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Homework answers / question archive / 1) True or False
1) True or False. Write TRUE if the statement is correct. Write FALSE if the statement is incorrect and underline the word/group of words that made the statement incorrect.
a) A decrease in a liability is recorded by a debit.
b) A credit entry to an expense account will increase it.
c) A trial balance may balance but may not be correct.
d) A decrease in owner's equity is recorded with a credit.
e) An increase in an asset is recorded by a debit.
f) An increase in revenue is recorded with a credit.
g) Normally, income accounts have debit balances.
h) A basic storage unit for accounting data is the account.
i) Entering transactions into the journal is called postings
j) The normal balance of any account refers to the side of the account—debit or credit—where decreases are recorded.
k) When a withdrawal is made, the owner's Withdrawals account is debited and Cash is credited.
l) When payment is received for services not yet rendered, no entry is recorded until that service has been rendered.
m) A journal entry may include debits to more than one account and credits to more than one account, but the total of the debits must always equal the total of the credits
n) The accounting cycle begins with the recording of the transactions and ends with the preparation of the financial statements.
o) Every business transaction affects a minimum of two accounts.
p) Another name for the ledger is the book of original entry.
q) The chart of accounts makes finding accounts in the ledger easier.
r) The journal is a chronological record of all transactions.
s) When the owner makes an investment the owner's Capital account is debited.
t) When revenue has been earned, no entry is recorded until the related cash has been collected.
u) The adjusting entry to allocate part of the cost of a one-year fire insurance policy to expense will cause total assets increase.
v) The amount of accrued revenue is recorded by debiting an asset account and crediting an income account.
w) An adjusting entry includes at least one balance sheet account and at least one income statement account.
x) A deferral is the recognition of an expense that has arisen but has not yet been recorded.
y) Revenue cannot be recognized unless delivery of goods has occurred or services have been rendered.
z) Applying accrual accounting results in a more accurate measurement of profit for the period than does the cash basis of accounting.
aa) The adjustment to record depreciation of property and equipment consists of a debit to Depreciation Expense and a credit to Accumulated Depreciation.
bb) An entity's fiscal year must correspond to the calendar year.
cc) Accumulated Depreciation accounts may be referred to as contra-asset accounts.
dd) The adjusting entry to recognize an expense which is unrecorded and unpaid will cause total assets to increase.
ee) When there is no direct connection between revenues and costs, the costs are systematically allocated among the periods benefited.
ff) Book value is the original cost of a building less depreciation for the year.
gg) Accounting periods should be of equal length to facilitate comparisons between periods.
hh) Accrued revenue is a term used to describe revenue that has been received but not yet earned.
ii) Adjusting entries affect cash flows in the current period.
jj) Adjusting entries are useful in apportioning costs among two or more accounting.
kk) Recording incurred but unpaid expenses is an example of an accrual.
ll) The adjusting entry to recognize earned revenues which was received in advance will cause total liabilities to decrease.
mm) Assets become liabilities when they expire.
nn) The adjusting entry to recognize earned commission revenues not previously recorded or billed will cause total assets to increase.
II. Recording Transactions in T-Accounts and Preparing a Trial Balance:
Beth Harmon recently established her own business, which she called Harmon Delivery Service. During the first month of business in October 2020, the following transactions were completed:
Oct 1 - Deposited P19,500 of personal savings in an account at the France Development Bank in the name of Harmon Delivery Service.
Oct 2 - Acquired a second-hand service vehicle costing P63,OOO, paying P7,000 in cash, and financing the remaining P56,OOO by issuing a note payable.
Oct 5 - Acquired supplies on account P8,200.
Oct 6 - Paid for three months' insurance and recorded prepaid insurance in the amount of P4,500.
Oct 8 - Received P13,900 cash for delivery work done for the Shaibel Corporation.
Oct 10 - Acquired additional supplies for cash, P2,050.
Oct 13 - Paid salaries, P3,900.
Oct 16 - Completed an assignment for Townes Inc, and billed the entity P 15,250.
Oct 17 - Paid P2,300 of the amount owed from the Oct. 5 transaction.
Oct 19 - Paid miscellaneous expenses, P 1,700.
Oct 21 - Withdrew cash from the business; P6,150.
Oct 22 - Collected P9,500 on account from Townes Inc.
Oct 24 - Paid salaries, P4,200.
Oct 25 - Paid utilities expense, P8OO.
Oct 27 - Billed the Deardorf corp. for delivery services rendered, P13,400.
Oct 31 - Paid rent for the month, P2,950.
Required:
a) Prepare journal entries for October transactions use the following accounts: Cash; Accounts Receivable; Supplies; Prepaid Insurance; Service vehicle; Notes Payable; Accounts Payable; Harmon, capital; Harmon, Withdrawals; Delivery Revenues; Salaries Expense; Rent Expense; Utilities
b) Post the journal entries into the T-accounts, use the dates of the transactions.
c) Prepare the trial balance.
III. Identification of Deferral and Accrual Events: Identify each of the above events as accruals, deferrals or neither. a) Incurred operating expenses on account.
b) Paid cash for utilities expense
c) Collected P12,OOO in advance for services to be performed over the next 6 months.
d) Paid cash to purchase supplies that are to be used over the next several months.
e) Recorded expense for salaries owed to employees at the end of period.
f) Made cash distribution to the owner.
g) Provided services on account.
h) Recognized interest on a note payable before cash is paid.
i) Paid one year's rent in advance.
j) Purchased a computer with a 3-year life
IV. Preparing Adjusting Entries at Year-End
The Virgin Rivers Illustrators presented the following information pertaining to accounts that will need adjustments for its Nov, 30, 2020 year-end financial statements:
1) On Oct 1, 2020, Virgin rivers Illustrators paid PIO,800 for 6-months' insurance premiums.
2) Acquired office supplies on June 1 amounted to P32,000. A count of the office supplies on 30, 2020 totaled P12,800. No other acquisition of supplies has been made since.
3) Virgin Rivers Illustrators received P22,800 on Nov. 1, 2020 from a customer for services to be rendered during the months of November, December, January, and February.
4) V. Rivers acquired Office Equipment costing P352,800 on Apr, 1, 2020. The equipment is expected to last 5 years after which it will be worthless.
5) Assume that Nov, 30, 2020 is a Friday and that Virgin Rivers pays its employees a total of P87,500 on Saturday.
Required:
a) Prepare the opening journal entries for items 1-4.
b) Prepare the Dec. 1, 2020 entry to record the payment of the salaries for item 5.
c) Prepare the adjusting entries.
