Journal Entries

Hard Test

Key Things To Know

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Hard Test

Hard Test

Click the “Check Your Answer” box below each problem to reveal the correct answer and explanation.

1. Retained earnings will decrease when

a. common stock is credited
b. cash is debited when collected from a customer
c. the company pays an accounts payable and credits accounts payable
d. the account dividends paid is debited

Check Your Answer
D. Retained earnings decreases when dividends are paid or the company incurs a net loss. Paying dividends is a reduction to shareholder’s equity. Decreases to shareholder’s equity is recorded with a debit.
2. What is recorded when insurance for the next six months is paid for this period?

a. a debit to prepaid insurance
b. a credit to accrued insurance
c. a debit to accounts payable
d. a debit to insurance payable

Check Your Answer
A. This is an increase to prepaid insurance. Prepaid insurance is an asset and assets increase with a debit.
3. Which of the following is never recorded in the same transaction?

a. a debit to cash and a debit to owner’s equity
b. a credit to cash and a debit to a different asset
c. a debit to an asset and a credit to a liability
d. a credit to an asset and a debit to a liability

Check Your Answer
A. A journal entry must always have at least one debit and one credit. All other choices are very common: (b) exchanges one asset for another asset, (c) buy an asset and pay later, (d) repay a liability
4. What is recorded when dividends are paid to shareholders?

a. a debit to cash and a credit to dividends payable
b. a credit to dividend revenue and a credit to cash
c. a debit to dividend expense and a credit to cash
d. a debit to divididends paid or retained earnings and a credit to cash

Check Your Answer
D. Payments are always a decrease to cash which is recorded with a credit. If cash is the credit, the other account must be a debit. Dividends paid is a decrease to the owner’s equity account retained earnings or dividends paid (either can be used). Dividends paid are not a revenue or an expense and are never recorded on the income statement.
5. What is recorded when goods are provided to a customer on account?

a. a debit to 2 asset accounts and a credit to 2 revenue accounts
b. credits to an asset and a revenue, debit to an asset and a debit to an expense
c. a credit liability and revenue accounts, credit an asset and a debit an expense
d. a debit to an asset and credit to a revenue only

Check Your Answer
B. This is recorded with a debit to accounts receivable and a credit to sales for the price to the customer. You also record a debit to cost of goods sold (expense) and a credit to inventory that is used up when provided to the customer for the company’s cost of the inventory. Two separate things occur: 1) the customer is provided goods (credit sales revenue) and owes the company (debit accounts receivable) and 2) inventory is used up (credit inventory) when it is given to the customer creating an expense (debit cost of goods sold).
6. Accumulated depreciation is recorded as a credit in the journal entry that occurs
when

a. supplies depreciate
b. a long-term asset is used during the current period
c. a customer does not pay
d. depreciation expense is paid

Check Your Answer
B. Accumulated depreciation is always recorded as a credit when depreciation expense is incurred (debit). Depreciation expense is recorded when a long term asset is used. Depreciation expense is not paid since the cash was paid when the long-term asset was purchased. Supplies is a current asset and does not depreciate, they are used.
7. When recording advertising expense incurred this period you also record

a. a credit to accrued expenses
b. a debit to accrued liabilities
c. a credit to a revenue
d. a debit to cash

Check Your Answer
A. When recording an expense for this period (increase with a debit) you must also record the expense was paid for (credit to cash) or that you owe for the expense (credit to a liability). Accrued expense is the liability often used for advertising expense (accounts payable is also used).
8. Cost of goods sold is debited when

a. inventory is purchased and paid for
b. inventory is provided to a customer
c. a service is provided to a customer
d. a service is provided to the company

Check Your Answer
B. Cost of goods sold is the account that is used to show that inventory is used to provide goods to the customer. Using inventory is recorded as the credit (decreasing) and cost of goods sold is recorded with a debit (expense increasing).
9. The accounts receivable account is credited when

a. goods are provided to customers
b. the customer pays for goods provided
c. the customer does not pay for goods provided
d. both a. & c.

Check Your Answer
B. Accounts receivable represents what the customer owes the company and is an asset. Assets are credited when they are decreased. Accounts receivable decreases when the customer pays the company. (a.) & (c.) are recorded with a debit to accounts receivable.
10. You will record that an asset is purchased by paying a certain amount of cash down and agreeing to pay the rest by making monthly payments with

a. a debit to an asset and a credit to a liability
b. a debit to two asset accounts and a credit to one liability account
c. a debit to one asset account and a credit to three liability accounts
d. a debit to an asset, a credit to an asset, and a credit to a liability

Check Your Answer
D. Purchasing an asset is an increase in the asset (debit). Paying cash is a decrease to the asset (credit). Paying later is an increase to a liability (credit). Total debits must always equal total debits.
11.  Beginning balances for the company’s accounts were as follows:

 

Cash $52,000
Accounts Receivable $31,000
Inventory $59,000
Notes Receivable – S/T $10,000
Building $75,000
Accumulated Deprec. $15,000
Accounts Payable $21,000
Salaries Payable $3,000
Long Term Debt $90,000
Common Stock $50,000
Retained Earnings $48,000

 

A.  Record journal entries for the following transactions.
B.  Balance all accounts.
C.  Prepare an income statement.
D.  Prepare a balance sheet.

1)  Purchased equipment paying $4,000 cash and financing $10,000 to be repaid in monthly payments for 8 months.

2)  Paid $2,500 owed to employees for work performed this period.

3)  Recorded $5,000 to show the use of the building this period

4)  Earned $1,000 interest on the notes receivable, collected cash

5)  Made a payment to the bank on the long term debt; $2,500

6)  Customers paid $12,800 for goods provided this period that cost the company $8,400

7)  Interest incurred on the long term debt was $1,200, not yet paid

8)  Customers paid $23,000 for amounts owed to the company

9)  The company paid $11,000 to suppliers owed

10)  Employees earned $4,800 this period, not yet paid

11)  Paid dividends of $5,000 to shareholders

12)  Paid $2,400 for insurance for this month

13)  Purchased and used supplies.  Paid $200 cash.

14)  Purchased equipment for $2,500; paid $1,000 down and will pay the different in monthly payments during the next year.

15)  Paid $400 for advertising run this month

Check Your Answer
1)
Equipment                                     14,000
       Cash                                                     4,000
       S/T Notes Payable                          10,000

2)
Salaries Expense                             2,500
       Cash                                                     2,500

(Incur this period means it is an expense)

3)
Depreciation Expense                    5,000
       Accumulated Depreciation             5,000

(Using long term assets is always depreciation expense)

4)
Cash                                                   1,000
       Interest Revenue                               1,000

(Earned means a revenue)

5)
Long Term Debt                              2,500
       Cash                                                     2,500

6)
Cash                                                 12,800
       Sales                                                   12,800

Cost of Goods Sold                         4,800
       Inventory                                            4,800

(The value to the customer is the sales amount and the cost of inventory is the cost of goods sold amount)

7)
Interest Expense                              1,200
       Interest Payable                                 1,200

(incurred always means an expense)

8)
Cash 23,000
       Accounts Receivable 23,000

9)
Accounts Payable                          11,000
       Cash                                                    11,000

10)
Salaries Expense                             4,800
       Salaries Payable                                4,800

11)
Dividends Paid (R.E.)                    5,000
       Cash                                                     5,000

12)
Insurance Expense                         2,400
       Cash                                                     2,400

13)
Supplies Expense                               200
       Cash                                                        200

(Used an asset is always an expense)

14)
Equipment                                        2,500
       Cash                                                     1,000
       S/T Notes Payable                             1,500

15)
Advertising Expense                          400
       Cash                                                        400

(“run” means provided which is an expense)

T Accounts are not provided here.  You should have written a T account for each account name use and post the amounts on the proper debit or credit side and balance the account.

Asset and expense accounts have a debit balance. Liability, owner’s equity, and revenue accounts have a credit balance. Accumulated depreciation has a credit balance (contra-asset)

Account balances will be the amounts on the income statement and balance sheet below.

Income Statement:

Sales 12,800
– Cost of Goods Sold (8,400)
= Gross Profit 4,400
– Operating Expenses:
     Depreciation Expense (5,000)
     Salary Expense (7,300)
     Insurance Expense (2,400)
     Supplies Expense (200)
     Advertising Expense (400)
Operating Income (10,900)
+-Other Revenues/Expenses
     Interest Income 1,000
     Interest Expense (1,200)
Income before tax (11,100)
Tax Expense        0
     Net Income (11,100)

Balance Sheet:

Assets Liabilities
Cash 59,800 Accounts Payable 10,000
Accounts Receivable 8,000 Salaries Payable 7,800
Inventory 50,600 Interest Payable 1,200
S/T Notes Receivable 10,000 S/T Notes Payable 11,500
   Total Current Assets 128,400 Total Current Liabilities 30,500
L/T Debt 87,500
Building 75,000               
Equipment 16,500 Total Liabilities 118,000
Accumulated Deprec. (20,000)
Net P/P/E 128,400 Owner’s Equity
Common Stock 50,000
Retained Earnings 31,900
Total Owners Equity 81,900
                               
Total Assets 199,900 Total Liabilites & O. Eq. 199,900
====== =====

 

Beginning Retained Earnings     48,000
+ Income – Loss                           (11,100)
–  Dividends Paid                           (5,000)
= Ending Retained Earnings       31,900

**  Dividends paid are not reported on either statement.  It is included in retained earnings.

12. Record journal entries for each of the following transactions. The beginning balance of cash and common stock is $50,000 each. Determine the balance in the cash account at the end of the period.

a. Purchased a building for $150,000 by signing a note for $125,000 to be repaid in 10 years and paying the rest in cash.
b. Purchased equipment, signed a note to repay in 6 months, $8,000
c. Borrowed $80,000 from investors, agreeing to repay in 5 years.
d. Purchased 2 company autos for $30,000; paid $2,400 down and financed the rest to be repaid in 5 years
e. Paid $1,000 for insurance for the next 6 months
f. Purchased inventory on account for $20,000
g. Purchased office supplies for cash of $1,100, used this month
h. Received $5,000 from a customer who will be provided the service in 2 months
i. Paid for half the inventory purchased on account in f.
j. Signed a contract to purchase an acre of land for $25,000

Check Your Answer
a.
Building                                        150,000
       Cash                                                   25,000
       L/T Notes Payable                        125,000

b.
Equipment                                       8,000
S/T Notes Payable                                   8,000

c.
Cash                                                80,000
       Bonds Payable                                80,000

d.
Automobiles                                  30,000
       L/T Notes Payable                          27,600
       Cash                                                     2,400

e.
Prepaid Insurance                           1,000
       Cash                                                     1,000

f.
Inventory                                       20,000
       Accounts Payable                           20,000

g.
Office supplies expense                  1,100
       Cash                                                      1,100

h.
Cash                                                   5,000
       Unearned Revenue                           5,000

i.
Accounts Payable                          10,000
       Cash                                                   10,000

j. No transaction recorded, an exchange has not occurred

13. The company began the year with the following balances:

Sales $25,000
Accounts Receivable $12,000
Inventory $15,000
Accounts Payable $3,000
S/T Notes Payable $20,000
Interest Payable $1,000
Taxes Payable $2,000
Common Stock $26,000

A. Record journal entries for the following transactions.
B. Determine the balance for each account.
C. Prepare a balance sheet.

a. Collected $6,000 owed from customers
b. Purchased $13,000 of inventory on account
c. Repaid $5,000 to the bank
d. Paid the total amount owed for interest
e. Paid one half of the total amount owed to suppliers
f. Purchased office supplies on account for $200 (not used this period)
g. Received $2,500 from a customer who will be shipped inventory next month
h. Paid the entire amount owed to the government for income taxes
i. Sold part of the company to investors for $30,000
j. Invested $25,000 of excess cash in a short term investment

Check Your Answer
a.
Cash                                                   6,000
       Accounts Receivable                        6,000

b.
Inventory                                        13,000
       Accounts Payable                            13,000

c.
S/T Notes Payable                          5,000
       Cash                                                     5,000

d.
Interest Payable                              1,000
       Cash                                                     1,000

e.
Accounts Payable                           8,000
       Cash                                                     8,000

(Beginning 3,000 + 13,000 = 16,000  x ½ = 8,000)

f.
Office Supplies                                    200
       Accounts Payable                                 200

g.
Cash                                                   2,500
       Unearned Revenue                           2,500

h.
Taxes Payable                                  2,000
       Cash                                                     2,000

i.
Cash                                                30,000
       Common Stock                               30,000

j.
S/T Investment                             25,000
       Cash                                                   25,000

T Accounts are not provided here.  You should have written a T account for each account name used, posted the amounts on the proper debit or credit side and balanced each account.  

Asset and expense accounts will have a debit balance.

Liability, owner’s equity, and revenue accounts will have a credit balance.

Account balances are the amounts on the income statement and balance sheet below.

Balance Sheet:

Assets Liabilities
Cash 22,500 Accounts Payable 8,200
Inventory 28,000 S/T Notes Payable 15,000
Accounts Receivable 6,000 Unearned Revenue   2,500
Office Supplies 200
Short Term Investments 25,000 Total Current Liabilities 25,700
   Total Current Assets 81,700
Owner’s Equity
Common Stock 56,000
Total Owner’s Equity 56,000
                         
Total Assets 81,700 Total Liabilities & Owner’s Equity 81,700