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Chapter 3: Question 1BE (page 128)

BE3-1 (L02) Transactions for Mehta Company for the month of May are presented below. Prepare journal entries for each of these transactions. (You may omit explanations.) May 1 B.D. Mehta invests \(4,000 cash in exchange for common stock in a small welding corporation. 3 Buys equipment on account for \)1,100. 13 Pays \(400 to landlord for May rent. 21 Bills Noble Corp. \)500 for welding work done

Short Answer

Expert verified

The total balance of the debit and credit side is $6,000.

Step by step solution

01

Financial Transaction

A transaction that has some monetary value is known as a financial transaction. These transactions are responsible for changing the value of assets and liabilities of the business entity.

02

Journal Entries

Date

Accounts and Explanation

Debit $

Credit$

May 1

Cash

$4,000

Common stock

$4,000

May 3

Equipment

$1,100

Accounts payable

$1,100

May 13

Rent expenses

$400

Cash

$400

May 21

Accounts receivable

$500

Service revenue

$500

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Most popular questions from this chapter

“A worksheet is a permanent accounting record, and its use is required in the accounting cycle. “Do you agree? Explain.

Which statement is correct regarding IFRS?

(a) IFRS reverses the rules of debits and credits, that is,debits are on the right and credits are on the left.

(b) IFRS uses the same process for recording transactionsas GAAP.

(c) The chart of accounts under IFRS is different becauserevenues follow assets.

(d) None of the above statements are correct.

Question: Presented below is the trial balance of the Crestwood Golf Club, Inc. as of December 31. The books are closed annually on December 31.


CRESTWOOD GOLF CLUB, INC.

TRIAL BALANCE

DECEMBER 31

Debit

Credit

Cash

\(15,000

Accounts receivables

13,000

Allowance for doubtful accounts

\)1,100

Prepaid insurance

9,000

Land

350,000

Building

120,000

Accumulated depreciation – building

38,400

Equipment

150,000

Accumulated depreciation – equipment

70,000

Common stock

400,000

Retained earnings

82,000

Dues revenue

200,000

Green fees revenue

5,900

Rent revenue

17,600

Utilities expenses

54,000

Salaries and wages expenses

80,000

Maintenance and repair expenses

24,000

\(815,000

\)815,000

Instructions

(a) Enter the balances in ledger accounts. Allow five lines for each account.

(b) From the trial balance and the information given below, prepare annual adjusting entries and post to the ledger accounts. (Omit explanations.)

(1) The buildings have an estimated life of 30 years with no salvage value (straight-line method).

(2) The equipment is depreciated at 10% per year.

(3) Insurance expired during the year \(3,500.

(4) The rent revenue represents the amount received for 11 months for dining facilities. The December rent has not yet been received.

(5) It is estimated that 12% of the accounts receivable will be uncollectible.

(6) Salaries and wages earned but not paid by December 31, \)3,600.

(7) Dues received in advance from members $8,900 were recorded as Dues Revenue.

(c) Prepare an adjusted trial balance.

(d) Prepare closing entries and post.

List two types of transactions that would receive differentaccountingtreatments using (a) strict cash basis accounting, and (b) a modified cash basis.

Question: The Amato Theater is nearing the end of the year and is preparing for a meeting with its bankers to discuss the renewal of a loan. The accounts listed below appeared in the December 31, 2017, trial balance.

Debit

Credit

Prepaid advertising

\(6,000

Equipment

192,000

Accumulated depreciation

\)60,000

Note payable

90,000

Unearned service revenue

17,500

Ticket revenue

360,000

Advertising expenses

18,680

Salaries and wages expenses

67,600

Interest expenses

1,400

Additional information is available as follows.

1. The equipment has an estimated useful life of 16 years and a salvage value of \(40,000 at the end of that time. Amato uses the straight-line method for depreciation.

2. The note payable is a one-year note given to the bank January 31 and bearing interest at 10%. Interest is calculated on a monthly basis.

3. Late in December 2017, the theater sold 350 coupon ticket books at \)50 each. Two hundred of these ticket books have been used by year-end. The cash received was recorded as Unearned Service Revenue.

4. Advertising paid in advance was \(6,000 and was debited to Prepaid Advertising. The company has used \)2,500 of the advertising as of December 31, 2017.

5. Salaries and wages accrued but unpaid at December 31, 2017, were $3,500.

Accounting

Prepare any adjusting journal entries necessary for the year ended December 31, 2017.

Analysis

Determine Amato’s income before and after recording the adjusting entries. Use your analysis to explain why Amato’s bankers should be willing to wait for Amato to complete its year-end adjustment process before making a decision on the loan renewal.

Principles

Although Amato’s bankers are willing to wait for the adjustment process to be completed before they receive financial information, they would like to receive financial reports more frequently than annually or even quarterly. What trade-offs, in terms of relevance and faithful representation, are inherent in preparing financial statements for shorter accounting time periods?
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