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