Accounting Test 1 Exercises

Describe the effect of each transaction: Paid monthly rent

Decrease in assets and decrease in stockholder's equity

For Pioneer Advertising, assume that depreciation on the equipment is $480 a year, or $40 per month.

Depreciation Expense 40 Accumalted Depreciation 40

Depreciation for the month is $60

Depreciation Expense 60 Accumulated Depreciation Equipment 60

Purchased dental equipment on January 1 for $81000 paying $28000 in cash and signing a $53000 3 year note payable. The equipment depreciates $405 per month. Interest is $430

Depreciation expense 405 Accumulated depreciation- equipment 405 (to record monthly depreciation) Interest expense 430 Interest payable 430 (to record interest on notes payable)

Declared and paid a $500 cash dividend

Dividends Cash

Declared and paid a $790 cash dividend

Dividends 790 cash 790

Purchased used car for $8,200 cash for use in the business

Equipment Cash

Purchased equipment for 12600 paying 5200 in cash and the balance on account

Equipment 12600 cash 5200 accounts payable 7400

Purchased equipment for $470 the company paid cash of $60 and the balance was on account

Equipment 470 Cash 60 Account Payable 60

Identify each of the questions as being more likely asked by an internal user or an external user: Did the company earn a satisfactory income?

External Users

Identify each of the questions as being more likely asked by an internal user or an external user: How does the company's profitability compare to other companies?

External Users

Identify each of the questions as being more likely asked by an internal user or an external user: Will the company be able to pay its short- term debts?

External Users

Identify the users as being either external users or internal users: Customers

External Users

Identify the users as being either external users or internal users: Internal Revenue Service

External Users

Identify the users as being either external users or internal users: Marketing Manager

Internal Users

Purchased $1600 of dental supplies. On January 31, determined that $400 of supplies were on hand

Supplies expense 1200 Supplies 1200

Accounts Receivable

Asset

Equipment

Asset

Supplies

Asset

Describe the effect of each transaction: Paid dividends

Decrease in assets and decrease in stockholder's equity

True or False: An account is an accounting record of either a specific asset or a specific liability

False

Services performed of $260 collected in advance

Unearned revenue: liabilities overstated & revenues understated

Paid creditor $300 cash on balance owed

Accounts Payable Cash

Billed customers $1,800 for services performed

Accounts Receivable Service Revenue

Performed services for $110 on account

Accounts Receivable 110 Service Revenue 110

In October, Pioneer Advertising Inc. performed services worth $200 that were not billed to clients in October.

Accounts Receivable 200 Service Revenue 200

Services performed but not recorded at October 31 are $200

Accounts Receivable 200 Service Revenue 200

Performed services for patients who had dental plan insurance. At January 31 $840 of such services were performed but not yet recorded

Accounts Recivable 840 Service Revenue 840

Paid $2520 cash on balance owed for equipment

Accounts payable 2520 Cash 2520

Paid balance amount owed from equipment purchase March 8 (Purchased equipment for 470 the company paid 60 and the balance was on account)

Accounts payable 410 cash 410

Services performed but unbilled total $1000

Accrued Revenues: Assets Understated & Revenues Understated

Utility expenses of $225 are unpaid

Accured Expenses: expenses understated & liabilities understated

Salaries of $800 are unpaid

Accured expenses: expenses understated & liabilities understated

Paid $200 cash for advertising

Advertising Expense Cash

Received $780 cash from customers billed on January 11 (Billed customers 1,800 for services performed)

Cash Accounts Receivable

Stockholders invested $15,000 cash in the business in exchange for common stock

Cash Common Stock

Received cash from customers billed on March 3 (performed services for $110 on account)

Cash 110 Accounts Receivable 110

Stockholders invested $11500 cash in the business in exchange for common stock

Cash 11500 common stock 11500

Borrowed $1170 from Grafton State Bank by signing a note

Cash 1170 Notes Payable 1170

On November 10, Pioneer receives cash of $200 for the services performed

Cash 200 Accounts Receivable 200

Performed services for cash of $60

Cash 60 Service Revenue 60

Identify the users as being either external users or internal users: Labor Unions

External Users

Identify the users as being either external users or internal users: Securities and Exchange Commission

External Users

Identify the users as being either external users or internal users: Supplies

External Users

True or False: An account has a left, or credit side, and a right, or debit side

False

True or False: An account shows only increases, not decreases in the item it relates to

False

True or False: Some items, such as cash and accounts receivable, are combined into one account

False

Describe the effect of each transaction: Purchased additional equipment for cash

Increase in assets and decrease in assets

Describe the effect of each transaction: Received cash from customers billed in (4)

Increase in assets and decrease in assets

Describe the effect of each transaction: Purchased equipment on account

Increase in assets and increase in liabilities

Describe the effect of each transaction: Billed customers for services performed

Increase in assets and increase in stockholder's equity

Describe the effect of each transaction: Received cash from customers when service was performed

Increase in assets and increase in stockholder's equity

Describe the effect of each transaction: Sold common stock for cash to start business

Increase in assets and increase in stockholder's equity

Describe the effect of each transaction: Incurred advertising expense on account

Increase in liabilities and decrease in stockholder's equity

Expired insurance for the month is $200

Insurance Expense 200 Prepaid insurance 200

On October 4, Pioneer Advertising Inc. paid $600 for a one-year fire insurance policy. Coverage began on October 1. Pioneer recorded the payment by increasing (debiting) Prepaid Insurance. This account shows a balance of $600 in the October 31 trial balance. Insurance of $50 ($600 ÷ 12) expires each month.

Insurance Expense 50 Prepaid Insurance 50

Purchased a one- year malpractice insurance policy on January 1 for $22,440

Insurance expense 1870 Prepaid insurance 1870

Interest accrued at October 31 is $80

Interest Expense 80 Interest Payable 80

Pioneer Advertising signed a three-month note payable in the amount of $5,000 on October 1. The note requires Pioneer to pay interest at an annual rate of 12%.

Interest expense 50 Interest payable 50

Identify each of the questions as being more likely asked by an internal user or an external use: Can we afford to give our employees a pay raise?

Internal Users

Identify each of the questions as being more likely asked by an internal user or an external user: Do we need to borrow in the near future?

Internal Users

Identify each of the questions as being more likely asked by an internal user or an external user: What does it cost us to manufacture each unit produced?

Internal Users

Identify each of the questions as being more likely asked by an internal user or an external user: Which product should we emphasize?

Internal Users

Identify the users as being either external users or internal users: Production supervisor

Internal Users

Identify the users as being either external users or internal users: Store Manager

Internal Users

Identify the users as being either external users or internal users: Vice President of Finance

Internal Users

Accounts Payable

Liability

Notes Payable

Liability

Salaries and Wages Payable

Liability

Paid $170 to repair service for plumbing repairs

Maintenance and repairs expense 170 cash 170

Accounting Method?: Tina Company owns a building that are worth substantially more than they originally cost. In an effort to provide more relevant information, Tina reports the buildings at fair value in its accounting reports

No; Cost principle

Accounting Method?: Omar Shariff, president of Omar's Oasis, records his personal living costs as expenses of Oasis

No; Economic entity assumption

Supplies of $300 have been used

Prepaid Expenses: Assets overstated & expenses understated

Paid $1400 for six months of insurance

Prepaid Insurance 1400 Cash 1400

Prepaid insurance totaling $350 has expired

Prepaid expenses: assets overstated & expenses understated

Paid monthly Rent of $940

Rent Ecprnse 940 Cash 940

Accrued salaries at October 31 are $1000

Salaries and wages expense 1000 Salaries and wages payable 1000

Pioneer paid salaries and wages on October 26; the next payment of salaries will not occur until November 9. The employees receive total salaries of $2,000 for a five-day work week, or $400 per day. Thus, accrued salaries at October 31 are $1,200 ($400 x 3 days).

Salaries and wages expense 1200 salaries and wages payable 1200

Paid salaries and wages to employees of $410

Salaries and wages expense 410 cash 410

Common Stock

Stockholder's Equity

Purchased supplies on account for $500

Supplies Accounts Payable

Pioneer Advertising Inc. Inc. purchased supplies costing $2,500 on October 5. Pioneer recorded the purchase by increasing (debiting) the asset Supplies. This account shows a balance of $2,500 in the October 31 trial balance. An inventory count at the close of business on October 31 reveals that $1,000 of supplies are still on hand.

Supplies Expense 1500 Supplies 1500

True or False: A simple form of an account consisting of just the account title, the left side, and the right side, is called a T- account

True

Pioneer Advertising received $1,200 on October 2 from R. Knox for advertising services expected to be completed by December 31. Unearned Service Revenue shows a balance of $1,200 in the October 31 trial balance. Analysis reveals that the company performed $400 of services in October.

Unearned service revenue 400 service revenue 400

Services related to unearned service revenue in October worth $600 were performed

Unearned service revenue 600 Service revenue 600

Utility expenses incurred but not paid prior to January 31 totaled $690

Utilities Expense 690 Utilities payable 690

Paid utilities of $56

Utilities expense 56 Cash 56

Accounting Method?: Frayette Company includes in its accounting records only transaction data that can be expressed in terms of money

Yes; Monetary Unit Assumption

Cash

Asset

Monty Industries collected $105,000 from customers in 2020. Of the amount collected, $24,800 was for services performed in 2019. In addition, Monty performed services worth $39,200 in 2020, which will not be collected until 2021. Monty Industries also paid $70,200 for expenses in 2020. Of the amount paid, $29,800 was for expenses incurred on account in 2019. In addition, Monty incurred $43,900 of expenses in 2020, which will not be paid until 2021. (a) compute 2020 cash basis net income (b) compute 2020 accrual basis net income

(a) cash basis net income $34800 (b) accrual basis net income $35100