Accounting Transaction-Fundamentals of Accounting

• Hiring a new employee
• Receiving a deposit from a customer
• Putting a deposit down on a new vehicle
• Receiving cash upon signing a note

---

Anthoney, Inc. was recently formed with a $5,000 investment in the company by stockholders in exchange for common stock. The company then borrowed $2,000 from a local bank, purchased $1,000 of supplies on account, and also purchased $5,000 of equipment by paying $2,000 in cash and signing a promissory note for the balance. Based on these transactions, Anthoney’s total assets are:

• $9,000.
• $7,000.
• $10,000.
• $11,000.

---

Riverton, Inc. repays $2 million on a loan it had previously obtained from a bank.

• Assets decrease by $2 million, liabilities are unchanged, and stockholders’ equity decreases by $2 million.
• Assets decrease by $2 million, liabilities decrease by $2 million, and stockholders’ equity is unchanged.
• Assets decrease by $2 million; liabilities and stockholders’ equity are both unchanged.
• Assets decrease by $2 million and liabilities increase by $2 million.

---

Buffalo, Inc. had $100,000 in revenues, $40,000 in expenses, and paid $3,000 in dividends during the year. Net income equals:

• $63,000.
• $57,000.
• $60,000.
• $100,000.

---

Watson, Inc. uses accrual basis accounting. Its balance sheets at the end of its first year reported Accounts Receivable of $10,000, and at the end of its second year $15,000. Its income statement reported Sales Revenue of $100,000 in its second year. What would Watson’s revenues have been if it had used cash basis accounting?

• $100,000
• $95,000
• $10,000
• $105,000

---

Which of the following errors would most likely lead to an overstatement of net income in the current year, assuming that accrual basis accounting is used?

• Recording revenue earned in the current year when cash is collected this year.
• Failing to adjust the Unearned Revenue account for the portion of rent earned this year.
• Recording revenue when the cash is collected next year although it is earned in the current year.
• Recording an expense when paid next year although it is incurred this year.

---

Schaefer Corp. paid $6,000 cash in June for an insurance policy provides coverage for July through December. How much expense should Schaefer recognize in June to comply with generally accepted accounting principles?

• No expense should be recognized in June.
• $6,000
• $1,000 ($6,000 × 1/6 for the month of June)
• $3,000

---

On April 30, Sheldon Supply prepays rent of $7,000 for May and June. Which of the following describes the effects of this transaction on Sheldon’s accounting equation?

• There is no change to total assets, liabilities or stockholders’ equity.
• Liabilities decrease $7,000 and stockholders’ equity increases $7,000.
• Assets increase $7,000 and stockholders’ equity increases $7,000.
• Assets decrease $7,000 and liabilities decrease $7,000.

---

Ringmaster Co. had a beginning balance in accounts receivable of $12,000. During the year, it had credit sales of $150,000. Ringmaster collected cash payments on accounts of $140,000. At the end of the year, the accounts receivable account has a:

• debit balance of $22,000.
• credit balance of $22,000.
• debit balance of $2,000.
• credit balance of $2,000.

---

During March, Mantilla Consulting provides $25,000 in consulting services for a customer. The customer paid $12,500; the other $12,500 was on account. Which of the following statements about these transactions is correct?

• Accounts Receivable increases by $12,500, Liabilities decrease by $12,500, and Stockholders’ Equity increases by $25,000.

• Revenues increase by $12,500, liabilities decrease by $12,500, and stockholders’ equity is unchanged.

• Cash increases by $12,500, Consulting Revenue increases by $12,500, and Accounts Receivable increases by $25,000.

• Cash increases by $12,500, Accounts Receivable increases by $12,500, and Consulting Revenue increase by $25,000.

---

The trial balance would be out of balance if which of the following errors occurred?

• A purchase of supplies on account for $100 was posted as a debit to Supplies for $10 and a credit to Accounts Payable for $10.
• A journal entry was posted as a debit to Cash for $525 and a credit to Accounts Receivable for $552.
• A journal entry was posted as a debit to Cash and a credit to Sales Revenue when the company received a $400 payment from a customer on account.
• A $350 transaction was not recorded at all.

---

The following activities for the month of May for Spartan Fitness are listed below:

A.	Provided $9,800 of training to students on account.
B.	Received $3,100 cash from students for training provided in May.
C.	Received $1,000 cash for training to be provided in June.
D.	Received $4,100 cash from students on account for training provided in April.
E.	Paid April’s gym rental bill on account in the amount of $1,100.
F.	Received May’s rental bill of $1,100; set it aside.

Required:

Prepare journal entries to record the transactions identified among activities (A) through (F). (If no entry is required for a transaction/event, select “No Journal Entry Required” in the first account field.)

No	Transactions	General Journal	Debit	Credit
1	A	Accounts Receivable	9,800
		Service Revenue		9,800
2	B	Cash	3,100
		Accounts Receivable		3,100
3	C	Cash	1,000
		Unearned Revenue		1,000
4	D	Cash	4,100
		Accounts Receivable		4,100
5	E	Accounts Payable	1,100
		Cash		1,100
6	F	Rent Expense	1,100
		Accounts Payable		1,100

---

If the accrual adjusting entry is not made for revenue earned but not yet recorded, which of the following situations will occur?

• Assets will be understated and revenues will be overstated.
• Revenues will be understated and assets will be overstated.
• Both revenues and assets will be understated.
• Both revenues and assets will be overstated.

---

The trial balance would be out of balance if which of the following errors occurred?

• A purchase of supplies on account for $100 was posted as a debit to Supplies for $10 and a credit to Accounts Payable for $10.
• A journal entry was posted as a debit to Cash for $525 and a credit to Accounts Receivable for $552.
• A journal entry was posted as a debit to Cash and a credit to Sales Revenue when the company received a $400 payment from a customer on account.
• A $350 transaction was not recorded at all.

---

If the accrual adjusting entry is not made for revenue earned but not yet recorded, which of the following situations will occur?

• Assets will be understated and revenues will be overstated.
• Revenues will be understated and assets will be overstated.
• Both revenues and assets will be understated.
• Both revenues and assets will be overstated.

---

When revenues are accrued at the end of the current year:

• are also called Unearned Revenues.
• often result in cash payments in the next period.
• often result in cash receipts from customers in the next period.
• are recorded in the current year when cash is received.

---

Benson Corp. determine that its revenue is $100,000 and its expenses are $70,000 for the current year.  If Benson pays income tax at an average rate of 30 percent, the adjusting entry to record the income tax expense will:

• increase stockholders’ equity by $9,000.
• decrease liabilities by $9,000.
• decrease net income by $30,000.
• decrease stockholders’ equity by $9,000.

---

If Childs Cosmetics fails to record an accrual adjustment relating to salaries and wages, it would not affect the:

• statement of retained earnings
• income statement
• statement of cash flows
• balance sheet

---

What adjusting entry, if any, should be recorded as of March 31 for $50 interest on a note receivablethat was earned for the month of March, but was not yet collected?

• No journal entry is needed at this time.
• Debit Cash $50 and credit Interest Revenue $50.
• Debit Interest Receivable $50 and credit Interest Revenue $50.
• Debit Interest Receivable for $150 and credit Interest Revenue $150.

---

To record supplies used up during the period, the Supplies account should be ______ and Supplies Expense should be ______.

• decreased; increased
• decreased; decreased
• increased; decreased
• increased; increased

---

In a trial balance, a contra-account appears immediately:

• before the account it offsets and in the same column.
• after the account it offsets but in the opposite column.
• after the account it offsets and in the same column.
• before the account it offsets but in the opposite column.

---

Webb Builders, Inc. reports Equipment on its classified balance sheet. The balance of the Accumulated Depreciation account appears on a classified balance sheet as:

• a subtraction in the Total Liabilities section.
• a subtraction to arrive at the amount of Equipment, Net.
• part of Total Liabilities section.
• an addition to arrive at the amount of Equipment, Net.

---

Webb Builders, Inc. reports Equipment on its classified balance sheet. The balance of the Accumulated Depreciation account appears on a classified balance sheet as:

• a subtraction in the Total Liabilities section.
• a subtraction to arrive at the amount of Equipment, Net.
• part of Total Liabilities section.
• an addition to arrive at the amount of Equipment, Net.

---

Madonna Inc.’s unadjusted trial balance, prepared as of December 31, 2021, reports the following account balances. All of the accounts have normal balances.

Cash	$	19,500
Accounts Receivable		3,900
Supplies		4,800
Prepaid Insurance		8,600
Equipment		29,000
Accumulated Depreciation––Equipment		3,900
Notes Payable (long-term)		39,000
Unearned Revenue		14,500
Service Revenue		49,000
Salaries and Wages Expense		39,500

The following information is also available:

A)	Account of supplies revealed $2,300 worth on hand at December 31, 2021.
B)	An insurance policy, purchased on January 1, 2021, covers five years.
C)	The equipment depreciates at a rate of $2,900 per year; no depreciation has been recorded for 2021.
D)	Half (or 50%) of the amount recorded as Unearned Revenue remains unearned as of December 31, 2021
E)	The accrued amount of salaries and wages at December 31, 2021 are $3,900.

Required:

Prepare the required adjustments for the company as of December 31, 2021. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)

No	Transaction	General Journal	Debit	Credit
1	A	Supplies Expense	2,500
		Supplies		2,500
2	B	Insurance Expense	1,720
		Prepaid Insurance		1,720
3	C	Depreciation Expense	2,900
		Accumulated Depreciation – Equipment		2,900
4	D	Unearned Revenue	7,250
		Service Revenue		7,250
5	E	Salaries and Wages Expense	3,200
		Salaries and Wages Payable		3,200

---

Before closing journal entries are prepared and posted, but after the adjusting journal entries are prepared and posted, the balance in Retained Earnings is equal to:

• the amount that was reported on the previous year’s balance sheet.
• zero.
• the difference between total assets and total liabilities.
• the amount that is to be reported in the current year’s balance sheet.

---

The following activities for the month of May for Spartan Fitness are listed below:

A.	Provided $9,800 of training to students on account.
B.	Received $3,100 cash from students for training provided in May.
C.	Received $1,000 cash for training to be provided in June.
D.	Received $4,100 cash from students on account for training provided in April.
E.	Paid April’s gym rental bill on account in the amount of $1,100.
F.	Received May’s rental bill of $1,100; set it aside.

Required:

Prepare journal entries to record the transactions identified among activities (A) through (F). (If no entry is required for a transaction/event, select “No Journal Entry Required” in the first account field.)

No	Transactions	General Journal	Debit	Credit
1	A	Accounts Receivable	9,800
		Service Revenue		9,800
2	B	Cash	3,100
		Accounts Receivable		3,100
3	C	Cash	1,000
		Unearned Revenue		1,000
4	D	Cash	4,100
		Accounts Receivable		4,100
5	E	Accounts Payable	1,100
		Cash		1,100
6	F	Rent Expense	1,100
		Accounts Payable		1,100

---