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ACCT 201 Financial Accounting

ACCT 201 – Financial Accounting

Practice Exercises – Chapter 2 (SOLUTIONS)

#1

Below are the external transactions for Shockers Incorporated.

  1. Provide services to customers for cash.
  2. Pay salaries for the current month.
  3. Purchase a building by signing a note payable.
  4. Pay utilities for the current month.
  5. Pay dividends to stockholders.
  6. Borrow cash from the bank.

Required:

Analyze each transaction. Under each category in the accounting equation, indicate whether the transaction increases, decreases, or has no effect. The first item is provided as an example.

Assets

=

Liabilities

+

Stockholders’ Equity

1.

Increase

=

No effect

+

Increase

2.

Decrease

=

No effect

+

Decrease

3.

Increase

=

Increase

+

No effect

4.

Decrease

=

No effect

+

Decrease

5.

Decrease

=

No effect

+

Decrease

6.

Increase

=

Increase

+

No effect

#2

Below is a list of common accounts.

Accounts

Debit or Credit

Supplies

1. DEBIT

Service Revenue

2. CREDIT

Dividends

3. DEBIT

Deferred Revenue

4. CREDIT

Buildings

5. DEBIT

Common Stock

6. CREDIT

Advertising Expense

7. DEBIT

Prepaid Rent

8. DEBIT

Interest Expense

9. DEBIT

Notes Payable

10. CREDIT

Required:

Indicate whether the normal balance of each account is a debit or a credit.

#3

Below are several external transactions for Hokies Company.

 

Account

Debited

Account

Credited

Example: Purchase equipment in exchange for cash.

Equipment

Cash

1. Provide services to customers on account.

Accounts Receivable

Service Revenue

2. Purchase land for cash.

Land

Cash

3. Purchase supplies on account.

Supplies

Accounts Payable

4. Pay workers’ salaries for the current month.

Salaries Expense

Cash

5. Purchase advertising for the current month.

Advertising Expense

Cash

6. Pay rent for the current month.

Rent Expense

Cash

7. Receive cash in advance from customers.

Cash

Deferred Revenue

8. Issue common stock in exchange for cash.

Cash

Common Stock

9. Pay dividends to stockholders.

Dividends

Cash

10. Issue a note payable in exchange for cash.

Cash

Notes Payable

Hokies uses the following accounts:

Accounts Payable

Equipment

Accounts Receivable

Cash

Supplies

Advertising Expense

Land

Rent Expense

Service Revenue

Common Stock

Notes Payable

Retained Earnings

Unearned Revenue

Salaries Expense

Dividends

Required:

Indicate which accounts should be debited and which should be credited.

#4

Bearcat Construction begins operations in March and has the following transactions.

March  1

Receive cash from customers for services provided, $21,300.

March  5

Issue common stock for cash, $11,000.

March 10

Receive cash from customers who were previously billed, $14,600.

March 15

Pay salaries for the current month of $3,800.

March 22

Pay rent for one year in advance, $15,700.

March 27

Pay dividends to stockholders, $9,000.

March 28

Purchase office supplies with cash, $3,800.

Required:

Record each transaction.

March 1

Debit

Credit

Cash

21,300

 

Service Revenue

 

21,300

(Provide services to customers for cash)

 

March 5

   

Cash

11,000

 

Common stock

11,000

(Issue common stock for cash)

 

March 10

   

Cash

14,600

 

Accounts Receivable

 

14,600

(Receive cash from customers on account)

 

March 15

   

Salaries Expense

3,800

 

Cash

 

3,800

(Pay salaries for current month)

 

           

   

March 22

   

Prepaid Rent

15,700

 

Cash

 

15,700

(Pay for rent in advance)

 

March 27

   

Dividends

9,000

 

Cash

 

9,000

(Pay dividends to stockholders)

 

March 28

 

Supplies

3,800

 

Cash

 

3,800

(Purchase office supplies with cash)

#5

Below is the complete list of accounts of Sooner Company and the related balance at the end of April. All accounts have their normal debit or credit balance. Supplies, $1,700; Buildings, $44,200; Salaries Payable, $3,200; Common Stock, $36,500; Accounts Payable, $2,600; Utilities Expense, $5,200; Prepaid Insurance, $2,000; Service Revenue, $20,900; Accounts Receivable, $4,500; Cash, $3,100; Salaries Expense, $7,900; Retained Earnings, $5,400.

Required:

Prepare a trial balance with the list of accounts in the following order: assets, liabilities, stockholders’ equity, revenues, and expenses.

Sooner Company

Trial Balance

April 30

Accounts

Debit

Credit

Cash

$ 3,100

 

Accounts receivable

4,500

 

Supplies

1,700

 

Prepaid insurance

2,000

 

Buildings

44,200

 

Accounts payable

 

$ 2,600

Salaries payable

 

3,200

Common stock

 

36,500

Retained earnings

 

5,400

Service revenue

 

20,900

Salaries expense

7,900

 

Utilities expense

5,200

 

Totals

$68,600

$68,600

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