determine that the financial statements are reliable and complete,

c. Would your interest in investing in this same company be affected by an

- No, because it could represent a risk for my investment resources since

 Public Accounting: Acosta is going to serve many clients, auditing financial

Assignments: BRF EX. 2, 4, 7 EX. 1, 4, 5, 6, 7 PROB: 2A, 3A, 4A, 9A

Assets = Liabilities + Owner's Equity

$35,000 = $30,000 + 5,000

 White Company have $130,000 in outstanding liabilities.

 Earned revenues of $100,000 and incurred expenses of $56,000, all in

What was the total change in cash during the year?

Cash flows from operating activities:

- Assets are economic resources owned by a business and are expected

Assets for American Airlines might be

 Property Plant and Equipment

Assets for Boston Red Sox might be

- Liabilities are what the company owe (financial obligations or debts), so

Liabilities for American Airlines might be

Liabilities for Boston Red Sox might be

- The amount in World-Wide Travel Agency balance sheet is incorrect. The

b. Perez Corporation purchased land in 1957 for $40,000. In 2015, it purchased

-The amount in the Perez Corporation balance sheet is correct, since it

2.5 Compute the missing amounts in the following table:

Assets = Liabilities + Owners' Equity

a. $635,000 $342,000 ? (293,000)

b. ? (1,172,500) 562,500 $610,000

c. 307,500 ? (120,300) 187,200

2.6 A number of business transactions carried out by Smalling Manufacturing

a. Borrowed money from a bank.

b. Sold land for cash at a price equal to its cost.

d. Returned for credit some of the office equipment previously purchased on

f. Purchased a computer on credit.

g. The owner invested cash in the business.

h. purchased office equipment for cash.

i. Collected an account receivable.

Transaction Assets = Liabilities + Owners' Equity

a. Increase an asset and increase a liability.

- Purchase of an Asset on Account (credit).

- Payment in cash of a Liability like Notes Payable or Accounts