ACTG2010 Lab 3 Questions

DQ3-2 Indicate whether each of the following statements is true or false:
1. Under the accrual basis of accounting, when cash is collected on accounts receivable,
revenue is recorded.
False, because revenue is recorded & credited when accounts receivable is debited.
2. Cash receipts from customers are debited to Accounts Receivable.
False, because cash receipts are debited directly to cash.
3. The cash basis of accounting recognizes expenses when they are paid.
False, because under the cash basis, expenses are recognized when they are paid.
4. Under the cash basis of accounting, there is no such thing as a Prepaid Expenses
account.
True, since you would record it simply as an Expense right away after the money has
been paid.
5. Asset accounts and expense accounts normally have debit balances.
True
6. Credits increase asset accounts.
False, credits do not increase asset accounts, since their normal balance is debit —
unless they are contra-asset accounts.
7. Revenues are recorded with credit entries.
True, since revenues increase net income, and net income increases retained earnings,
which is a part of Shareholder’s Equity, which has the normal balance of credit.
8. Dividends are an expense of doing business and should appear on the statement of
income.
False, dividends are not expenses because they are a distribution of a portion of the
company’s retained earnings.
AP3-4B (Determining effects of transactions on statement of financial position accounts)

Gagnon’s Autobody Ltd. repairs and paints automobiles after accidents.
Required
Explain how the basic statement of financial position accounts of assets, liabilities, and
shareholders’ equity would be affected by each of the following transactions and activities:
Gagnon’s Autobody purchases new spray-painting equipment. The supplier gives the company
60 days to pay.
Dr Equipment
Cr Accounts Payable
The company pays for the spray-painting equipment that was purchased above.
Dr Accounts Payable
Cr Cash
Supplies such as paint and putty are purchased for cash.
Dr Supplies
Cr Cash
The company pays for a one-year liability insurance policy.
Dr Prepaid Insurance
Cr Cash
The company pays its employees for work done.
Dr Wages Expense
Cr Cash
A car is repaired and repainted. The customer pays the deductible required by her insurance
policy, and the remainder of the bill is sent to her insurance company.
Dr Cash
Dr Accounts Receivable
Cr Sales Revenue
Dr Cost of Sales (because it is a service)

Cr Supplies
Cash is collected from the customer’s insurance company.
Dr Cash
Cr Accounts Receivable
AP3-5B (Preparing journal entries)

Required
For each of the following transactions, prepare journal entries:
The company issued common shares for $150,000.
The company borrowed $75,000 from a bank.
Inventory costing $47,200 was purchased on account.
Rented a retail space and paid a damage deposit of $10,000.
Received a bill for advertising costs of $3,700 related to the grand opening.
Paid employees wages of $16,800.
Inventory costing $38,500 was sold for $69,400, half for cash and half on account. (Hint: two
journal entries are required.)
A payment of $41,600 was made on accounts payable.
Accounts receivable totalling $21,600 were collected.
New equipment costing $120,000 was purchased for cash.
The company paid $18,700 on its bank loan, which included $11,100 of interest.
The company paid $8,900 for the monthly rent on its retail location.
The company’s board declared and paid dividends of $12,200.
Paid the advertising bill related to the grand opening (see transaction (e)).
UP3-2 (Normal balances) One of your friends, who is also a classmate, came to you in the
library and asked if you can explain the concept of normal balances to her. She was busy on
social media during the part of the class in which this topic was discussed.
Required
Prepare your response.
A normal balance is the balance certain types of accounts are supposed to have, which is
separated to debits and credits. Furthermore, it is the balance that increases the balance of the
account. For instance, the normal balance of asset accounts are debits, which means debits to
assets accounts would increase the balance of the account. On the contrary, the normal
balance of liabilities and shareholder’s equity (SHE) accounts are credits, which means credits
to liabilities & SHE accounts would increase the balance of those accounts.
Accounts with normal debit balances include :

Purchases
Assets
Expenses
Drawings
Accounts with normal credit balances include :

Sales
Liabilities
Revenue
Share Capital
WIP3-4 (Closing entries) You are studying with some classmates and are reviewing each
other’s responses to the following question:
“Explain why closing entries are made. What are the two objectives that are accomplished by
making closing entries?”
Your classmate responds as follows:
“Closing entries are made to zero out temporary accounts at the end of an accounting period.”
Identify how your classmate’s answer could be substantively improved.
Closing entries are made for :

1. Closing out and “resetting” temporary accounts at the end of an accounting period such
that they can be used as a clean slate for the next accounting period
2. They are also used to transfer the summarize and transfer the balances of the temporary
accounts to the Retained Earnings account
○ Made to see profitability and compare net income/losses of the company’s years

ACTG2010 Lab 3 Questions

Uploaded by

Copyright:

Available Formats

ACTG2010 Lab 3 Questions

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

ACTG2010 Lab 3 Questions

Uploaded by

Copyright:

Available Formats

DQ3-2 Indicate whether each of the following statements is true or false:

AP3-4B (Determining effects of transactions on statement of financial position accounts)

The company pays for a one-year liability insurance policy.

The company pays its employees for work done.

Dr Cost of Sales (because it is a service)

Cash is collected from the customer’s insurance company.

AP3-5B (Preparing journal entries)

Accounts with normal debit balances include :

Accounts with normal credit balances include :

Closing entries are made for :

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.