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Chapter 3: Question 1Q (page 78)

Give an example of a transaction that result in:

  1. A decrease in asset and a decrease in a liability.
  2. A decrease in one asset and an increase in another asset.
  3. A decrease in one liability and an increase in another liability.

Short Answer

Expert verified
  1. Payment to creditors.
  2. Goods purchased for cash.
  3. Issuance of bills payable to creditors.

Step by step solution

01

Meaning of transaction

A transaction can be understood as an activity between a buyer and a seller to interchange goods, services, or assets for money.

02

Explanation for statement ‘a’

An example of a decrease in asset and a liability is payment made by the company to its creditors using cash, in this case, the creditors or liability decreases, as well as a decrease in the cash account.

03

Explanation for statement ‘b’

An example of a decrease in one asset and an increase in the other is the acquisition of inventory for cash, here inventory will increase and cash will decrease.

04

Explanation for statement ‘c’

An example of a decrease in one liability and an increase in another liability is a partner’s loan converted into capital, there will be an increase in capital and decrease in loan.

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Most popular questions from this chapter

(L07) (Cash to Accrual Basis) Jill Accardo, M.D., maintains the accounting records of Accardo Clinic on a cash basis. During 2017, Dr. Accardo collected \(142,000 from her patients and paid \)55,470 in expenses. At January 1, 2017, and December 31, 2017, she had accounts receivable, unearned service revenue, accrued expenses, and prepaid expenses as follows. (All long-lived assets are rented.)

January 1, 2017, December 31,2017

Account receivable \(9,250 \)15,927

Unearned service revenue \(2,840 \)4,111

Accrued expenses \(3,435 \)2,108

Prepaid expenses \(1,917 \)3,232

Instructions:

Prepare a schedule that converts Dr. Accardo’s “excess of cash collected over cash disbursed” for the year 2017 to net income on an accrual basis for the year 2017.

Jay Hawk, maintenance supervisor for Boston Insurance Co., has purchased a riding lawnmower and accessories to be used in maintaining the ground and corporate headquarters. He has sent the following information to the accounting department.

Cost of Mover and Accessories

\(4,000

Date Purchased

7/1/2017

Estimated Useful Life

5 yrs

Monthly Salary of Groundskeeper

\)1,100

Salvage Value

\(0

Estimated Annual Fuel Cost

\)150

Compute the amount of depreciation expense(related to the mover and accessories) that should be reported on Boston’s December 31, 2017, Income Statement. Assume straight-line depreciation.

Becker Ltd. is planning to adopt IFRS and prepare its first IFRS financial statements at December 31, 2018. What is the date of Becker’s opening balance sheet, assuming one year of comparative information? What periods will be covered in Becker’sfirst IFRS financial statements?

Cooke Company has a fiscal year ending on September 30. Selected data from the September 30 worksheet are presented below.

COOKE COMPANY

Worksheet

For The Month Ended September 30, 2017


Trial Balance
Adjusted Trial Balance

Account Titles

Dr.

Cr.

Dr.

Cr.

Cash

37,400

37,400

Supplies

18,600

4,200

Prepaid Insurance

31,900

3,900

Land

80,000

80,000

Equipment

120,000

120,000

Accumulated Depreciation—Equipment

36,200

42,000

Accounts Payable

14,600

14,600

Unearned Service Revenue

2,700

700

Mortgage Payable

50,000

50,000

Common Stock

107,700

107,700

Retained Earnings, Sept. 1, 2017

2,000

2,000

Dividends

14,000

14,000

Service Revenue

278,500

280,500

Salaries and Wages Expense

109,000

109,000

Maintenance and Repairs Expense

30,500

30,500

Advertising Expense

9,400

9,400

Utilities Expenses

16,900

16,900

Property Tax Expense

18,000

21,000

Interest Expense

6,000

12,000

Totals

491,700

491,700

Insurance Expense

28,000

Supplies Expense

14,400

Interest Payable

6,000

Depreciation Expense

5,800

Property Taxes Payable

3,000

Totals

506,500

506,500

Instructions

(a) Prepare a complete worksheet.

(b) Prepare a classified balance sheet. (Note: $10,000 of the mortgage payable is due for payment in the next fiscal year.)

(c) Journalize the adjusting entries using the worksheet as a basis.

d) Journalize the closing entries using the worksheet as a basis.

(e) Prepare a post-closing trial balance.

E3-3 (L02) (Corrected Trial Balance) The following trial balance of Blues Traveler Corporation does not balance.

BLUES TRAVELER CORPORATION

TRIAL BALANCE

APRIL 30, 2017
Debit Credit

Cash \( 5,912Accounts Receivable 5,240Supplies 2,967Equipment 6,100Accounts Payable \) 7,044Common Stock 8,000Retained Earnings 2,000Service Revenue 5,200Office Expense 4,320

Total \(24,539 \)22,244

An examination of the ledger shows these errors.1. Cash received from a customer on account was recorded (both debit and credit) as \(1,380 instead of \)1,830.2. The purchase on account of a computer costing \(3,200 was recorded as a debit to Office Expense and a credit to AccountsPayable.3. Services were performed on account for a client, \)2,250, for which Accounts Receivable was debited \(2,250 and ServiceRevenue was credited \)225.4. A payment of \(95 for telephone charges was entered as a debit to Office Expense and a debit to Cash.5. The Service Revenue account was totaled at \)5,200 instead of $5,280.InstructionsFrom this information prepare a corrected trial balance.
See all solutions

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