Week 2 Homework Problems

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Chapter3HomeworkProblems.doc

Chapter 3

Problems: Set B

P3-1B Hyman Inc. was started on May 1. Here is a summary of the May transactions.

1. Stockholders invested $30,000 cash in the company in exchange for common stock.

2. Purchased equipment for $10,000 cash.

3. Paid $700 cash for May office rent.

4. Paid $300 cash for supplies.

5. Purchased $750 of advertising in the Evening Times on account.

6. Received $8,000 in cash from customers for service.

7. Paid a $500 cash dividend.

8. Paid part-time employee salaries $1,000.

9. Paid utility bills $140.

10. Performed service on account to customers $2,000.

11. Collected cash of $1,000 for services billed in transaction (10).

Instructions

(a) Prepare a tabular analysis of the transactions using these column headings: Cash, Accounts Receivable, Supplies, Equipment, Accounts Payable, Common Stock, and Retained Earnings (with separate columns for Revenues, Expenses, and Dividends). Revenue is called Service Revenue. Include margin explanations for any changes in Retained Earnings.

(b) From an analysis of the Retained Earnings columns, compute the net income or net loss for May.

P3-2B Ned Walz started his own delivery service, Walz Service Inc., on June 1, 2014. The following transactions occurred during the month of June.

June 1 Stockholders invested $20,000 cash in the business in exchange for common stock.

2 Purchased a used van for deliveries for $10,000. Walz paid $2,000 cash and signed a note payable for the remaining balance.

3 Paid $600 for office rent for the month.

5 Performed $3,000 of services on account.

9 Paid $300 in cash dividends.

12 Purchased supplies for $240 on account.

15 Received a cash payment of $1,000 for services performed on June 5.

17 Received a bill for $200 to cover advertisements in Tri-State News.

20 Received a cash payment of $1,500 for services performed.

23 Made a cash payment of $1,000 on the note payable.

26 Paid $180 for utilities.

29 Paid for the supplies purchased on account on June 12.

30 Paid $750 for employee salaries.

Instructions

(a) Show the effects of the previous transactions on the accounting equation using the following format. Assume the note payable is to be repaid within the year.

Assets

=

Liabilities

+

Stockholders’ Equity

Date

Cash

+

Accounts

+

Supplies

+

Equipment

=

Notes

+

Accounts

+

Common

+

Retained Earnings

Receivable

Payable

 Payable 

   Stock   

Revenues

(

Expenses

(

Dividends

Include margin explanations for any changes in Retained Earnings.

(b) Prepare an income statement for the month of June.

(c) Prepare a classified balance sheet at June 30, 2014.

P3-3B Joe Thyme opened Thyme Company, a veterinary business in Neosho, Missouri, on August 1, 2014. On August 31, the balance sheet showed Cash $9,000; Accounts Receivable $1,700; Supplies $600; Equipment $5,000; Accounts Payable $3,600; Common Stock $10,000; and Retained Earnings $2,700. During September, the following transactions occurred.

Sept. 2 Paid $3,400 cash for accounts payable due.

5 Received $1,200 from customers in payment of accounts receivable.

8 Purchased additional office equipment for $5,100, paying $1,000 in cash and the balance on account.

13 Performed services worth $10,600, of which $2,300 is paid in cash and the balance is due in October.

17 Paid a $600 cash dividend.

22 Paid salaries $900, rent for September $1,100, and advertising expense $250.

26 Incurred utility expenses for the month on account $220.

30 Received $5,000 from Hilldale Bank on a 6-month note payable.

Instructions

(a) Prepare a tabular analysis of the September transactions beginning with August 31 balances. The column headings should be: Cash + Accounts Receivable + Supplies + Equipment = Notes Payable + Accounts Payable + Common Stock + Retained Earnings + Revenues – Expenses – Dividends. Include margin explanations for any changes in Retained Earnings.

(b) Prepare an income statement for September, a retained earnings statement for September, and a classified balance sheet at September 30, 2014.

P3-4B Beefeaters RV Park was started on April 1 by Sarah Rhodes. These selected events and transactions occurred during April.

Apr. 1 Stockholders invested $100,000 cash in the business in exchange for common stock.

4 Purchased land costing $250,000 for cash.

8 Purchased advertising in local newspaper for $1,200 on account.

11 Paid salaries to employees $3,000.

12 Hired park manager at a salary of $3,600 per month, effective May 1.

13 Paid $7,200 for a 1-year insurance policy.

17 Paid $600 cash dividends.

20 Received $6,000 in cash from customers for admission fees.

25 Sold 100 coupon books for $90 each. Each book contains ten coupons that entitle the holder to one admission to the park. (Hint: The revenue should not be recognized until the coupons are used.)

30 Received $7,900 in cash from customers for admission fees.

30 Paid $400 of the balance owed for the advertising purchased on account on April 8.

The company uses the following accounts: Cash, Prepaid Insurance, Land, Accounts Payable, Unearned Service Revenue, Common Stock, Dividends, Service Revenue, Advertising Expense, and Salaries and Wages Expense.

Instructions

Journalize the April transactions, including explanations. (Note: Beefeaters RV Park records admission revenue as service revenue.)

P3-5B Bob Royce incorporated Royce Consulting, an accounting practice, on May 1, 2014. During the first month of operations, these events and transactions occurred.

May 1 Stockholders invested $100,000 cash in exchange for common stock of the corporation.

2 Hired a secretary-receptionist at a salary of $2,500 per month.

3 Purchased $800 of supplies on account from Pickering Supply Company.

7 Paid office rent of $1,400 for the month.

11 Completed a tax assignment and billed client $2,500 for services performed.

12 Received $4,200 advance on a management consulting engagement.

17 Received cash of $3,300 for services completed for Woodman Co.

31 Paid secretary-receptionist $2,500 salary for the month.

31 Paid 50% of balance due Pickering Supply Company.

The company uses the following chart of accounts: Cash, Accounts Receivable, Supplies, Accounts Payable, Unearned Service Revenue, Common Stock, Service Revenue, Salaries and Wages Expense, and Rent Expense.

Instructions

(a) Journalize the transactions, including explanations.

(b) Post to the ledger T-accounts.

(c) Prepare a trial balance on May 31, 2014.

P3-6B The trial balance of American Dry Cleaners on June 30 is given here.

AMERICAN DRY CLEANERS

Trial Balance

June 30, 2014

  Debit    Credit 

Cash $15,532

Accounts Receivable 10,536

Supplies 3,592

Equipment 25,950

Accounts Payable $15,800

Unearned Service Revenue 1,810

Common Stock 25,000

Retained Earnings               13,000

$55,610 $55,610

The July transactions were as follows.

July 8 Received $10,189 in cash on June 30 accounts receivable.

9 Paid employee salaries $2,100.

11 Received $7,320 in cash for services provided.

14 Paid creditors $4,810 of accounts payable.

17 Purchased supplies on account $720.

22 Billed customers for services provided $4,700.

30 Paid employee salaries $3,114, utilities $1,767, and repairs $386.

31 Paid $400 cash dividend.

Instructions

(a) Prepare a general ledger using T-accounts. Enter the opening balances in the ledger accounts as of July 1. Provision should be made for the following additional accounts: Dividends, Service Revenue, Maintenance and Repairs Expense, Salaries and Wages Expense, and Utilities Expense.

(b) Journalize the transactions, including explanations.

(c) Post to the ledger accounts.

(d) Prepare a trial balance on July 31, 2014.

P3-7B This trial balance of Lindbergh Company does not balance.

LINDBERGH COMPANY

Trial Balance

May 31, 2014

  Debit    Credit 

Cash $ 5,340

Accounts Receivable $ 2,750

Prepaid Insurance 700

Equipment 9,000

Accounts Payable 4,100

Income Taxes Payable 850

Common Stock 5,700

Retained Earnings 6,000

Service Revenue 7,690

Salaries and Wages Expense 4,200

Advertising Expense 1,100

Income Tax Expense 900          

$28,680 $19,650

Your review of the ledger reveals that each account has a normal balance. You also discover the following errors.

1. The totals of the debit sides of Prepaid Insurance, Accounts Payable, and Income Tax Expense were each understated $100.

2. Transposition errors were made in Accounts Receivable and Service Revenue. Based on postings made, the correct balances were $2,570 and $7,960, respectively.

3. A debit posting to Salaries and Wages Expense of $500 was omitted.

4. A $600 cash dividend was debited to Common Stock for $600 and credited to Cash for $600.

5. A $350 purchase of supplies on account was debited to Equipment for $350 and credited to Cash for $350.

6. A cash payment of $490 for advertising was debited to Advertising Expense for $49 and credited to Cash for $49.

7. A collection from a customer for $240 was debited to Cash for $240 and credited to Accounts Payable for $240.

Instructions

Prepare the correct trial balance, assuming all accounts have normal balances. (Note: The chart of accounts also includes the following: Dividends and Supplies.)

P3-8B Roxy Theater Inc. was recently formed. All facilities were completed on March 31. On April 1, the ledger showed: Cash $6,300; Land $10,000; Buildings (concession stand, projection room, ticket booth, and screen) $58,000; Equipment $6,000; Accounts Payable $2,300; Mortgage Payable $38,000; and Common Stock $40,000. During April, the following events and transactions occurred.

Apr. 2 Paid film rental fee of $1,800 on first movie.

3 Ordered two additional films at $750 each.

9 Received $5,700 cash from admissions.

10 Paid $2,000 of mortgage payable and $1,200 of accounts payable.

11 Roxy Theater contracted with M. Gavin to operate the concession stand. Gavin agrees to pay Roxy Theater 17% of gross receipts, payable monthly.

12 Paid advertising expenses $410.

20 Received one of the films ordered on April 3 and was billed $750. The film will be shown in April.

25 Received $3,000 cash from customers for admissions.

29 Paid salaries $1,900.

30 Received statement from M. Gavin showing gross receipts of $2,000 and the balance due to Roxy Theater of $340 ($2,000 × .17) for April. Gavin paid half of the balance due and will remit the remainder on May 5.

30 Prepaid $1,200 rental fee on special film to be run in May.

In addition to the accounts identified above, the chart of accounts shows Accounts Receivable, Prepaid Rent, Service Revenue, Rent Revenue, Advertising Expense, Rent Expense, Salaries and Wages Expense.

Instructions

(a) Enter the beginning balances in the ledger T-accounts as of April 1.

(b) Journalize the April transactions, including explanations. (Note: Roxy records admission revenue as service revenue, concession revenue as sales revenue, and film rental expense as rent expense.)

(c) Post the April journal entries to the ledger T-accounts.

(d) Prepare a trial balance on April 30, 2014.

P3-9B A first year co-op student working for Solutia Inc. recorded the transactions for the month. He wasn’t exactly sure how to journalize and post, but he did the best he could. He had a few questions, however, about the following transactions.

1. Cash received from a customer on account was recorded as a debit to Cash of $360 and a credit to Accounts Receivable of $630, instead of $360.

2. A service performed for cash was posted as a debit to Cash of $2,000 and a credit to Service Revenue of $2,000.

3. A debit of $880 for services performed on account was neither recorded nor posted. The credit was recorded correctly.

4. The debit to record $1,000 of cash dividends was posted to the Salaries and Wages Expense account.

5. The purchase, on account, of a computer that cost $2,500 was recorded as a debit to Supplies and a credit to Accounts Payable.

6. A cash payment of $495 for salaries was recorded as a debit to Dividends and a credit to Cash.

7. Payment of month’s rent was debited to Rent Expense and credited to Cash, $850.

8. Issue of $5,000 of common shares was credited to the Common Stock account, but no debit was recorded.

Instructions

(a) Indicate which of the above transactions are correct, and which are incorrect.

(b) For each error identified in (a), indicate (1) whether the trial balance will balance; (2) the amount of the difference if the trial balance will not balance; and (3) the trial balance column that will have the larger total. Consider each error separately. Use the following form, in which transaction 1 is given as an example.

(1) (2) (3)

Error In Balance Difference Larger Column

1. No $270 Credit

Analyze transactions and compute net income.

(LO 1), AP

(a) Cash $26,360

Total assets � $37,660

Analyze transactions and prepare financial statements.

(LO 1), AP

(a) Cash $17,430

Analyze transactions and prepare an income statement, retained earnings statement, and balance sheet.

(LO 1), AP

(a) Cash $10,250

(b) Ret. earnings �$10,230

Journalize a series of transactions.

(LO 3), AP

Journalize transactions, post, and prepare a trial balance.

(LO 3, 4, 5), AP

(c) Cash $103,200

Tot. trial balance $110,400

Journalize transactions, post, and prepare a trial balance.

(LO 3, 4, 5), AP

(d) Cash $20,464

Tot. trial balance � $63,540

Prepare a correct trial balance.

(LO 5), AN

Cash $ 5,249

Tot. trial balance $25,220

Journalize transactions, post, and prepare a trial balance.

(LO 3, 4, 5), AP

(b) Cash $ 6,660

Tot. trial balance $86,890

Analyze errors and their effects on the trial balance.

(LO 5), AN