Financial Accounting Tutorial 2:
1.
Meg Garland, M. D., opened a medical practice in Lausanne. The business completed
the following transactions:
May 1 Garland invested 30,000 CHF cash to start her medical practice. The business
issued stock to Garland.
May 1 Purchased medical supplies on account totaling 9,000 CHF.
May 2 Paid monthly office rent of 4,000 CHF
May 3 Recorded 8,000 CHF revenue for service rendered to patients, received cash of
2,000 CHF, and sent bills to partients for the remainder.
a. After these transactions, how much cash and how much in accounts receivable does
the business have to work with? Use T-accounts to show your answer.
b. Which of the transactions increased the total assets of the business? Which of the
transactions increased total liabilities? Which transaction decreased total assets? For
each transaction, identify the asset or liability that was increased or decreased.
Solution:
a.
Cash
Bal.
30,000
2,000
28,000
b.
Increased total assets:
2.
4,000
Accounts Receivable
6,000
Bal.
6,000
May 1 (Cash)
May 1 (Medical supplies)
May 3 (Cash, Accounts receivable)
Increased total liabilities:
May 1 (Accounts payable)
Decreased total assets:
May 2 (Cash)
After operating for several month, attorney Bruce Raney completed the following
transactions during the latter part of April:
April 15 Borrowed 50,000 CHF from the bank, signing a note payable.
April 22 Performed service for clients on account totaling 9,000 CHF.
April 28 Received 6,000 CHF cash on account from clients.
April 29 Received a utility bill of 600 CHF, which will be paid during May.
April 30 Paid monthly salary of 3,000 CHF to assistant
April 30 Paid interest expense of 300 CHF on the bank loan
Please, journalize the transactions of Bruce Raney, Attorney. Include an explanation
with each journal entry.
Solution:
Journal
DATE
Apr.
15
22
28
29
30
30
3.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
ACCOUNT TITLES AND EXPLANATION
DEBIT
Cash……………………………………
Note Payable………………………
Borrowed money from the bank.
50,000
Accounts Receivable……………….
Service Revenue………………….
Performed service on account.
9,000
Cash……………………………………
Accounts Receivable…………….
Received cash on account.
6,000
Utilities Expense…………………….
Accounts Payable………………..
Received utility bill.
600
Salary Expense………………………
Cash…………………………………
Paid salary expense.
3,000
Interest Expense…………………….
Cash…………………………………
Paid interest expense.
300
CREDIT
50,000
9,000
6,000
600
3,000
300
The following selected events were experienced by either Diamondback’s Restaurant,
a corporation, or Peter Fleming, the major stockholder. State whether each event
increased, decreased, or had no effect on the total assets of the business. Identify any
specific asset affected (Note, that this is an exercice of lecture 2)!
Borrowed 50,000 from the bank
Made cash purchase of land for a building site, 85,000
Received 20,000 cash and issued stock to a stockholder
Paid 60,000 cash on accounts payable
Purchased equipment and signed a 100,000 promissory note in payment
Purchased merchandise inventory on account for 15,000
The business paid Fleming a cash dividend of 4,000
Received 9,000 cash from customers on account
Fleming used personal funds to purchase a swimming pool for his home
Sold land and received cash of 60,000 (the land was carried on the company’s books
at 60,000)
Solution:
Transaction
Effect? Item?
Cash
Borrowed 50,000 from the bank
Made cash purchase of land for a building offset
site, 85,000
Received 20,000 cash and issued stock to a Cash
stockholder
Cash
Paid 60,000 cash on accounts payable
Purchased equipment and signed a
Equipment
100,000 promissory note in payment
Purchased merchandise inventory on
Inventory
account for 15,000
Cash
The business paid Fleming a cash dividend of 4,000
Received 9,000 cash from customers on Offset
account
Fleming used personal funds to purchase a Personal
swimming pool for his home
transaction
Sold land and received cash of 60,000 (the Offset
land was carried on the company’s books
at 60,000)
4.
Coaxial Electronic Systems, Inc., completed the following transactions during August
20X6, its first month of operations (Note, that this is an exercice of lecture 2):
Aug 1 Received 19,500 and issued common stock
Aug 2 Purchased 800 of office supplies on account
Aug 4 Paid 14,000 cash for land to use as a building site
Aug 6 Performed service for customers and received cash of 2,000
Aug 9 Paid 100 on accounts payable
Aug 17 Performed service for IBM on account totaling 1,200
Aug 23 Collected 900 from IBM on account
Aug 31 Paid the following expenses: salary, 1,000; rent, 500
a. Record the transactions in the journal of Coaxial Electronic Systems key transactions
by date and include an explanation for each entry
b. After these transactions, how much cash does Coaxial have to work with?
c. How much does Coaxial expect to collect from customers on account?
d. How much are total liabilities?
e. Did Coaxial have a profit or a loss and how much?
f. Post the entries to the ledger, using T-accounts. Key transactions by date. Date the
ending balance of each account August 31.
g. Prepare the trial balance of Coaxial Electronic Systems, at August 31, 20X6.
h. How much are total assets, total liabilities, and total stockholders’ equity on August 31
Solution:
Journal
DATE
Aug
ACCOUNT TITLES AND EXPLANATION
1
2
4
6
9
17
23
31
DEBIT
CREDIT
Cash…………………………………………… 19,500
Common Stock…………………………...
Issued common stock to owner.
19,500
Office Supplies………………………………
800
Accounts Payable………………………..
Purchased office supplies on account.
800
Land…………………………………………… 14,000
Cash………………………………………
..
Paid cash for land.
Cash…………………………………………… 2,000
Service Revenue…………………………
Performed services for cash.
Accounts Payable…………………………...
100
Cash………………………………………
..
Paid cash on account.
14,000
2,000
100
Accounts Receivable……………………….
1,200
Service Revenue…………………………
Performed service on account.
1,200
Cash……………………………………………
Accounts Receivable……………………
Received cash on account.
900
900
Salary Expense………………………………
1,000
Rent Expense………………………………...
500
Cash………………………………………
Paid cash expenses.
Ending cash = 6,800
(19,500 – 14,000 + 2,000 – 100 + 900 – 1,500)
Expects to collect on account = 300 (1,200 – 900)
Total liabilities = 700 (800 – 100)
Net income (profit) = 1,700 (2,000 + 1,200 – 1,000 – 500)
1,500
Cash
Aug. 1
6
23
Aug. 31
19,500
2,000
900
6,800
Aug. 4
9
31
14,000
100
1,500
Accounts Receivable
Aug. 17
1,200 Aug. 23
Aug. 31
300
Office Supplies
Aug. 2 800
Aug. 31 800
Land
Aug. 4
Aug. 31
Accounts Payable
Aug. 9 100 Aug. 2
Aug. 31
Common Stock
Service Revenue
Aug. 6
17
Aug. 31
14,000
14,000
800
700
2,000
1,200
3,200
Aug. 1
Aug. 31
19,500
19,500
Salary Expense
Aug. 31 1,000
Aug. 31 1,000
Rent Expense
Aug. 31
500
Aug. 31
500
Coaxial Electronic Systems, Inc.
Trial Balance
August 31, 20X6
ACCOUNT
Cash…………………………...
Accounts receivable………..
Office supplies………………
Land…………………………...
Accounts payable…………..
Common stock………………
Service revenue……………..
Salary expense………………
Rent expense………………...
DEBIT
6,800
300
800
14,000
Total…………………………...
23,400
CREDIT
700
19,500
3,200
1,000
500
Total assets (6,800 + 300 + 800 + 14,000)…….. 21,900
Total liabilities………………………………………….
Total stockholders’ equity (21,900 – 700)……… 21,200
23,400
(700)
900