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Chapter 3: Question 1Q (page 78)

Give an example of a transaction that result in:

  1. A decrease in asset and a decrease in a liability.
  2. A decrease in one asset and an increase in another asset.
  3. A decrease in one liability and an increase in another liability.

Short Answer

Expert verified
  1. Payment to creditors.
  2. Goods purchased for cash.
  3. Issuance of bills payable to creditors.

Step by step solution

01

Meaning of transaction

A transaction can be understood as an activity between a buyer and a seller to interchange goods, services, or assets for money.

02

Explanation for statement ‘a’

An example of a decrease in asset and a liability is payment made by the company to its creditors using cash, in this case, the creditors or liability decreases, as well as a decrease in the cash account.

03

Explanation for statement ‘b’

An example of a decrease in one asset and an increase in the other is the acquisition of inventory for cash, here inventory will increase and cash will decrease.

04

Explanation for statement ‘c’

An example of a decrease in one liability and an increase in another liability is a partner鈥檚 loan converted into capital, there will be an increase in capital and decrease in loan.

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Most popular questions from this chapter

(L07) (Cash and Accrual Basis) Wayne Rogers Corp. maintains its financial records on the cash basis of accounting. Interested in securing a long-term loan from its regular bank, Wayne Rogers Corp. requests you as its independent to convert its cash-basis income statement data to the accrual basis. You are provided with the following summarized data covering 2016, 2017, and 2018

2016

2017

2018

Cash receipts from sale

On 2016 sales

\(295,000

\)160,000

\(30,000

On 2017 sales

0

\)355,000

\(90,000

On 2018 sales

0

0

\)408,000

Cash payments for expenses:

On 2016 expenses

\(185,000

\)67,000

\(25,000

On 2017 expenses

\)40,000a

\(160,000

\)55,000

On 2018 expenses

0

\(45,000b

\)218,000

a Prepayments of 2017 expenses.

b Prepayments of 2018 expenses.

Instructions

(a) Using the data above, prepare abbreviated income statements for the years 2016 and 2017 on the cash basis.

(b) Using the data above, prepare abbreviated income statements for the years 2016 and 2017 on the accrual basis.

The following are the trial balance and the other information related to Yorkis Perez, a consulting engineer.

YORKIS PEREZ, CONSULTING ENGINEER .
TRIAL BALANCE
DECEMBER 31, 2017

Debit

Credit

Cash

\( 29,500

Accounts Receivable

49,600

Allowance for Doubtful Accounts

\) 750

Supplies

1,960

Prepaid Insurance

1,100

Equipment

25,000

Accumulated Depreciation鈥擡quipment

6,250

Notes Payable

7,200

Owner鈥檚 Capital

35,010

Service Revenue

100,000

Rent Expense

9,750

Salaries and Wages Expense

30,500

Utilities Expenses

1,080

Office Expense

720

\(149,210

\)149,210

  1. Fees received in advance from clients \(6,000, which were recorded as revenue.
  2. Services performed for clients that were not recorded by December 31, \)4,900.
  3. Bad debt expense for the year is \(1,430.
  4. Insurance expired during the year \)480.
  5. Equipment is being depreciated at 10% per year.
  6. Yorkis Perez gave the bank a 90-day, 10% note for \(7,200 on December 1, 2017.
  7. Rent of the building is \)750 per month. The rent for 2017 has been paid, as has that for January 2018, and recorded as Rent Expense.
  8. Office salaries and wages earned but unpaid December 31, 2017, \(2,510.

Instructions

  1. From the trial balance and other information given, prepare annual adjusting entries as of December 31, 2017. (Omit explanations.)
  2. Prepare an income statement for 2017, a statement of owner鈥檚 equity, and a classified balance sheet. Yorkis Perez withdrew \)17,000 cash for personal use during the year.

Why are revenue and expense accounts called temporary or nominal accounts?

The accounts listed below appeared in the December 31 trial balance of the Savard Theater.

Debit

Credit

Equipment

\(192,000

Accumulated Depreciation鈥擡quipment

\) 60,000

Notes Payable

90,000

Admissions Revenue

380,000

Advertising Expense

13,680

Salaries and Wages Expense

57,600

Interest Expense

1,400

Instructions

  1. From the account balances listed above and the information given below, prepare the annual adjusting entries necessary on December 31. (Omit explanations.)
    1. The equipment has an estimated life of 16 years and a salvage value of \(24,000 at the end of that time. (Use straightline method.)
    2. The note payable is a 90-day note given to the bank October 20 and bearing interest at 8%. (Use 360 days for denominator.)
    3. In December, 2,000 coupon admission books were sold at \)30 each and recorded as Admissions Revenue. They could be used for admission any time after January 1.
    4. Advertising expense paid in advance and included in Advertising Expense \(1,100.
    5. Salaries and wages accrued but unpaid \)4,700.
  2. What amounts should be shown for each of the following on the income statement for the year?
    1. Interest expense.
    2. Admissions revenue.
    3. Advertising expense.
    4. Salaries and wages expense.

The trial balance of Bellemy Fashion Center contained the following accounts at November 30, the end of the company鈥檚 fiscal year.

BELLEMY FASHION CENTER

TRIAL BALANCE

NOVEMBER 30, 2017

Debit

Credit

Cash

\( 28,700

Accounts Receivable

33,700

Inventory

45,000

Supplies

5,500

Equipment

133,000

Accumulated Depreciation鈥擡quipment

\) 24,000

Notes Payable

51,000

Accounts Payable

48,500

Common Stock

90,000

Retained Earnings

8,000

Sales Revenue

757,200

Sales Returns and Allowances

4,200

Cost of Goods Sold

495,400

Salaries and Wages Expense

140,000

Advertising Expense

26,400

Utilities Expenses

14,000

Maintenance and Repairs Expense

12,100

Delivery Expense

16,700

Rent Expense

24,000

\(978,700

\)978,700

Adjustment data:

1. Supplies on hand total \(1,500.

2. Depreciation is \)15,000 on the equipment.

3. Interest of \(11,000 is accrued on notes payable at November 30.

Other data:

1. Salaries expense is 70% selling and 30% administrative.

2. Rent expense and utilities expenses are 80% selling and 20% administrative.

3. Notes payable worth \)30,000 are due for payment next year.

4. Maintenance and repairs expense is 100% administrative.

Instructions

(a) Journalize the adjusting entries.

(b) Prepare an adjusted trial balance.

(c) Prepare a multiple-step income statement and retained earnings statement for the year and a classified balance sheet as of November 30, 2017.

(d) Journalize the closing entries.

(e) Prepare a post-closing trial balance.
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