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Homework answers / question archive / On January 10, Rock Company purchases $20,000 worth of office supplies on credit
On January 10, Rock Company purchases $20,000 worth of office supplies on credit. On January 22, Rock Company pays $20,000 cash related to this purchase. 1. The journal entry to record the January 10 transaction will have the following effect on Rock Company's financial statements: a. Total Liabilities will increase by $20,000. b. Total Assets will decrease by $20,000. c. Total Expenses will increase by $20,000. d. Total Stockholders' Equity will decrease by $20,000. e. None of the above. 2. The journal entry to record the January 22 transaction will have the following effect on Rock Company's financial statements: a. Total Liabilities will increase by $20,000. b. Total Assets will decrease by $20,000. c. Total Expenses will increase by $20,000. d. Total Stockholders' Equity will decrease by $20,000. e. None of the above.
3. Fox Company's controller accidentally erased the 1/1/21 balance for the Accounts Payable account. However, he can see that the 1/31/21 Accounts Payable balance is $500,000, the company purchased $1,500,000 in goods on account during January 2021, and paid $1,600,000 cash related to accounts payable during January 2021. What was the 1/1/21 Accounts Payable balance? a. $400,000 b. $500,000 c. $600,000 d. $1,100,000 4. A purchase of a machine is recognized in the accounting records when: a. the buyer gets title to the machine. b. the buyer receives the seller's bill. c. payment is made for the machine purchased. d. the purchase order is sent to the purchasing department 5. Which of the following accounts is increased with a DEBIT? a. Rent Payable b. Prepaid Insurance c. Service Revenue d. All of the above
Which of the following statements is FALSE about a journal entry? a. All debits are always listed before any credits. b. It may have more than one debit or credit entry. c. Credits are always indented. d. Accounts that are increased are always listed first.
Ans 1: The journal entry on january 10 would a. total liabilities will increase by $20,000
The entry would be
| Jan 10 | Inventory (Supplies) | $20,000 | |
| Creditors | $20,000 |
Total assets would also increase by $20,000 in terms of supplies.
Expenses will have no effect from above transaction unless cost of goods transfered to expenses.
There will be no effect on shareholder equity.
Ans2: The journal entry on Jan 22 would a. Total assets will decrease by $20,000 in cash form.
Also, total liabilities will also decrease by $20,000 in terms of Creditors.
There will be no effect on expenses as well as stockholder equity.
Ans3:Accounts payable as on 1/1/21 would be C. $600,000
Calculation
Opening Accounts payable + Purchases - Payments made = Closing Accounts Payable
Opening Accounts payable + $1,500,000 - $1,600,000 = $500,000
Opening Accounts payable = $500,000 +$100,000 = $600,000
Due to result of this calculation all other option are not correct.
Ans 4:Purchase of machine is recognized in the accounting records when a. the buyer gets title to the machine.
As per accounting standards on fixed assets, it requires to account for assets as fixed assests when title of goods has been received by buyer.
Bill can be received before of after and has no relevence in recognition in fixed assets.
Purchase of machine can be made in credit.
Ans5:b. Prepaid Insurance is increased with a debit
Prepaid insurance is classified into current assets and any debit of this ledger would increase it.
Rent payable is classified into current liability and is decreased if debited.
Service Revenue is classified as income and any debit would reduce the revenue.
Ans 6: d. Accounts that are increased are always listed first is false statement.
Debit and credit is done based on accounting principal.
Debit ledger are listed first before credit.
In a single journal entry there can be multiple ledger .
Credits are indented to show them differentlly so that they can be identified easily.
