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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

Santo Design was founded by Thomas Grant in January 2011. Presented below is the adjusted trial balance as of December 31, 2017.

SANTO DESIGN

ADJUSTED TRIAL BALANCE

DECEMBER 31, 2017


Dr.

Cr.

Cash

\( 11,350

Accounts Receivable

21,500

Supplies

5,000

Prepaid Insurance

2,500

Equipment

60,000

Accumulated Depreciation鈥擡quipment

\) 35,000

Accounts Payable

5,000

Interest Payable

150

Notes Payable

5,000

Unearned Service Revenue

5,600

Salaries and Wages Payable

1,300

Common Stock

10,000

Retained Earnings

3,500

Service Revenue

61,500

Salaries and Wages Expense

11,300

Insurance Expense

850

Interest Expense

150

Depreciation Expense

7,000

Supplies Expense

3,400

Rent Expense

4,000

\(127,050

\)127,050

Instructions

a. Prepare an income statement and a statement of retained earnings for the year ending December 31, 2017, and an unclassified balance sheet at December 31.

b. Answer the following questions.

1.If the note has been outstanding for 6 months, what is the annual interest rate on that note?

2.If the company paid $17,500 in salaries in 2017, what was the balance in Salaries and Wages Payable on December 31, 2016?

Question: E3-16 (L05) (Closing Entries for a Corporation) Presented below are selected account balances for Homer Winslow Co. as of December 31, 2017.

Inventory 12/31/17 \(60,000 Cost of Goods Sold \)225,700

Common Stock \(75,000 Selling Expenses \)16,000

Retained Earnings \(45,000 Administrative Expenses \)38,000

Dividends \(18,000 Income Tax Expenses \)30,000

Sales Returns and

Allowances \(12,000

Sales Discounts \)15,000

Sales Revenue $410,000

Instructions:

Prepare closing entries for Homer Winslow Co. on December 31,2017. (Omit explanations)

Is it necessary that a trial balance be taken periodically? What purpose does it serve?

Vedula Advertising was founded by MuraliVedula in January 2015. On the next page are both the adjusted and unadjusted trial balances as of December 31, 2017.

VEDULA ADVERTISING

TRIAL BALANCE

DECEMBER 31, 2017


Unadjusted
Adjusted

Dr.

Cr.

Dr.

Cr.

Cash

\( 11,000

\) 11,000

Accounts Receivable

16,000

19,500

Prepaid Insurance

9,400

6,500

Supplies

3,350

1,790

Equipment

60,000

60,000

Accumulated Depreciation鈥擡quipment

\( 25,000

\) 30,000

Notes Payable

8,000

8,000

Accounts Payable

2,000

2,000

Interest Payable

0

560

Unearned Service Revenue

5,000

3,100

Salaries and Wages Payable

0

820

Common Stock

20,000

20,000

Retained Earnings

5,500

5,500

Dividends

10,000

10,000

Service Revenue

57,600

63,000

Salaries and Wages Expense

9,000

9,820

Insurance Expense

1,560

Interest Expense

560

Depreciation Expense

5,000

Supplies Expense

2,900

Rent Expense

4,350

4,350

\(123,100

\)123,100

\(132,980

\)132,980

Instructions

  1. Journalize the annual adjusting entries that were made.
  2. Prepare an income statement and a retained earnings statement for the year ended December 31, and a classified balance sheet at December 31.
  3. Identify which accounts should be closed on December 31.
  4. If the note has been outstanding 10 months, what is the annual interest rate on that note?
  5. If the company paid $10,500 in salaries and wages in 2017, what was the balance in Salaries and Wages Payable on December 31, 2016?

Jurassic Park Co. prepares monthly financial statements from a worksheet. Selected portions of the January worksheet showed the following data.

JURASSIC PARK CO.

Worksheet (PARTIAL)

For The Month Ended Jan. 31, 2017



Trial Balance
Adjustment
Adjusted
trial balance

Account Titles

Dr.

Cr.

Dr.

Cr.

Dr.

Cr.

Supplies

3,256

a) 1,500

1,756

Accumulated Depreciation鈥擡quipment

6,682

(b) 257

6,939

Interest Payable

(c) 50

150

Supplies Expense

(a) 1,500

1,500

Depreciation Expense

(b) 257

257

Interest Expense

(c) 50

50

During February, no events occurred that affected these accounts. But at the end of February, the following information was available.

  1. Supplies on hand \(715
  2. Monthly depreciation \)257
  3. Accrued interest $ 50

Instructions

Reproduce the data that would appear in the February worksheet, and indicate the amounts that would be shown in the February income statement.
See all solutions

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