Week 4 Homework PDF

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1 Exercises 1.1 Problem 5: T-Accounts

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Brancatisano reports the following asset and liability T-accounts: Determine the balance in each account and identify whether each account would most likely be an asset or a liability account

COMPLETED Account 1: Left: 1000 + 4000 Right: 6000 + 3000 Right > Left Therefore, balance is on the credit side (right) Right – Left = $4000 A liability account with a credit balance (right) of 4000 Account 2: Left: 8400 + 2120 Right: 3250 Left > Right Therefore, balance is on the debit side (left) 8400 - (2120 + 3250) = 3030 An asset account with 3030 debit balance Account 3: Left: 4280 + 1660 = 5940 Right: 3600 + 1120 = 4720 Left > Right Left – Right = 1220 Therefore, an asset account with a debit (left) of 1220

1.2 Problem 10: Transaction Analysis a) Indicate the accounts that would be affected by each transaction b) Indicate whether each transaction increases, decreases or has no effects on assets, liabilities and shareholders’ equity The following transactions occurred in summer: i. Issued shares for cash Assets = Liabilities + Equity Increase Increase Cash increased, contributed capital increased ii. Purchased inventory on account Assets = Liabilities + Equity

Accounting for Business Decisions A

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Increase Increase Increased inventory, increased accounts payable iii. Received cash payment from client for services Assets = Liabilities + Equity Increase Increase Increase in cash, increase in service revenue iv. Billed customers for services Assets = Liabilities + Equity Increase Increase Increase in accounts receivable, increase in service expense v. Paid rent in cash Assets = Liabilities + Equity Decrease Decrease Decrease in cash, decrease in shareholder’s equity vi. Received a bill for electricity used Assets = Liabilities + Equity Decrease Decrease Decrease in cash, decrease in rent expense (aka shareholders equity) vii. Bought equipment for cash Assets = Liabilities + Equity Decrease/Increase Decrease in cash, Increase in Equipment since they are both Assets viii. Received cash from customer previously billed in transaction Assets = Liabilities + Equity Increase/Decrease Increase in cash, decrease in accounts receivable ix. Paid electricity bill received in transaction Assets = Liabilities + Equity Decrease Decrease Decrease in cash, decrease in accounts payable x. Paid dividends at the end of the year Assets = Liabilities + Equity Decrease Decrease Decrease in cash, decrease in dividends

1.3 Problem 16: In the month of March, Peter Wells Consulting entered into the following transactions:  2nd Purchased a new building for $935000  3rd Paid $860 for January’s electricity bill which was received in February  11th Issued shares to investors in return for $50000 cash  13th Hired a new administrative assistant for an annual salary of $85000  19th Received payment in the amount of $750 for service billed in February  23rd Sent an invoice (bill) to a customer for the week’s work just completed $6800  31st Paid dividends of $1000 Prepare all necessary journal entries for March (omitting explanations) Date

Accounts

Debit

Credit

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Accounting for Business Decisions A 2nd March 3rd March

11th March 13th March

19th March 23rd March 31st March

Tutorial Homework 4

Building Cash Utilities Payable (Electricity Bill) Cash Cash Contributed Capital Salaries Expense Cash Cash Accounts Receivable Accounts Receivable Cash Dividends Cash

935,000 935,000 860 860 50,000 50,000 85,000 85,000 750 750 6,800 6,800 1,000 1,000

1.4 Problem 21: Megan and Sinclair was established on 1 January and entered into the following transactions during its first month of business: i. issued shares of $50 000 in exchange for cash ii. purchased equipment for $24 000 cash iii. purchased supplies of $6000 on account iv. received $235 bill for January advertising v. billed customers $14 680 for services vi. paid salaries of $8015 vii. received payment of $6023 from customers for bills in transaction (v) viii. received $5000 cash for services to be performed in March ix. paid $6000 to suppliers for purchase in transaction (iii) x. received bill for January electricity, $975 xi. paid dividends of $900 to shareholders xii. borrowed $100 000 from bank on a mortgage xiii. paid $400 interest on the bank loan. a) Cash

i ii iii iv v vi vii vii

Assets Accounts Supplie Receivabl s e

+50,000 -24,000 -6000

Propert y + Equip

Account s Payable

Liabilities Unearne d Revenue

Equity Contribute Retaine d Equity d Earning s +50,000

+24000 +6000 +235

-235 +14680 -8015

+14680 -8015 +6023 +5000

Mortgag e (Payable )

-6023 +5000 August 18, 2020

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Accounting for Business Decisions A i ix x xi xii xii i

-6000

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-6000 +975

-975 -900

-900 +10000 0 -400 121 708

+100000 -400 8657

6000

24000

1210

5000

100000

50000

4155

Assets = Equity + Liability = $160,365 b) Should start using the Transaction Template Original Table: Cash 50000 Contributed Equity

50000

Properties and Equipment Cash

24000 24000

Supplies Accounts Payable

6000

Advertising Expense Accounts Payable

235

Accounts Receivable Service Revenue

14680

Salary Expense Cash

8015

Cash Accounts Receivable

6023

Cash Unearned Revenue

5000

Accounts Payable Cash

6000

Electricity Expense Accounts Payable

975

Dividends Cash

900

Cash Mortgage

100000

Interest Expense Cash

400

6000

235

14680

8015

6023

5000

6000

975

900

100000

400 August 18, 2020

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Accounting for Business Decisions A

Tutorial Homework 4

Edited and Completed Transaction Table using the Template:

Note: Supplies expense vs Supplies – Have not paid for the supplies in advance in comparison to supplies Unearned revenue is a liability account – still haven’t earned the revenue (therefore not a revenue account) ‘Utilities Expenses’ should be further specified (e.g. electricity) c) NOTE: Should be placed in the correct order to make it easier to input into the Trial Balance The ending balance is reported on the side with the higher total. The following T-balance accounts have been re-ordered in the correct sequence:

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Accounting for Business Decisions A

Tutorial Homework 4

d)

Cash Accounts receivable Supplies Property and Equipment Accounts payable Unearned revenue Mortgage Contributed Equity

Megan and Sinclair’s Trial Balance Debit 121,708 8,657 6,000 24,000

Credit

1,210 5,000 100,000 50,000

Service revenue Advertising expense Salaries expense Electricity expense Interest Expense Dividends

235 8,015 975 400 900

14,680

Totals

$170,890

$170,890

e) August 18, 2020

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Accounting for Business Decisions A

Tutorial Homework 4

Megan and Sinclair Income statement For the month ending 31 January Service Revenue (be specific) Expenses: Advertising expense Interest expense Salaries expense Electricity expense Total expenses Profits

14,680 235 400 8,015 975 9,625 5,055

f) Megan and Sinclair Statement of Changes in Equity (or retained earnings) For the month ending 31 January Retained Earnings on 1st of January 0 Add: Profits 5,055 Less: Dividends 900 Retained earnings, on 31st of January $4,155

g)

Assets Current assets: Cash Accounts receivable Supplies Total current assets: Non-current Assets: Equipment Total assets

121,708 8,657 6,000 134,365 24,000

160,365

Liabilities and shareholders' equity Current liabilities: Accounts payable Unearned revenue Total current liabilities Long-term liabilities: Mortgage Total liabilities Equity: Contributed Equity Retained earnings Total shareholders' equity Total liabilities and shareholders' equity

1,210 5,000 6,210 100,000 104,210

50,000 4,155 54,155

160,365

NOTE: Dividends don’t go in the equity section of balance sheet or the income statement

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Accounting for Business Decisions A

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1.5 Problem 22: Madden Consulting was established on 1 March, and during March it entered into the following transactions:  1st Issued $10000 shares in exchange for cash  3rd Purchased $300 of supplies on account  7th Prepaid $1500 total for April, May and June rent  8th Paid $175 towards the 3 March purchase of supplies  11th Billed customers $5780 for services rendered  12th Paid $700 for March advertising  25th Received $4500 from customers billed on 11 March  28th Paid $200 in dividends to shareholders  29th Paid $1200 for March salaries  29th Paid $760 for March water usage a) Prepare journal entries for each transaction (omitting explanations) b) Post the journal to the appropriate ledger (T-accounts) c) Prepare a trial balance at 31 March d) Prepare Madden’s income statement for the month of March e) Prepare the retained earnings section of the statement of changes in equity for the month of March f) Prepare Madden’s balance sheet at the end of March a) Original Transaction Table

Date

Account names

Debit

March 1st

Cash Contributed Equity

10 000

Office supplies Accounts payable

300

Prepaid rent Cash

1 500

Accounts payable Cash

175

Accounts receivable Service revenue

5 780

Advertising expense Cash

700

Cash Accounts receivable

4 500

Dividends Cash

200

Salaries expense Cash

1 200

Water expense Cash

760

March 3rd

7 March

8 March

11 March

12 March

25 March

28 March

29 March

29 March

Credit 10 000

300

1 500

175

5 780

700

4 500 200

1 200

760 August 18, 2020

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Accounting for Business Decisions A

Tutorial Homework 4

Using the Transaction Template

b) Original T-balance

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Accounting for Business Decisions A



Tutorial Homework 4

Problems with the Original t-balance account:  Each account has not been correctly organised Cash account is missing a debit and credit score, (4500 and 200)

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Accounting for Business Decisions A

Tutorial Homework 4

Re-ordered and edited T-balance

NOTE  

Dividends is always the last Why separate each expense? Each expense has its own account because expenses is an account classification, so we know the ending balance for each individual expense.

c) Madden Consulting Trial balance 31 March

Debit Cash Accounts receivable Office supplies Prepaid rent Accounts payable Contributed equity Service revenue Advertising expense Salaries expense Water expense Dividends

700 1,200 760 200

Totals

$15,905

Credit

9,965 1,280 300 1,500 125 10,000 5,780

$15,905

d) August 18, 2020

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Accounting for Business Decisions A

Tutorial Homework 4

Service revenue

Madden Consulting Income statement For the month ending 31 March 5,780

Expenses: Advertising expense Salaries expense Water expense

700 1,200 760 2,660 $3,120

Total expenses Profits e)

Madden Consulting Statement of changes in equity (retained earnings) For the month ending 31 March Retained earnings, 1st of March 0 Profits 3,120 Dividends 200 Retained earnings, 31st of March 2,920 f) Madden Consulting Balance sheet 31 March

Assets Current assets: Cash Accounts receivable Supplies Prepaid rent Total current assets Total assets

9,965 1,280 300 1,500 13,045 13,045

Liabilities and shareholders' equity Current liabilities: Accounts payable Total current liabilities Total liabilities Equity: Contributed equity Retained earnings Total equity

Total Liabilities and Equity

125 125 125 10,000 2,920 12,920 13,045

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