CengageNOWv2 - Online Teaching and Learning Resource From Cengage Learning

07/01/2021 CengageNOWv2 | Online teaching and learning resource from Cengage Learning
1. MP.01-01 (Algorithmic)
Mastery Problem: Introduction to Accounting and Business
The Accounting Equation
The foundation for the accounting system and the financial statements is the accounting equation. Select the terms that complete the accounting equation.
Accounting Equation
= +
For each of the following items, indicate the element of the accounting equation to which it belongs: Assets, Liabilities or Stockholders' Equity.
Assets Liabilities Stockholders' Equity
Accounts Payable
Accounts Receivable
Auto Expense
Common Stock
Cash
Dividends
Fees Earned
Land
Miscellaneous Expense
Supplies
Supplies Expense
Wages Expense
Transactions
Consider the following transactions for Thomas Company and their effect on the accounting equation. Click on each transaction for transaction details. Determine the new balance for each
component of the accounting equation resulting from the transaction. (You will not need to enter the amount of each transaction, only the balance after the transaction.) If an amount box does not
require an entry, leave it blank.
Transaction Assets = Liabilities + Stockholders' Equity
Beginning $0 $0 $0
1. Investment in the business $ $ $

2. Borrow cash $ $ $
3. Purchase equipment $ $ $
4. Revenues earned $ $ $
5. Expenses incurred $ $ $
6. Dividends $ $ $
Principles and Assumptions
1. Match each of the following scenarios with the accounting principle or accounting assumption that it best illustrates.
Scenario Accounting Principle or Assumption
Thomas Company provides earnings information to investors at the end of every quarter.
The home of Rob Elliot, the owner of GGE Enterprises Inc., is not listed among the company’s assets.
The accounting records of Thomas Company are in dollars, not euros, although the Ohio-based
company is owned by a German firm.
Thomas Company records sales for the month along with the expenses incurred to produce the sales.
https://v2.cengagenow.com/ilrn/takeAssignment/printUntakenAssignment.do?assignmentId=2571855 1/15
Several years after Thomas Company purchased new office equipment, the company’s accounting
records still show the original purchase price.
GGE Enterprises records a deposit received from a customer for work to be performed later in the
month. The customer is billed for the remaining amount after the work is complete, and the customer’s
payment is recorded.
Although GGE Enterprises Inc. received a good deal on a used truck, the amount recorded in the
accounting records is the amount the company paid, not the amount the truck was actually worth.
Despite several years of falling sales, Thomas Company continues to forecast sales and make strategic
plans to raise revenues and cut expenses.
2. Thomas Company has decided to purchase a company vehicle. The accountant was given all of the purchase details. Which should be used to record the vehicle in the accounting records?
The amount of the loan with the bank.
The price negotiated with the dealer.
The manufacturer’s suggested retail price (MSRP).
The average selling price of similar vehicles in the area.
Financial Statements
A business will construct its financial statements in a particular order because they are interrelated. This means that items formulated in an earlier statement feed into the subsequent statements,
and changes to items on one financial statement can have compounding effects on the overall financial position of a company.
Which of the following is one reason the retained earnings statement is prepared after the income statement?
Which of the following is one reason the retained earnings statement is prepared before the balance sheet?
GGE Enterprises Inc.
On November 1 of the current year, Rob Elliot invested $30,500.00 of his cash to form a corporation, GGE Enterprises Inc., in exchange for shares of common stock. No other common stock was
issued during November or December. After a very successful first month of operations, the retained earnings as of November 30 were reported at $5,000.00. After all transactions have been
entered into the accounting equation for the month of December, the ending balances for selected items on December 31 follow. On that date, the financial statements were prepared. The
balance sheet reported total assets of $54,650.00 and total stockholders' equity of $39,785.00.
Accounts Common Retained Fees Wages Rent Supplies Utilities Miscellaneous

Cash Supplies Land Payable Stock Earnings Dividends Earned Expense Expense Expense Expense Expense
? $7,600.00 $16,000.00 ? ? $5,000.00 $5,500.00 $27,750.00 $6,375.00 ? $4,675.00 $1,250.00 $415.00
Review the following questions. Place an ‘X’ in the box to indicate which financial statement(s) report the desired information. Enter the amount reported on the financial statement.
Balance Income Retained Earnings

Sheet Statement Statement Amount
1. What is the amount reported for total liabilities and stockholders’ equity on December 31? $
2. What is the retained earnings amount reported on December 31? $
3. How much does GGE Enterprises Inc. owe to its creditors? $
4. How much cash is being held by GGE Enterprises Inc.? $
5. By what amount did retained earnings increase or decrease during the period? $
6. What is the amount of profit or loss during December? $
7. What were the total expenses for December? $
8. How much was paid for rent? $
2. BE.01-01
Cost Principle
On June 25, Ritts Roofing extended an offer of $250,000 for land that had been priced for sale at $300,000. On July 9, Ritts accepted the seller’s counteroffer of $275,000. On
October 1, the land was assessed at a value of $280,000 for property tax purposes. On December 22, Ritts was offered $305,000 for the land by a national retail chain.
At what value should the land be recorded in Ritts Roofing's records?

$
3. BE.01-02.Algo (Algorithmic)
Accounting Equation
Sid Summitt is the stockholder and operator of Way to Go LLC, a motivational consulting business. At the end of its accounting period, December 31, 2017, Way to Go has
assets of $615,000 and liabilities of $148,000. Using the accounting equation, determine the following amounts:
a. Stockholders' equity as of December 31, 2017.

$
b. Stockholders' equity as of December 31, 2018, assuming that assets increased by $117,000 and liabilities increased by $36,000 during 2018.
$
4. BE.01-04
Income statement
Instructions
The revenues and expenses of Paradise Travel Service for the year ended May 31, 2018, follow:
Accounts (revenue and expense items)
Fees earned $900,000
Office expense 300,000
Miscellaneous expense 15,000
Wages expense 450,000
Prepare an income statement for the year ended May 31, 2018. Refer to the lists of Accounts in the information given, Labels, and Amount Descriptions for the exact wording of the answer
choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. If a net loss is incurred, enter that amount as a negative number using a
minus sign.
Labels and Amount Descriptions
Labels
Expenses
For the Year Ended May 31, 2018
May 31, 2018
Amount Descriptions
Net income
Net loss
Total expenses
Income Statement
Prepare an income statement for the year ended May 31, 2018. Refer to the lists of Accounts in the information given, Labels, and Amount Descriptions for the exact wording of the answer
choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. If a net loss is incurred, enter that amount as a negative number using a
minus sign.
Paradise Travel Service
Income Statement
(Label)
1
2 (Label)
3
4
5
6
7
5. BE.01-06
Balance sheet
Instructions
The balances of Paradise Travel Service’s accounting equation items for the year ended May 31, 2018, are listed below. $10,000 of dividends were paid during the year. Retained earnings as of
June 1, 2017, were $300,000.
Accounts
Accounts payable 18,000
Accounts receivable 38,000
Cash 52,000
Common stock 100,000
Land 450,000
Supplies 3,000
Prepare a balance sheet as of May 31, 2018. Refer to the lists of Accounts, Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the
statement heading.
Accounts, Labels and Amount Descriptions
Accounts
Accounts payable
Accounts receivable
Cash
Common stock
Land
Retained earnings
Supplies
Labels
May 31, 2018
Amount Descriptions
Net income
Total assets
Total expenses
Total liabilities
Total liabilities and stockholders’ equity
Total revenue
Total stockholders’ equity
Balance sheet
Prepare a balance sheet as of May 31, 2018. Refer to the lists of Accounts, Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the
statement heading.
Balance Sheet
(Label)
1 Assets
2
3
4
5
6
7 Liabilities
8
9 Stockholders’ Equity
10
11
12
13
6. BE.01-05.Algo (Algorithmic)
Retained Earnings Statement
Instructions
The revenues and expenses of Paradise Travel Service for the year ended May 31, 2018, follow:
Accounts
Everett McCauley invested an additional $36,600 in the business in exchange for common stock, and $17,000 of dividends were paid during the year. Retained earnings as of June 1, 2017, was
$365,000.
Prepare a retained earnings statement for the year ended May 31, 2018. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be
sure to complete the statement heading. “Less” or “Add” is not required. A decrease to retained earnings should be entered as a negative amount.
Labels and Amount Descriptions
Labels
For the Year Ended May 31, 2018
May 31, 2018
Amount Descriptions
Change in retained earnings
Dividends
Net income
Net loss
Retained earnings, June 1, 2017
Retained earnings, May 31, 2018
Prepare a retained earnings statement for the year ended May 31, 2018. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be
sure to complete the statement heading. “Less” or “Add” is not required. A decrease to retained earnings should be entered as a negative amount.
(Label)
1
2
3
4
5
7. BE.02-01
Rules of Debit and Credit and Normal Balances
State for each account whether it is likely to have debit entries only, credit entries only, or both debit and credit entries. Also, indicate its normal balance.
Typical Entries Normal Balance

1. Accounts Payable
2. Cash
3. Dividends
4. Miscellaneous Expense
5. Insurance Expense
6. Fees Earned
8. BE.02-02
Journal entry for asset purchase
Instructions
Prepare a journal entry for the purchase of office Supplies on March 9 for $1,775, paying $275 cash and the remainder on account. Refer to the Chart of Accounts for exact wording of account
titles.
Chart of Accounts
CHART OF ACCOUNTS
General Ledger
ASSETS REVENUE
11 Cash 41 Fees Earned
12 Accounts Receivable 42 Sales Commission
13 Office Supplies
14 Prepaid Insurance EXPENSES
15 Land 51 Advertising Expense
16 Office Equipment 52 Automobile Expense
17 Automobiles 53 Insurance Expense
54 Rent Expense
LIABILITIES 55 Salary Expense
21 Accounts Payable 56 Supplies Expense
22 Unearned Rent 57 Utilities Expense
23 Notes Payable 58 Miscellaneous Expense
24 Salaries Payable
EQUITY
31 Common Stock
32 Retained Earnings
33 Dividends
Journal
Prepare a journal entry for the purchase of office Supplies on March 9 for $1,775, paying $275 cash and the remainder on account. Refer to the Chart of Accounts for exact wording of account
titles.
PAGE 1
JOURNAL ACCOUNTING EQUATION
DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY
1
2
3
9. BE.02-03
Journal entry for fees earned
Instructions
Prepare a journal entry on August 13 for cash received for services rendered, $9,000. Refer to the Chart of Accounts for exact wording of account titles.
Chart of Accounts
CHART OF ACCOUNTS
General Ledger
ASSETS REVENUE
13 Supplies
14 Prepaid Rent EXPENSES
16 Equipment 52 Automobile Expense
54 Rent Expense
LIABILITIES 55 Wages Expense
24 Salaries Payable
EQUITY
31 Common Stock
33 Dividends
Journal
Prepare a journal entry on August 13 for cash received for services rendered, $9,000. Refer to the Chart of Accounts for exact wording of account titles.
PAGE 1
1
2
10. BE.02-04
Journal entry for dividends
Instructions
Prepare a journal entry on June 30 for dividends of $11,500. Refer to the Chart of Accounts for exact wording of account titles.
Chart of Accounts
CHART OF ACCOUNTS
General Ledger
ASSETS REVENUE
13 Supplies
16 Equipment 52 Automobile Expense
54 Rent Expense
24 Salaries Payable
EQUITY
31 Common Stock
33 Dividends
Journal
Prepare a journal entry on June 30 for dividends of $11,500. Refer to the Chart of Accounts for exact wording of account titles.
PAGE 1
1
2
11. BE.02-05
Missing amount from an account
On August 1, the supplies account balance was $1,025. During August, supplies of $3,110 were purchased, and $1,324 of supplies were on hand as of August 31.
Determine supplies expense for August. $
12. BE.02-07
Correcting entries
Instructions
On March 1, it was discovered that the following errors took place in journalizing and posting transactions:
a. The receipt of $8,400 for services rendered was recorded as a debit to Accounts Receivable and a credit to Fees Earned.
b. The purchase of supplies of $2,500 on account was recorded as a debit to Office Equipment and a credit to Supplies.
Journalize the entries on March 1 to correct the errors. Use two entries to correct the error described in (b). (That is, record an entry to reverse the incorrect entry and a second entry to record
the correct entry.) Refer to the Chart of Accounts for exact wording of account titles.
Chart of Accounts
CHART OF ACCOUNTS
General Ledger
ASSETS REVENUE
13 Supplies
16 Office Equipment 52 Automobile Expense
54 Rent Expense
24 Salaries Payable
EQUITY
31 Common Stock
33 Dividends
Journal
Journalize the entries on March 1 to correct the errors. Use two entries to correct the error described in (b). (That is, record an entry to reverse the incorrect entry and a second entry to record
the correct entry.) Refer to the Chart of Accounts for exact wording of account titles.
PAGE 1
1
2
3
4
5
6
13. EX.02-01
Chart of Accounts
The following accounts appeared in recent financial statements of Delta Air Lines. Identify each account as either a balance sheet account or an income statement account.
For each balance sheet account, identify it as an asset, a liability, or stockholders' equity. For each income statement account, identify it as a revenue or an expense.
Item Financial Statement Type of Account

Accounts Payable
Advanced Payments for Equipment
Air Traffic Liability
Aircraft Fuel (Expense)
Aircraft Maintenance (Expense)
Aircraft Rent (Expense)
Cargo Revenue
Cash
Contract Carrier Arrangements (Expense)
Flight Equipment
Frequent Flyer (Obligations)
Fuel Inventory
Landing Fees (Expense)
Parts and Supplies Inventories
Passenger Commissions (Expense)
Passenger Revenue
Prepaid Expenses
Taxes Payable
14. EX.02-04
Rules of Debit and Credit
The following table summarizes the rules of debit and credit. Indicate whether the proper answer is a debit or a credit.
Increase Decrease Normal Balance

Balance sheet accounts:
Asset Debit
Liability Debit
Stockholders' equity:
Common Stock Credit
Retained Earnings Credit
Dividends Debit Credit
Income statement accounts:
Revenue Credit
Expense Credit Debit
15. EX.02-07
Transactions
Instructions
Zenith Consulting Co. has the following accounts in its ledger: Cash; Accounts Receivable; Supplies; Office Equipment; Accounts Payable; Common Stock; Retained Earnings; Dividends; Fees
Earned; Rent Expense; Advertising Expense; Utilities Expense; Miscellaneous Expense.
Transactions
Mar. 1 Paid rent for the month, $4,000.
3 Paid advertising expense, $1,350.
5 Paid cash for supplies, $1,800.

6 Purchased office equipment on account, $11,500.
10 Received cash from customers on account, $8,600.

15 Paid creditor on account, $3,180.
27 Paid cash for miscellaneous expenses, $700.

30 Paid telephone bill for the month, $550.
31 Fees earned and billed to customers for the month $37 200
31 Fees earned and billed to customers for the month, $37,200.
31 Paid electricity bill for the month, $830.
31 Paid dividends, $2,000.
Journalize the preceding selected transactions for March 2018 in a two-column journal. Refer to the Chart of Accounts for exact wording of account titles.
Chart of Accounts
CHART OF ACCOUNTS
Zenith Consulting Co.
General Ledger
ASSETS REVENUE
12 Accounts Receivable
13 Supplies EXPENSES
14 Office Equipment 51 Rent Expense
52 Advertising Expense
LIABILITIES 53 Utilities Expense
21 Accounts Payable 54 Miscellaneous Expense
EQUITY
31 Common Stock
33 Dividends
Journal
Journalize the preceding selected transactions for March 2018 in a two-column journal. Refer to the Chart of Accounts for exact wording of account titles.
PAGE 1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
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16
1
17
18
19
20
21
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16. EX.02-06
Normal Balances of Accounts
Identify each of the following accounts of Kaiser Services Co. as asset, liability, stockholders’ equity, revenue, or expense, and state in each case whether the normal balance is
a debit or a credit.
Item Type of Account Debit or Credit

a. Accounts Payable
b. Accounts Receivable
c. Cash
d. Common Stock
e. Dividends
f. Fees Earned
g. Office Equipment
h. Rent Expense
i. Supplies
j. Wages Expense

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07/01/2021 CengageNOWv2 | Online teaching and learning resource from Cengage Learning

The Accounting Equation

Assets Liabilities Stockholders' Equity

require an entry, leave it blank.

Transaction Assets = Liabilities + Stockholders' Equity

1. Investment in the business $ $ $

Principles and Assumptions

Scenario Accounting Principle or Assumption

company is owned by a German firm.

records still show the original purchase price.

plans to raise revenues and cut expenses.

The amount of the loan with the bank.

The price negotiated with the dealer.

The manufacturer’s suggested retail price (MSRP).

The average selling price of similar vehicles in the area.

GGE Enterprises Inc.

Accounts Common Retained Fees Wages Rent Supplies Utilities Miscellaneous

? $7,600.00 $16,000.00 ? ? $5,000.00 $5,500.00 $27,750.00 $6,375.00 ? $4,675.00 $1,250.00 $415.00

Balance Income Retained Earnings

At what value should the land be recorded in Ritts Roofing's records?

a. Stockholders' equity as of December 31, 2017.

Accounts (revenue and expense items)

Fees earned $900,000

Office expense 300,000

Miscellaneous expense 15,000

Wages expense 450,000

Labels and Amount Descriptions

For the Year Ended May 31, 2018

May 31, 2018

Paradise Travel Service

June 1, 2017, were $300,000.

Fees earned $900,000

Office expense 300,000

Miscellaneous expense 15,000

Wages expense 450,000

Accounts payable 18,000

Accounts receivable 38,000

Common stock 100,000

Accounts, Labels and Amount Descriptions

May 31, 2018

Total liabilities and stockholders’ equity

Total stockholders’ equity

Paradise Travel Service

Fees earned $805,000

Office expense 295,300

Miscellaneous expense 10,300

Wages expense 451,600

Labels and Amount Descriptions

For the Year Ended May 31, 2018

May 31, 2018

Change in retained earnings

Retained earnings, June 1, 2017

Retained earnings, May 31, 2018

Retained Earnings Statement

Paradise Travel Service

Retained Earnings Statement

Typical Entries Normal Balance

11 Cash 41 Fees Earned

12 Accounts Receivable 42 Sales Commission

14 Prepaid Insurance EXPENSES

15 Land 51 Advertising Expense

16 Office Equipment 52 Automobile Expense