ITM-601 2557/1 Exercises Chapter 1-5 1. Effects of transactions on elements of the accounting equation Some of the transactions carried out by Wu Wholesale during the first month of the company's existence are listed below. You are to determine the effect of each transaction on the total assets, the total liabilities, and the owners' equity. Prepare your answer in columnar form, identifying each transaction by letter and using the symbols (+) for increase, ( ) for decrease, and (NC) for no change. An answer is provided for the first transaction to serve as an example. 2. Effects of transactions on elements of the accounting equation Some of the transactions carried out by Champion Company during the first month of the company's existence are listed below. You are to determine the dollar effect of each transaction on the total assets, the total liabilities, and the owners' equity of Champion Company. Use the symbols (+) for increase, (?) (-)for decrease, and (NC) for no change. An answer is provided for the first transaction to serve as an example.
2 3. Recording transactions in T accounts; trial balance On May 15, George Konrad began a new business, called Rock-n-Roll, a recording studio to be rented out to artists on an hourly or daily basis. The following six transactions were completed by the business during May: (A.) Issued to Konrad 5,000 shares of capital stock in exchange for his investment of $100,000 cash. (B.) Purchased land and a building for $310,000, paying $50,000 cash and signing a note payable for the balance. The land was considered to be worth $200,000 and the building $110,000. (C.) Installed special insulation and soundproofing throughout most of the building at a cost of $60,000. Paid $16,000 cash and agreed to pay the balance in 60 days. Konrad considers these items to be additional costs of the building. (D.) Purchased office furnishings costing $9,000 and recording equipment costing $44,800 from Speedy Supplies. Paid $14,000 cash, with the balance due in 30 days. (E.) Borrowed $90,000 from a bank by signing a note payable. (F.) Paid the full amount of the liability to Speedy Supplies arising from the purchases in D above. Instructions (A.) Record the above transactions directly in the T accounts below. Identify each entry in a T account with the letter shown for the transaction. This exercise does not call for the use of a journal.
3 (B.) Prepare a trial balance at May 31 by completing the form provided. 4. Preparation of financial statements Using the Adjusted Trial Balance shown below, prepare (a) an Income Statement and (b) a Statement of Retained Earnings for All Star Repairs.
4 5. The Blue Chip Co. prepared the following income statement for December 31, 2008 but neglected to make the necessary adjusting entries. Required: Prepare a corrected income statement from the following: (1.) The company had purchased a truck for $4,800 on January 1, 2008 which was expected to last 5 years. It was originally debited to the account "Truck" and credited to cash. (2.) Salaries of $2,400 were owed to employees but not yet recorded. (3.) The company owed $640 in accrued interest which was to be paid early in January, 2009. (4.) In November, 2008 the company had received $3,600 in advance payments which were originally recorded as Unearned Revenue. One-third of this was earned in December, 2008.
5 6. Preparation of balance sheet after a series of transactions. The balance sheet was as follows for Hampton Ceramics on February 1, 2008: During the first week of February, the following transactions occurred: * The business paid off $5,000 of its accounts payable. (No payment was made on the notes payable.) * Additional capital stock was issued to Joan Hampton for $15,000 cash. *Equipment was purchased on credit for $1,800 * The business paid off $5,000 of its accounts payable (No payment was made on the notes payable.) Complete the balance sheet for Hampton Ceramics at February 8. 7. Completion of Balance Sheet Use the following information to complete the balance sheet of Grand Construction on December 31, 2007. (1) The company was organized on January 1, 2007, and has operated for the full year 2007. (2) Earnings have amounted to $275,000, and dividends of $70,000 have been paid to stockholders. (3) Cash and accounts receivable together amount to one and one-half times as much as notes payable.
6 Response: (A.) Total assets must be $620,000 to agree with the total of liabilities plus owners' equity. (B.) Cash must be $5,000 to achieve a total asset figure of $620,000. (C.) Cash ($5,000) plus accounts receivable ($85,000) equals $90,000. This total is stated to be 1.5 times the amount of notes payable. Notes payable is computed as $90,000 divided by 1.5, or $60,000. (D.) Accounts payable must be $115,000 to achieve total liabilities figure of $215,000. (E.) Retained earnings at the end of the first accounting period must be earnings ($275,000) less dividends ($70,000) or $205,000. (F.) Capital stock must be $200,000 to achieve total liabilities and owners' equity figure of $620,000. 6/7/20128. Effects of transactions on balance sheet items Show the effect of each of the seven listed transactions on the balance sheet items of Better Broadlooms. Indicate the new balances after the transaction of May 2 and each subsequent transaction. The effects of the May 1 transaction are already filled in to provide you with an example.
7 9. Effects of transactions on balance sheet items Show the effect of each of the seven listed transactions on the balance sheet items of Renaissance Investment Services, Inc. Indicate the new balances after the transaction of November 2 and each subsequent transaction. The effects of the November 1 transaction are already filled in to provide you with an example.
8 10. An inexperienced accounting intern at Commodore Company prepared the following income statement for the month of July, 2007: Instructions: Prepare a revised income statement in accordance with generally accepted accounting principles.