Homework 2

Question BE3-1 Transactions for Mehta Company for the month of May are presented below.
Prepare journal entries for each of these transactions. (You may omit explanations.)
1. May 1 B.D. Mehta invests $4,000 cash in exchange for common stock in a small welding
corporation.
2. 3 Buys equipment on account for $1,100.
3. 13 Pays $400 to landlord for May rent.
4. 21 Bills Noble Corp. $500 for welding work done.
Answer :
Journal entry for investing $4000 for common stock in business:
Date
May 1

Particulars
Cash
Common Stock

Debit ($)
4,000

Credit ($)
4,000

Journal entry for buying equipment on account:

Date
May 3

Particulars
Equipment
Accounts Payable

Debit ($)
1,100

Credit ($)
1,100

Journal entry for paying $400 for rent expense for the period:
Date
May 13

Journal entry for service revenue:

Particulars
Rent Expense
Cash

Debit ($)
400

Credit ($)
400

Date
May 21

Particulars
Accounts Receivable
Service Revenue

Debit ($)
500

Credit ($)
500

Question BE3-2 Agazzi Repair Shop had the following transactions during the first month of
business as a proprietorship. Journalize the transactions. (Omit explanations.)
Aug. 2 Invested $12,000 cash and $2,500 of equipment in the business.
7 Purchased supplies on account for $500. (Debit asset account.)
12 Performed services for clients, for which $1,300 was collected in cash and $670 was billed to
the clients.
15 Paid August rent $600.
19 Counted supplies and determined that only $270 of the supplies purchased on August 7 are
still on hand.

Answer :
Date
Aug. 2

Date
Aug. 7

Date
Aug. 12

Particulars
Cash
Equipment
Owners Capital

Debit ($)
12,000
2,500

Particulars
Supplies
Account Payable

Debit ($)
500

Particulars
Cash

Debit ($)
1,300

Credit ($)
14,500

Credit ($)
500

Credit ($)

Date
Aug. 15

Date
Aug. 19

Accounts Receivable
Service Revenue

670

Particulars
Rent Expense
Cash

Debit ($)
600

Particulars
Supplies Expense
Supplies ($500 - $270)

Debit ($)
230

1,970

Credit ($)
600

Credit ($)
230

Question BE3-3 On July 1, 2014, Crowe Co. pays $15,000 to Zubin Insurance Co. for a 3-year
insurance policy. Both companies have fiscal years ending December 31. For Crowe Co.,
journalize the entry on July 1 and the adjusting entry on December 31.
Answer:
Date
July 1, 2014

Date
Dec. 31, 2014

Particulars
Paid Insurance
Cash

Debit ($)
15,000

Particulars
Insurance Expense
Prepaid Insurance

Debit ($)
2,500

Credit ($)
15,000
Credit ($)
2,500

(15,000 x 1/2 x 1/3)

Question: BE3-6 LaBouche Corporation owns a warehouse. On November 1, it rented storage
space to a lessee (tenant) for 3 months for a total cash payment of $2,400 received in advance.
Prepare LaBouches November 1 journal entry and the December 31 annual adjusting entry.

Answer:
Date
Nov. 1

Date
Dec. 31

Particulars
Cash
Unearned Rent Avenue

Debit ($)
2,400

Particulars
Unearned Rent Avenue
Rent Avenue

Debit ($)
1,600

Credit ($)
2,400
Credit ($)
1,600

(2/3 x 2,400)
Question : E3-1 (Transaction AnalysisService Company) Beverly Crusher is a licensed
CPA. During the first month of operations of her business (a sole proprietorship), the following
events and transactions occurred.
1.
2.
3.
4.
5.

April 2 Invested $32,000 cash and equipment valued at $14,000 in the business.
2 Hired a secretary-receptionist at a salary of $290 per week payable monthly.
3 Purchased supplies on account $700. (Debit an asset account.)
7 Paid office rent of $600 for the month.
11 Completed a tax assignment and billed client $1,100 for services rendered. (Use

Service Revenue account.)

6. 12 Received $3,200 advance on a management consulting engagement.
7. 17 Received cash of $2,300 for services completed for Ferengi Co.
8. 21 Paid insurance expense $110.
9. 30 Paid secretary-receptionist $1,160 for the month.
10. 30 A count of supplies indicated that $120 of supplies had been used.
11. 30 Purchased a new computer for $6,100 with personal funds. (The computer will be
used exclusively for business purposes.)
Instructions
Journalize the transactions in the general journal. (Omit explanations.)

Answer :
Date
April 2

Particulars
Cash
Equipment
Capital

Debit ($)
32,000
14,000

46,000

April 2

No Entry

April 3

Supplies
Accounts Payable

700

Rent Expense
Cash

600

Accounts Receivable
Service Revenue

1,100

Cash
Unearned Service Revenue

3,200

Cash
Service Revenue

2,300

Insurance Expense
Cash

110

Salaries & Wages Expense

Cash

1,160

Supplies Expense
Supplies

120

Equipment
Owners Capital

6,100

April 7
April 11
April 12
April 17
April 21
April 30
April 30
April 30

Credit ($)

700
600
1,100
3,200
2,300
110
1,160
120
6,100

Question: E4-4 (Single-Step Income Statement) The financial records of LeRoi Jones Inc.
were destroyed by fire at the end of 2014. Fortunately, the controller had kept certain statistical
data related to the income statement as follows.

1. The beginning merchandise inventory was $92,000 and decreased 20% during the current
year.
2. Sales discounts amount to $17,000.
3. 20,000 shares of common stock were outstanding for the entire year.
4. Interest expense was $20,000.
5. The income tax rate is 30%.
6. Cost of goods sold amounts to $500,000.
7. Administrative expenses are 20% of cost of goods sold but only 8% of gross sales.
8. Four-fifths of the operating expenses relate to sales activities.
Instructions
From the foregoing information prepare an income statement for the year 2014 in single-step
form.

Answer:
Particulars
Revenues
Net Sales

Debit ($)

Credit ($)
$1,233,000

($1,250,000 $17,000)
Expenses
Sold Goods Cost
Selling Expenses
Administrative Expenses
Interest Expense
Total

500,000
400,000
100,000
20,000
1,020,000

Income Before Income Tax

Income Tax

213,000
63,900

Net Income
Earnings Per Share

149,100
7.45

Calculation:
Administrative Expenses: 20% of cost of goods sold = 20 x 500,000 = $100,000
Gross Sales x 8%: Administrative Expenses = $100,000/ 8% = 1,250,000
Selling Expenses: 4 x Administrative Expenses = 4 x $100,000 = $400,000
Earnings Per Share: $149,000/ 20,000 = 7.45

Question: E5-2 (Classification of Balance Sheet Accounts) Presented below are the captions of
Faulk Companys balance sheet.
(a) Current assets. (f) Current liabilities. (b) Investments. (g) Noncurrent liabilities. (c) Property,
plant, and equipment. (h) Capital stock. (d) Intangible assets. (i) Additional paid-in capital. (e)
Other assets. (j) Retained earnings.

Instructions
Indicate by letter where each of the following items would be classified.
1. Preferred stock. 11. Cash surrender value of life insurance.
2. Goodwill. 12. Notes payable (due next year).
3. Salaries and wages payable. 13. Supplies.
4. Accounts payable. 14. Common stock.
5. Buildings. 15. Land.
6. Equity investments (trading). 16. Bond sinking fund.
7. Current maturity of long-term debt. 17. Inventory.
8. Premium on bonds payable. 18. Prepaid insurance.

9. Allowance for doubtful accounts. 19. Bonds payable.

10. Accounts receivable. 20. Income taxes payable.

Answers:
1.

h.

2.

d.

3.

f.

4.

f.

c.

6.

a.

7.

f.

8.

g.

9.

a.

10.

a.

11.

b.

12.

f.

13.

a.

14.

h.

15.

c.

16.

b.

17.

a.

18.

a.

19.

g.

20.

f.