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Week One Exercise Assignment Basic Accounting Equations

2273 words - 10 pages

Week One Exercise Assignment
Basic Accounting Equations

1. Recognition of normal balances
The following items appeared in the accounting records of Triguero's, a retail music store that also sponsors concerts. Classify each of the items as an asset, liability; revenue; or expense from the company's viewpoint. Also indicate the normal account balance of each item.

a. Amounts paid to a mall for rent. Expense
b. Amounts to be paid in 10 days to suppliers. Liability
c. A new fax machine purchased for office use. Asset
d. Land held as an investment. Asset
e. Amounts due from customers. Asset
f. Daily sales of merchandise sold. Revenue
g. Promotional costs to publicize a ...view middle of the document...

Balance sheet preparation. The following data relate to Preston Company as of December 31, 20XX:

Building $40,000 Accounts receivable $24,000
Cash 21,000 Loan payable 30,000
J. Preston, Capital 65,000 Land 21,000
Accounts payable ?

Prepare a balance sheet as of December 31, 20XX. (See Exhibit 1.1 and 1.4)

Clearview Window WashersBalance SheetDecember 31, 20XX |
Assets | Liabilities |
Building $40,000 | Loan Payable $30,000 |
Cash 21,000 | J. Preston, Capital 65,000 |
Land 21,000 | Accounts Payable 11,000 |
Accounts Receivable 24,000 | |
Total Assets $106,000 | Total Liabilities $106,000 |

4. Basic transaction processing. On November 1 of the current year, Richard Simmons established a sole proprietorship. The following transactions occurred during the month:
1: Simmons invested $32,000 into the business for $32,000 in common stock.
2: Paid $5,000 to acquire a used minivan.
3: Purchased $1,800 of office furniture on account.
4: Performed $2,100 of consulting services on account.
5: Paid $300 of repair expenses.
6: Received $800 from clients who were previously billed in item 4.
7: Paid $500 on account to the supplier of office furniture in item 3.
8: Received a $150 electric bill, to be paid next month.
9: Simmons withdrew $800 from the business.
10: Received $250 in cash from clients for consulting services rendered.

Instructions
a. Arrange the following asset, liability, and owner’s equity elements of the accounting equation: Cash, Accounts Receivable, Office Furniture, Van, Accounts Payable, Common Stock/Dividends, and Revenues/Expenses. (See Exhibit 1.5)
b. Record each transaction on a separate line. After all transactions have been recorded, compute the balance in each of the preceding items.
c. Answer the following questions for Simmons.
(1) How much does the company owe to its creditors at month-end? On which financial statement(s) would this information be found?

Liabilities - $1,450 (Balance Sheet)
(2) Did the company have a “good” month from an accounting viewpoint? Briefly explain.
Liabilities ($1,450) – Revenues ($2,350) = $900. Yes this is a good month because the revenue is more than the liabilities, resulting in a positive number.

| Assets | Liabilities | Owners’ Equity |
Description | Cash | Accounts Receivable | Office Furniture | Van | Accounts Payable | Common Stock | Dividends | Revenues | Expenses |
1. | $32,000 | | | | | $32,000 | | | |
2. | ($5,000) | | | ($5,000) | | | | | |
3. | | | $1,800 | | $1,800 | | | | |
4. | | ($2,100) | | | | | | $2,100 | |
5. | ($300) | | | | | ($300) | | | |
6. | $800 | $800 | | | | | | | |
7. | ($500) | | | | ($500) | | | | |
8. | | | | | $150 | | | | ($150) |
...

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