PA3-1 Recording Nonquantitative Journal Entries
The following is a series of accounts for Dewan & Allard, Incorporated, which has been operating for two years. The accounts are listed alphabetically and numbered for identifi cation. Following the accounts is a series of transactions. For each transaction, indicate the account(s) that should be deb- ited and credited by entering the appropriate account number(s) to the right of each transaction. If no journal entry is needed, write none after the transaction. The fi rst transaction is given as an example.
Account No. Account Title Account No. Account Title
1 Accounts Payable 9 Land
2 Accounts Receivable 10 Note Payable
3 Advertising Expense 11 Prepaid Insurance
4 Buildings 12 Service Revenue
5 Cash 13 Supplies Expense
6 Contributed Capital 14 Supplies
7 Income Tax Expense 15 Wages Expense
8 Income Tax Payable
LO 3–3, 3-5 LEVEL
UP
Transactions Debit Credit
a. Example: Issued stock to new investors.
b. Performed services for customers this period on credit. c. Purchased on credit but did not use supplies this period. d. Prepaid a fire insurance policy this period to cover the next
12 months.
e. Purchased a building this period by making a 20 percent cash
down payment and signing a note payable for the balance.
f. Collected cash for services that had been provided and recorded
in the prior year.
g. Paid cash for wages that had been incurred this period. h. Paid cash for supplies that had been purchased on accounts
payable in the prior period.
i. Paid cash for advertising expense incurred in the current period. j. Incurred advertising expenses this period to be paid next period. k. Received cash for services rendered this period.
l. Used supplies on hand to clean the offices.
m. Recorded income taxes for this period to be paid at the
beginning of the next period.
n. This period a shareholder sold some shares of her stock to
another person for an amount above the original issuance price. PA3-2 Recording Journal Entries
Diana Mark is the president of ServicePro, Inc., a company that provides temporary employees for not-for-profi t companies. ServicePro has been operating for fi ve years; its revenues are increasing with each passing year. You have been hired to help Diana in analyzing the following transactions for the fi rst two weeks of April 2013:
April 2 Purchased office supplies for $500 on account.
April 5 Billed the local United Way office $3,000 for temporary services provided. April 8 Paid $250 for supplies purchased and recorded on account last period. April 8 Placed an advertisement in the local paper for $400 cash.
April 9 Purchased new equipment for the office costing $2,300 cash. April 10 Paid employee wages of $1,200, which were incurred in April.
April 11 Received $1,000 on account from the local United Way office billed on April 5. April 12 Purchased land as the site of a future office for $10,000. The land value was appraised as $11,000. Paid $2,000 down and signed a long-term note payable for the balance.
April 13 Issued 2,000 additional shares of stock for $40 per share in anticipation of building a new office.
April 14 Billed Family & Children’s Services $2,000 for services rendered this month. April 15 Received the April utilities bill for $300 to be paid next month.
Required:
For each of the transactions, prepare journal entries. Be sure to categorize each account as an asset (A), liability (L), stockholders’ equity (SE), revenue (R), or expense (E).
PA3-3 Analyzing the Effects of Transactions Using T-Accounts, Preparing an Unadjusted Trial Balance, and Determining Net Income
Spicewood Stables, Inc., was established in Dripping Springs, Texas, on April 1, 2013. The company provides stables, care for animals, and grounds for riding and showing horses. You have been hired as the new Assistant Controller. The following transactions for April 2013 are provided for your review. LO 3–2, 3–3
LO 3-1, 3–2, 3–3, 3-4
a. Received contributions from five investors of $200,000 in cash ($40,000 each).
b. Built a barn and other buildings for $142,000. The company paid half the amount in cash on April 1 and signed a three-year note payable for the balance.
c. Provided $16,000 in animal care services for customers, all on credit.
d. Rented stables to customers who cared for their own animals; received cash of $13,000.
e. Received from a customer $1,500 to board her horse in May, June, and July (record as Unearned Revenue).
f. Purchased hay and feed supplies on account for $3,000. g. Paid $800 in cash for water utilities incurred in the month.
h. Paid $1,700 on accounts payable for previous purchases.
i. Received $1,000 from customers on accounts receivable.
j. Paid $4,000 in wages to employees who worked during the month.
k. At the end of the month, prepaid a two-year insurance policy for $3,600.
l. Received an electric utility bill for $1,200 for usage in April; the bill will be paid next month.
Required:
1. Set up appropriate T-accounts. All accounts begin with zero balances.
2. Record in the T-accounts the effects of each transaction for Spicewood Stables in April, ref-
erencing each transaction in the accounts with the transaction letter. Show the unadjusted ending balances in the T-accounts.
3. Prepare an unadjusted trial balance as of April 30, 2013.
4. Refer to the revenues and expenses shown on the unadjusted trial balance. Based on this
information, calculate preliminary net income and write a short memo to the five owners offering your opinion on the results of operations during the first month of business.
PA3-4 Analyzing, Journalizing, and Interpreting Business Activities
On September 1, Pat Hopkins established Ona Cloud Corporation (OCC) as a provider of cloud computing services. Pat contributed $10,000 for 1,000 shares of OCC. On September 8, OCC borrowed $30,000 from a bank, promising to repay the bank in two years. On September 10, OCC wrote a check for $20,000 to acquire computer equipment. On September 15, OCC received $1,000 of supplies purchased on account and, on September 16, paid $1,500 for September rent. Through September 22, OCC billed its customers for $8,000 of services, of which OCC collected $6,000 in cash. On September 28, OCC paid $200 for Internet and phone service this month. On September 29, OCC paid wages of $4,000 for the month. Finally, on September 30, OCC submit- ted its electricity meter reading online and determined that the total charges for the month will be $300. This amount will be paid on October 14 through a preauthorized online payment.
Required:
1. Indicate the accounting equation effects of the September events, using a table similar to the
one shown for Demonstration Case B on page 114. Reference each transaction by date.
2. Prepare journal entries to record the September events described above. Reference each
transaction by date.
3. Using your answer to requirement 1 or 2, calculate OCC’s preliminary net income for
September. Is OCC profitable, based on its preliminary net income?
4. Identify at least two adjustments that OCC will be required to make before it can prepare a
final income statement for September.