ESLSCA UNIVERSITY

Answers to Lecture One

Exercises
TASK ONE
Stockholders’
Account Asset Liability Equity
a. Notes Payable x

b. Cash x

c. Common Stock x

d. Inventories x
e. Accounts Receivable x

f. Accounts Payable x

g. Property, Plant &

Equipment x
h. Unearned Revenue x

i. Retained Earnings x

TASK TWO
For each financial statement item listed, indicate whether it appears on the income statement
or balance sheet.

Income Balance
Financial Statement Item Amount Statement Sheet
Revenues Assets
Expenses Liabilities
Equity
Accounts Payable $ 41,000 Liab
Accounts Receivable 262,000 Assets
Accrued Expenses Payable 37,000 Liab
Cash and Cash Equivalents 125,000 Assets
Common Stock ($10 par value) 100,000 Equity
General and Administrative Expenses 75,000 Exp
Income Tax Expense 32,000 Exp
Intangible Assets, 85,000 Assets
Inventory 167,000 Assets
Notes Payable (due In 2020) 433,000 Liab
Prepaid Expenses 31,000 Assets
Property, Plant and Equipment, Net 184,000 Assets
Retained Earnings 161,000 Equity
Sales and Service Revenues 943,000 Revenue
Selling Expenses 125,000 Expenses
Short-Term Investments 57,000 Assets

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TASK FOUR
Assets = liabilities + Equity [Revenue- expenses + Capital -Drawings]
Analyze each of the following transactions of World Wide Webster by performing
each of the following.
(a) Owners invested $10,000 cash to start the business.
1
Decide if a transaction took place. Yes
.
2
Identify the accounts affected and its direction Cash +10000 Capital +10,000
.
3
Classify each account affected. Assets + Equity +
.

(b) Borrow $15,000, using a note payable to the bank.

1
Decide if a transaction took place. Yes
.
2
Identify the accounts affected and its direction Cash +15000 N/P +15000
.
3
Classify each account affected. Assets + Liabilities +
.

(c) Purchased a truck for $20,000 in cash.

1
Decide if a transaction took place. Yes
.
2 Cash (A) – 20000
Identify the accounts affected and its direction
. Truck (A)+ 20,000
3
Classify each account affected. Assets +/-
.

(d) Purchase $300 worth of supplies on credit. “On account”

1. Decide if a transaction took place.

Yes
2. Identify the accounts affected and its direction Supplies +300 +300 A/P
3. Classify each account affected. Assets + Liabilities +

(e) Sign contract for first website design for $10,000.

1. Decide if a transaction took place. No
2. Identify the accounts affected and its direction
3. Classify each account affected.

(f) Company pays off $300 Accounts Payable.

1
Decide if a transaction took place. Yes
.
2
Identify the accounts affected and its direction Cash -300 -300 A/P
.
3 Classify each account affected. Assets - Liabilities -

2
 .

(g) Company pays for and receives $600 worth of supplies.

1
Decide if a transaction took place. Yes
.
2 Cash – 600
Identify the accounts affected and its direction
. Supplies + 600
3
Classify each account affected. Assets +/-
.

(h) Earned $9500 for services rendered, $3000 cash is received from customers and the
balance is billed to customers.
1
Decide if a transaction took place. Yes
.
2 Cash +3000
Identify the accounts affected and its direction Revenue +9500
. A/Receivable +6500
3
Classify each account affected. +Assets Equity ++
.

(i)Paid employees salaries $2,200.

1
Decide if a transaction took place. Yes
.
2
Identify the accounts affected and its direction Cash – 2200 Salaries exp +2200
.
3
Classify each account affected. Assets - Equity -
.

(j) Received $4000 in cash from customers who were previously been billed.
1
Decide if a transaction took place. Yes
.
Cash +4000
2
Identify the accounts affected and its direction A/R -4000
.
3
Classify each account affected. Assets +/-
.

(i)Withdrew $1000 cash for personal use

1
Decide if a transaction took place. Yes
.
2
Identify the accounts affected and its direction Cash -1000 Drawings + 1000
.
3
Classify each account affected. Assets - Equity -
.

3
TASK EIGHT
Tabor Hill Designers entered into the following transactions during February of the
current year. Analyze each of the following transactions and prepare the journal entry
.required to record the related transaction
Tober Hill provided website design services for $40,000 cash to its customers (no. )a(
1 is shown as an example)

Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

+40,000 Cr Revenues Dr 40,000+ Cash
(b) Provide website design services to Acme Company, for $20,000 on account.
We expect Acme to pay in the future.
Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

20,000Cr+ Revenues 20,000Dr+ A/Receivable

.Collect $18,000 from Acme Company customers on account (from transaction b) )c(

Ensure the equation still balances and debits = credits

Stockholders’ Equity + Liabilities = Assets

Dr 18000+ Cash

Cr 18000- A/R

Collected $1200 cash in advance from customers for services to be performed next )d(
month

Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

Unearned Revenue+ Cr 1200Dr+ Cash
)Deferred Revenue(
.Co Paid $16,000 cash for wages to employees )e(

Ensure the equation still balances

---Stockholders’ Equity + Liabilities = Assets

Dr 16000 Salaries exp 16,000- Cash

Paid $3,600 a one year insurance policy for next year in advance. 3600/12=300 )f(

4
 Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

3600Cr- Cash

Dr 3600+ Prepaid ins

Determined that two months of the insurance policy purchased in (f) has been )g(
expired ins expired = 300 x2 =600

Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

Dr Ins exp Cr 600- Prepaid ins

The company provided one third of the revenues related to the cash collected in )h(

advance (d )

Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

Cr+ 800 Revenue Unearned Revenue (Deferred

revenue) -800 Dr

Received $250 telephone bill for month, to be paid next month )i(

Ensure the equation still balances

--Stockholders’ Equity + Liabilities = Assets

Dr 250 + Telephone exp A/P Cr 250

5
TASK FIVE
Using the following list of accounts and identification letters A through J, enter the
type of account and its normal balance into the table below. The first item is filled in
as an example:

Type of Account Normal Balance

Asset Liability Equity Debit Credit
Homer, Capital X X
Interest Payable X X
Land X X
Homer, Withdrawals X X
Fees Earned X X
Prepaid Rent X X
Advertising Expense X X
Unearned Rent Revenue X X
Commissions Earned X X
Notes Receivable X X

TASK SIX
Rowdy Bolton began Bolton Office Services in October and during that month
completed these transactions:
a. Invested $10,000 cash and $15,000 of computer equipment in the business.
b. Paid $500 cash for an insurance premium covering the next 12 months.
c. Completed office services for a customer and collected $1,000 cash.
d. Paid $200 cash for office supplies.
e. Paid $2,000 for October's rent.
REQUIRED:

Prepare journal entries to record the above

Trans. # Accounts Debit Credit

a. Cash 10,000
Equipment 15,000
capital 25,000
b. Prepaid Insurance 500
Cash 500
c. Cash 1000
Service Revenue 1000
d. Office Supplies 200
Cash 200
e. Rent Expense 2000
Cash 2000

6
TASK SEVEN
Presented below is selected information related to Broadway Company at December 31,
2018. Broadway reports financial information monthly:

Accounts Payable $3,000 Salaries Expense $16,500

Cash 7,000 Notes Payable 25,000
Advertising Expense 6,000 Rent Expense 10,500
Service Revenue 54,000 Accounts Receivable 13,500
Equipment 29,000 Drawings 7,500
:Required

1. Determine the total assets of Broadway Company at December 31, 2018

Cash 7000 + 29000 +13500= 49500
2. Determine total liabilities of Broadway Company reported at December 31,2018
A/P 3000 + 25000 = 28000
3. Determine the owner's equity of Broadway Company at December 31, 2018
A= L + Equity 49500 = 28000 + Equity
O equity = 49500 -28000 = 21500

4. Determine the net income of Broadway Company reported for December 31, 2018
Net income = 54000 –[6000 + 16500 +10500]= 21000

Assets 1/1 = liabilities 1/1 + Equity 1/1/2018

1000000 400000 600000

+Investment 100000

- Drawings 50,000
+ Net income 350000 (business)

Assets 31/12 = liabilities 31/12 + Equity 31/12

1500,000 500,000 1000,000

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TASK EIGHT
National Shops, Inc. reported the following amounts on its balance sheet as of
December 31, 2014:

Inventory $325
Notes Payable 100
Cash 150
Common Stock 750
Net property, plant and equipment 600
Accounts Receivable 30
Accounts Payable 45
Retained Earnings ?
Requirements:
1. What is the amount of National's total assets as of December 31, 2014?

325 + 150 +600 +30 =1105

2. Identify the items listed above that are liabilities.100 +45 = 145

3. Determine the amount of stock holders' equity as of December 31, 2014

Assets = liab + Equity

1105 = 145 + equity

Equity = 1105 -145= 960

4what is the amount of National's retained earnings as of December 31, 2014? 

Equity = common stock + retained earnings

960 = 750 +?
960 -750= 210

TASK NINE
The following information relates to Olga Co. for the year 2018

Olga, Capital , Jan 1, 2018 $48,000 Advertising Expense $1,800

Olga, Drawings during 2018 7,000 Rent Expense 12,000
Service Revenue 67,000 Utilities Expense 3,100
Salaries Expense 30,000
Required:
Prepare an income statement and an owner's equity statement for the year ending
December 31, 2018

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 Olga Co.
Income Statement
For the year ended December 31, 2018
Service Revenue 67000
Less: Expenses
Salaries Exp 30,000
Adv exp 1800
Rent exp 12,000
Utilities Exp 3100 (36100)
Net Income 20100

Owner’s Equity
For the year ended December 31, 2018
Olga Capital 1/1 48000
+ Net income 20100
Drawings - (7000)
Olga, Capital 31/12 61100

TASK TEN
The accounts of Mason Company at the end of the past year report the following
amounts:
Accounts Amount
Owner Withdrawals, G. Mason……. $15,500
Revenues…………………………… $97,000
Expenses……………………………. $43,800
Owner investments………………..... 2,000

If the beginning equity for the year was $173,000, calculate the ending equity for
Mason Company.
Beginning Equity $173,000
Add: Owner Investments 2,000
Add: Net Income 53,200
Less: Drawings (15,500)
Ending: Owner’s Equity 212,700

TASK ELEVEN: TRY YOUR SELF