• February 10th, 2017

Basic Accounting Equations

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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.
b.
c.
d.
e.
f.
g.
h.
i. Amounts paid to a mall for rent.
Amounts to be paid in 10 days to suppliers.
A new fax machine purchased for office use.
Land held as an investment.
Amounts due from customers.
Daily sales of merchandise sold.
Promotional costs to publicize a concert.
A long-term loan owed to Citizens Bank.
The albums, tapes, and CDs held for sale to customers. 2. Basic journal entries
The following transactions pertain to the Jennifer Royall Company:
May 1 Jennifer Royall invested cash of $25,000 and land valued
at $15,000 into the business.
5
Provided $1,000 of services to Jason Ratchford, a client, on
account.
9
Paid $1,250 of salaries to an employee.
14
Acquired a new computer for $4,200, on account.
20
Collected $800 from Jason Ratchford for services provided
on May 5.
24
Borrowed $2,500 from BestBanc by securing a six-month
loan.
Prepare journal entries (and explanations) to record the preceding transactions and events.
3. Balance sheet preparation. The following data relate to Preston Company as of December
31, 20XX:
Building
$24,000
Cash
J. Preston, Capital
Accounts payable $40,000
21,000
65,000
? Accounts receivable
Loan payable
Land Prepare a balance sheet as of December 31, 20XX. (See Exhibit 1.1 and 1.4) 30,000
21,000 B 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?
(2) Did the company have a “good” month from an accounting viewpoint? Briefly explain.
5. Transaction analysis and statement preparation. The transactions that follow
relate to Burton Enterprises for March 20X1, the company’s first month of activity.

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