Exercise 01130171
Financial Accounting # 1
28 August 2013
Exercise 1. Bill Phinnes decides to open a cleaning and laundry service near the local
college campus that will operate as a corporation. Analyze the following transactions for the
month of June in terms of their effect on the basic accounting equation. Record each
transaction by increasing (+) or decreasing (–) the dollar amount of each item affected.
Indicate the new balance of each item after a transaction is recorded. It is not necessary to
identify the cause of changes in equity.
Transactions
(1) Issued ordinary shares in exchange for $20,000 cash on June 1.
(2) Purchased laundry equipment for $5,000 paying $3,000 in cash and the remainder
due in 30 days.
(3) Purchased laundry supplies for $1,200 cash.
(4) Received a bill from College News for $300 for advertising in the campus newspaper.
(5) Cash receipts from customers for cleaning and laundry amounted to $1,500.
(6) Paid salaries of $200 to student workers.
(7) Billed the Lion Soccer Team $200 for cleaning and laundry services.
(8) Paid $300 to College News for advertising that was previously billed in Transaction 4.
(9) Paid dividends of $900.
(10) Incurred utility expenses for month on account, $200.
Transaction
Accounts
+ Receivable
Cash
Laundry
+ Supplies
Laundry
+ Equipment
=
Accounts
Payable +
Share
Capital
+
Retained
Earnings
Exercise 2. An analysis of the transactions made by K. T. Lang & Co., a law firm, for the month
of July is shown below. Each increase and decrease in equity is explained.
Assets
Cash +
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
+€15,000
- 2,000
750
+ 2,500
- 1,500
- 2,500
650
+
550
- 3,500
=
Accounts
Office
Receivable + Supplies +
Liab.
+
Equipment =
Accounts
Payable +
+€5,000
+€3,000
Equity
Retained Earnings
Share
Cap + Rev. - Exp. +€15,000
Div.
Iss. Share
Serv. Rev.
+€750
+€4,600
+ €7,100
Serv. Rev.
- 1,500
- €2,500 Div
- €650 Rent Exp.
-
550
+ 500
Instructions
(a) Prepare an income statement for the month ending July 31, 2011.
(b) Prepare a retained earnings statement for the month ending July 31, 2011.
- 3,500 Sal. Exp.
- 500 Util. Exp.
Exercise 3. An analysis of the transactions made by K. T. Lang & Co., a law firm, for the
month of July is shown below.
Assets
Cash +
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Equity
Retained Earnings
Accounts
Office
Accounts Share
Receivable + Supplies + Equipment = Payable + Cap + Rev. - Exp. - Div.
+€15,000
- 2,000
750
+ 2,500 +€4,600
- 1,500
- 2,500
650
+
550 550
- 3,500
=
Liab.
+
+€15,000
+€5,000
+€3,000
+€750
+ €7,100
- 1,500
- €2,500
- €650
+
500
- 3,500
500
Instructions
Prepare a balance sheet at July 31, 2011.
Exercise 4. Journalize the following business transactions in general journal form. Identify
each transaction by number. You may omit explanations of the transactions.
1. The company issues ordinary shares in exchange for ₤35,000 cash.
2. Purchased ₤400 of office supplies on credit.
3. Purchased office equipment for ₤10,000, paying ₤2,000 in cash and signed a 30-day,
₤8,000, note payable.
4. Real estate commissions billed to clients amount to ₤4,000.
5. Paid ₤700 in cash for the current month's rent.
6. Paid ₤200 cash on account for office supplies purchased in transaction 2.
7. Received a bill for ₤600 for advertising for the current month.
8. Paid ₤2,200 cash for office salaries.
9. The company paid dividends of ₤1,200.
10. Received a check for ₤3,000 from a client in payment on account for commissions
billed in transaction 4.
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Exercise 5.
The transactions of Medina Information Service are recorded in the general journal below. You
are to post the journal entries to the accounts in the general ledger. After all entries have been
posted, you are to prepare a trial balance on the form provided.
General Journal
J1
———————————————————————————————————————————
Date
Account Titles and Explanation
Ref.
Debit
Credit
———————————————————————————————————————————
2011
Sept. 1
Cash
25,000
Share Capital-Ordinary
25,000
(Issued ordinary shares for cash)
4
8
15
18
Delivery Trucks
Cash
Notes Payable
(Paid cash and issued 2-year, 9%, note for
delivery trucks)
Rent Expense
Cash
(Paid September rent)
30,000
10,000
20,000
1,000
1,000
Prepaid Insurance
Cash
(Paid one-year liability insurance)
Cash
400
400
2,500
Delivery Revenue
(Received cash for delivery services)
20
25
30
30
2,500
Salaries Expense
Cash
(Paid salaries for current period)
500
Utility Expense
Accounts Payable
(Received a bill for September utilities)
100
500
100
Dividends
Cash
(Paid dividends)
1,800
Accounts Receivable
Delivery Revenue
(Billed customer for delivery service)
2,000
1,800
3
2,000
General Ledger
Cash
Account No. 101
———————————————————————————————————————————
Date
Explanation
Ref.
Debit
Credit
Balance
———————————————————————————————————————————
Accounts Receivable
Account No. 112
———————————————————————————————————————————
Date
Explanation
Ref.
Debit
Credit
Balance
———————————————————————————————————————————
Prepaid Insurance
Account No. 130
———————————————————————————————————————————
Date
Explanation
Ref.
Debit
Credit
Balance
———————————————————————————————————————————
Delivery Trucks
Account No. 155
———————————————————————————————————————————
Date
Explanation
Ref.
Debit
Credit
Balance
———————————————————————————————————————————
Accounts Payable
Account No. 201
———————————————————————————————————————————
Date
Explanation
Ref.
Debit
Credit
Balance
———————————————————————————————————————————
4
Notes Payable
Account No. 205
———————————————————————————————————————————
Date
Explanation
Ref.
Debit
Credit
Balance
———————————————————————————————————————————
Share Capital-Ordinary
Account No. 311
———————————————————————————————————————————
Date
Explanation
Ref.
Debit
Credit
Balance
———————————————————————————————————————————
Dividends
Account No. 332
———————————————————————————————————————————
Date
Explanation
Ref.
Debit
Credit
Balance
———————————————————————————————————————————
Delivery Revenue
Account No. 400
———————————————————————————————————————————
Date
Explanation
Ref.
Debit
Credit
Balance
———————————————————————————————————————————
Rent Expense
Account No. 719
———————————————————————————————————————————
Date
Explanation
Ref.
Debit
Credit
Balance
———————————————————————————————————————————
5
Salaries Expense
Account No. 726
———————————————————————————————————————————
Date
Explanation
Ref.
Debit
Credit
Balance
———————————————————————————————————————————
Utility Expense
Account No. 735
———————————————————————————————————————————
Date
Explanation
Ref.
Debit
Credit
Balance
———————————————————————————————————————————
MEDINA INFORMATION SERVICE
Trial Balance
September 30, 2011
———————————————————————————————————————————
Accounts
Debit
Credit
———————————————————————————————————————————
———————————————————————————————————————————
6