Exam 2: Financial Statements and the Accounting System

At the end of its first month of operations,Michael's Consulting Services reported net income of $25,000.They also had account balances of: Cash,$18,000; Office Supplies,$2,000 and Accounts Receivable $10,000.The sole stockholder's total investment in exchange for common stock for this first month was $5,000.There were no dividends in the first month. Calculate the amount of total equity to be reported on the balance sheet at the end of the month.

Describe what source documents are and the purpose they serve in a business.

Revenues always increase equity.

If insurance coverage for the next two years is paid for in advance,the amount of the payment is debited to an asset account called Prepaid Insurance.

List the four steps in recording transactions.

All of the following are asset accounts except:

During the month of February,Victor Services had cash receipts of $7,500 and cash disbursements of $8,600.The February 28 cash balance was $1,800.What was the February 1 beginning cash balance?

Pippa's Paralegal Services completed these transactions in February: a.Purchased office supplies on account,$300. b.Completed work for a client on credit,$500. c.Paid cash for the office supplies purchased in (a). d.Completed work for a client and received $800 cash. e.Received $500 cash for the work described in (b). f.Received $1,000 from a client for paralegal services to be performed in March. Prepare journal entries to record the above transactions.Explanations are not necessary.

At year-end,Henry Laundry Service noted the following errors in its trial balance: 1.It understated the total debits to the Cash account by $500 when computing the account balance. 2.A credit sale for $311 was recorded as a credit to the revenue account,but the offsetting debit was not posted. 3.A cash payment to a creditor for $2,600 was never recorded. 4.The $680 balance of the Prepaid Insurance account was listed in the credit column of the trial balance. 5.A $24,900 van purchase was recorded as a $24,090 debit to Equipment and a $24,090 credit to Notes Payable. 6.A purchase of office supplies for $150 was recorded as a debit to Office Equipment.The offsetting credit entry was correct. 7.An additional investment of $4,000 by the stockholder was recorded as a debit to Common Stock and as a credit to Cash. 8.The cash payment of the $510 utility bill for December was recorded (but not paid)twice. 9.The revenue account balance of $79,817 was listed on the trial balance as $97,817. 10.A $1,000 cash dividend was recorded as a $100 debit to Dividends and $100 credit to Cash. Using the form below,indicate whether each error would cause the trial balance to be out of balance,the amount of any imbalance,and whether a correcting journal entry is required.

On May 31,the Cash account of Bottle's R US had a normal balance of $5,000.During May,the Cash account was debited for a total of $12,200 and credited for a total of $11,500.What was the balance in the Cash account at the beginning of May?

A company provided $12,000 of consulting services,and was immediately paid in cash by the customer.Identify the journal entry below that properly records this transaction.

After preparing an (unadjusted)trial balance at year-end,R.Chang of Chang Window Company discovered the following errors: 1.Cash payment of the $225 telephone bill for December was recorded twice. 2.Cash payment of a note payable was recorded as a debit to Cash and a debit to Notes Payable for $1,000. 3.A $900 cash withdrawal by the owner was recorded to the correct accounts as $90. 4.An additional investment of $5,000 cash by the stockholder was recorded as a debit to Common Stock and a credit to Cash. 5.A credit purchase of office equipment for $1,800 was recorded as a debit to the Office Equipment account with no offsetting credit entry. Using the form below,indicate whether the error would cause the trial balance to be out of balance by placing an X in either the yes or no column.Would the errors cause the trial balance to be out of balance? Would the errors cause the trial balance to be out of balance?

A customer's promise to pay on credit is classified as an account payable by the seller.

Prepaid accounts (also called prepaid expenses)are generally:

Wiley Consulting purchased $7,000 worth of supplies and paid cash immediately.Which of the following general journal entries will Wiley Consulting make to record this transaction? Assume the company's policy is to initially record prepaid and unearned items in balance sheet accounts.

Neither U.S.GAAP nor IFRS require the use of accrual basis accounting.

A journal entry that affects no more than two accounts is called a compound entry.

You increase the Service Revenue account on the ________ side of its account.

If a company is highly leveraged,this means that it has relatively high risk of not being able to repay its debt.

An account is a record of increases and decreases in a specific asset,liability,equity,revenue,or expense item.