ACCT 201 Financial Accounting

ACCT 201 – Financial Accounting

Practice Exercises – Chapter 2 (SOLUTIONS)

Below are the external transactions for Shockers Incorporated.

Provide services to customers for cash.
Pay salaries for the current month.
Purchase a building by signing a note payable.
Pay utilities for the current month.
Pay dividends to stockholders.
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

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.

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.

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)

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