Generally Accepted Accounting Principles and Owners Equity Essays

Generally Accepted Accounting Principles and Owners Equity Essays Generally Accepted Accounting Principles and Owners Equity Essay Generally Accepted Accounting Principles and Owners Equity Essay Chapter 7 Accounting Information Systems Questions 1. What is the right side of an account called? 2. What is the left side of an account called? 3. An organizational scheme used to classify accounts as assets, liabilities, or owners’ equity is known as what? 4. What journal is used to record both the account(s) to be debited and the account(s) to be credited? 5. A collection of specific asset, liability and owners’ equity accounts in known as what? 6. What type of entry is made to adjust the accounts for internal events prior to preparing financial statements? . What type of entry is made to close out a temporary account and transfer the balance to retained earnings? 8. What type of account has an opposite balance to the normal balance of its associated account? 9. Recording the appropriate part of a journal entry to the affected account is known as what process? 10. A listing of all general ledger accounts and their respective balances to ensure that debits equal cred its is known as what? Exercises E7. 1The following events occurred during the first month of business at a local marketing company. Indicate which of the events are accounting events and provide a short justification for your answer. A. The owner invested money from his savings account for start-up costs. B. Employees hired agree to sign a non-compete agreement. C. The owner pays the first and last month’s rent on office space. D. Computer equipment is purchased on account for each employee. E. Three employees attend the Chamber of Commerce meeting to generate sales contacts. F. A client pays for advertising services performed by the company. G. The office supply store across the street is planning a major advertising promotion next month. : E7. 2 Specify in the space provided the effect of each of the following accounting events on assets, liabilities, and owners’ equity. Use I for Increase, D for Decrease, and NA for Not Applicable. Owners AssetsLiabilities Equity ________________________A. Issued preferred stock for cash. ________________________B. Purchased office computers on account. ________________________C. Purchased computer supplies for cash. ________________________D. Returned defective supplies and received a cash refund. ________________________E. Made a payment on computers purchased above. ________________________F. Purchased inventory by making a cash down payment with the balance owed on open account. E7. 3For each of the accounting elements that follow (A-F), indicate in the space provided the appropriate number of the financial statement(s) where the element would appear. 1. Income statement 2. Statement of owners’ equity 3. Balance sheet 4. Statement of cash flows ________A. Cash balance in checking account ________B. Unused supplies ________C. Merchandise sold on account ________D. Stock issued ________E. Utilities expense ________F. Taxes payable E7. 4Various accounts are affected differently by debits and credits. For each of these accounts, sate whether it is increased or decrease by a debit or credit. Also indicate whether the normal balance is a debit balance or a credit balance. The first account is an example. AccountsIncreased byDecreased byNormal Balance A. SuppliesDebitCreditDebit B. Interest Payable C. Equipment D. Fees Earned E. Salaries Expense E7. 5For each of the following situations, prepare the adjusting entry for the month ended April 30 and indicate the effect each adjustment would have on net income. A. Marketing Unlimited has a $20,000 contract with a client to prepare a catalog describing the client’s various products. Payment was to be received when the catalog was completed in June. As of April 30, $9,000 worth of services had been performed. B. Donna’s Consulting, a decorating firm, has an agreement with an apartment developer to decorate the apartment offices and model apartments. Donna will be paid $12,000 upon completion of her decorating services. As of April 30, Donna has completed one-fourth of her decorating services. C. Grant Enterprises rents storage space to a tenant for $200 a month. The invoice for April’s storage fee had not been sent as of April 30. E7. For each of the following situations, prepare the adjusting entry for the month ended August 31 and indicated the effect each adjustment would have on net income. A. The August water bill for the Johnson Company arrived in the accounting department on September 2. The invoice totaled $135. B. Riverside Medical Clinic has a contract with a payroll provider for payroll services. Riverside pays its employees semi-monthly. The payroll provider charges Riverside $250 for each payroll it processes and bills on the first day of the month after the services are provided. C. Camaron, Inc. borrowed $2,000 on August 1. Camaron must repay the principal and interest of 9 percent annually 90 days from the date of the note. Camaron prepares monthly financial statements. E7. 7After its first year in business, Aaron Distributing, Inc. needs to prepare its financial statements. Given the following trial balance, prepare the income statement and statement of retained earnings for the year ended December 31, 2003. Dividends of $1,000 were paid during the year and are reflected in the trial balance. There were no additional capital stock transactions during the month. ____________________________________________________________ _____ AARON DISTRIBUTING, INC. Adjusted Trial Balance December 31, 2003 DebitsCredits Cash$6,140 Accounts receivable2,350 Prepaid insurance3,180 Vehicle12,500 Accumulated depreciation- vehicle$1,000 Office equipment25,400 Accumulated depreciation- office equipment3,630 Accounts payable1,930 Notes payable7,500 Wages payable2,170 Capital stock25,000 Retained earnings1,000 Fees earned45, 500 Advertising expense6,000 Depreciation expense4,630 Insurance expense1,200 Interest expense750 Maintenance expense2,450 Utilities expense5,780 Wages expense15,350 ______ Total$86,730$86,730 ___________________________________________________________ ______ E7. 8Refer to E7. 7. Prepare the balance sheet for Aaron Distributing, Inc. as of December 31, 2003. E7. 9Refer to E7. 7. Prepare the closing entries for Aaron Distributing, Inc. as of December 31, 2003. E7. 10The adjusted trial balance for Nick’s Golf Supplies follows. Determine the net income or loss for the month of November and the balance in the Retained Earnings account that would appear on the balance sheet. ____________________________________________________________ ______ NICK’S GOLF SUPPLIES Adjusted Trial Balance November 30, 2003 DebitsCredits Cash$1,340 Supplies2,870 Inventory19,590 Equipment15,225 Accumulated depreciation- equipment$10,875 Accounts payable2,440 Capital stock20,000 Retained earnings5,920 Sales16,000 Cost of goods sold10,500 Advertising expense100 Depreciation expense2,175 Supplies expense435 Wages expense3,000______ Total$55,235$55,235 ____________________________________________________________ ______ Problems P7. 1Kendall Corporation began operations on March 1, 2003 and completed the following transactions during its first month of operations. A. Issued common stock for $100,000. B. Paid $18,000 for a one-year lease on office space. C. Purchased office equipment costing $35,000 by paying $5,000 cash and signing a five-year note for the balance. D. Purchased office supplies on account, $750. E. Sent a bill for $4,500 to a customer for services performed. F. Received $1,000 from a customer for services to be performed next month. G. Paid employees for hours worked, $1,025. H. Paid half of the amount owed for office supplies in transaction (D), $375. I. Received, but did not pay, the monthly telephone bill, $275. J. Paid a dividend to owners, $2,000. Required: 1. Determine the effect of each of the preceding events on the accounting equation. . Prepare the general journal entries to record each of these events. Note you may want to set up T-accounts to keep track of some accounts. Do not prepare the adjusting entries. 3. Prepare the income statement for the period. 4. Prepare the statement of cash flows for the period. 5. Prepare the statement of retained earnings for the period. 6. Prepare the balance sheet at the end of the period. 7. Prepare the closing entries. P7. 2The following accounting events (A-I) affected the assets, liabilities, and owners’ equity of the Jackson Company during the fiscal year ended September 30, 2003. A. Purchased $23,400 in merchandise inventory for cash. B. Sold $45,500 in merchandise inventory to a customer for $68,250 cash. C. Purchased $16,900 in merchandise on open account. D. Sold $34,840 in merchandise inventory for $52,260 on open account. E. Received and paid the utility bill, $745. F. Paid employees $5,900 for wages earned. G. Received a partial payment from a customer on account, $37,700. H. Paid rent for the current month, $7,800. I. Recorded depreciation on store equipment, $3,900. Required: 1. Determine the effect of each of the preceding events on the accounting equation. 2. Prepare the general journal entries to record each of these events. Note you may want to set up T-accounts to keep track of some accounts. 3. Prepare the income statement for the period. 4. Prepare the statement of cash flows for the period (ignore beginning balances). P7. 3For each of the following items (A-L) indicate on which financial statement you would expect to find it. Some items may appear on more than one statement. 1. Income Statement 2. Statement of owners’ equity 3. Balance sheet 4. Statement of cash flows __________A. Cash, ending balance __________B. Sales to customers __________C. Accounts receivable _________D. Cash received from customers __________E. Cost of goods sold during the period __________F. Office supplies on hand __________G. Office supplies used during the period __________H. Ending retained earnings __________I. Taxes payable __________J. Dividends paid during the period __________K. Wages payable __________L. Cash paid for merchandise inventory P7. 4Everett Photography specializes in engagements and weddings, reunions, and family portraits. Everett is reviewing the following analysis of events provided by his accountant, but he cannot understand this analysis. Describe the events for Everett. A. Photo supplies debit, $2,000 Accounts payable credit, $2,000 B. Cash debit, $500. Unearned revenue credit, $500 C. Equipment debit, $5,000 Note payable, $5,000 D. Cash debit, $850 Revenue credit, $850 E. Accounts payable debit, $400 Cash credit, $400 F. Unearned revenue debit, $500 Revenue credit, $500 G. Accounts receivable debit, $2,500 Revenue credit, $2,500 H. Notes payable debit, $200 Cash credit, $200 I. Expense debit, $1,500 Photo supplies credit, $1,500 P7. 5Brandon’s Snow Removal Service has a fiscal year end of June 30. The unadjusted trial balance is followed by information for adjustments. ___________________________________________________________ ______ BRANDON’S SNOW REMOVAL SERVICE Unadjusted Trial Balance June 30, 2003 DebitsCredits Cash$10,140 Accounts receivable12,250 Supplies3,670 Prepaid insurance3,040 Buildings76,800 Accumulated depreciation- buildings$15,360 Equipment66,400 Accumulated depreciation- equipment13,280 Accounts payable1,755 Unearne d fees3,360 Note payable52,000 Capital stock50,000 Retained earnings1,960 Fees earned45,720 Advertising expense4,000 Repairs expense2,200 Supplies expense1,435 Wages expense3,500______ Total$183,435$183,435 ___________________________________________________________ ______ Adjustment data: A. Unused supplies on hand, $250. B. Depreciation on buildings, $3,840. C. Depreciation on equipment, $6,640. D. Unearned fees still unearned, $1,000. E. Salaries earned but not yet paid, $360. F. Accrued interest on the note, $430. G. Fees earned but not recorded and not received, $600. Required: 1. Prepare the adjusting entries. In some instances, it will be necessary to establish new accounts for items not shown on the unadjusted trial balance. 2. Determine the net income or loss for the period. 3. Prepare the closing entries. Case Select a company that is featured in this week’s issue of BusinessWeek. Using the company’s annual report, answer the following questions: A. Examine the balance sheet of this company. Which accounts have debit balances and which accounts have credit balances? B. Trace the net income from the income statement to the statement of owners’ equity. C. Trace the ending balance of retained earnings from the statement of owners’ equity to the balance sheet. D. Trace the ending balance of cash from the statement of cash flows to the balance sheet. E. What is the date for the end of the accounting cycle?