CHAPTER 1 AND 2

Exercise 1: Briggs Company performs the following accounting tasks during the year.
______Summarizing economic events.
______Selecting economic activities relevant to the company.
______Reporting information in a standard format.
______Preparing accounting reports.
______Measuring events in dollars and cents.
______Keeping a systematic chronological chart of events.
______Explaining uses, meaning, and limitations of data.
______Classifying economic events.
______Analyzing and interpreting information.
Accounting is “an information system that identifies, records, and communicates the economic
events of an organization to interested users.”
Instructions
Categorize the accounting tasks performed by Briggs as relating to either the identification (I),
recording (R), or communication (C) aspects of accounting.

Exercise 2: The following situations involve accounting principles and assumptions.

1. Donkey Company owns land that is worth substantially more than it originally cost. In an effort
to provide more relevant information, Donkey reports the land at market value in its accounting
reports.
2. Benjamin Company includes in its accounting records only transaction data that can be
expressed in terms of money.
3. Josh Borke, owner of Josh’s Movie House, records his personal living costs as expenses of the
MovieHouse.
Instructions
For each of the three situations, say if the accounting method used is correct or incorrect. If correct,
identify which principle or assumption supports the method used. If incorrect, identify which
principle or assumption has been violated.

Exercise 3: Muhammed Cleaners has the following balance sheet items.

Accounts payable Cleaning equipment
Accounts receivable Rent payable
Cash Cleaning supplies
Notes payable Common stock
Instructions
Classify each item as an asset, liability, or stockholders’ equity.

Exercise 4: Selected transactions for Natural Lawn Care Company are listed below.

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1. Made cash investment to start business.
2. Purchased equipment on account.
3. Paid salaries.
4. Billed customers for services performed.
5. Received cash from customers billed in (4).
6. Paid cash dividends.
7. Incurred advertising expense on account.
8. Purchased additional equipment for cash.
9. Received cash from customers when service was performed.
Instructions
List the numbers of the above transactions and describe the effect of each transaction on assets,
liabilities, and stockholders’ equity. For example, the first answer is: (1) Increase in assets and
increase in stockholders’ equity.

Exercise 5: An analysis of the transactions made by Nile & Co., a certified public accounting firm,
for the month of August is shown on the next page. Each increase and decrease in stockholders’
equity is explained.

Instructions
(a) Describe each transaction that occurred for the month.
(b) Determine how much stockholders’ equity increased for the month.
(c) Compute the amount of net income for the month.
(d) Prepare an income statement and a retained earnings statement for August and a balance sheet at
August 31, 2008.

Exercise 6: Rose Company had the following assets and liabilities on the dates indicated.
Rose began business on January 1, 2007, with an investment of $100,000.

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Instructions
From an analysis of the change in stockholders’ equity during the year, compute the net income (or
loss) for:
(a) 2007, assuming Rose paid dividends of $20,000 for the year.
(b) 2008, assuming stockholders made an additional investment of $55,000 and Rose paid no
dividends in 2008.
(c) 2009, assuming stockholders made an additional investment of $10,000 and Rose paid dividends
of $30,000 in 2009.

Exercise 7: Mary Valente is the bookkeeper for Hair Company. Mary has been trying to get the
balance sheet of Hair Company to balance. Hair’s balance sheet is shown below.

Instructions: Prepare a correct balance sheet.

Exercise 8: Sunflower Inc., a public camping ground near the Lake Mead National Recreation
Area, has compiled the following financial information as of December 31, 2008.

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Instructions
(a) Determine Sunflower’s net income for 2008.
(b) Prepare a balance sheet for Sunflower as of December 31, 2008.

Exercise 9: On April 1, Vinnie’s Travel Agency was established. The following transactions were
completed during the month.
1. Stockholders invested $15,000 cash to start the agency.
2. Paid $600 cash for April office rent.
3. Purchased office equipment for $3,000 cash.
4. Incurred $700 of advertising costs in the Chicago Tribune, on account.
5. Paid $800 cash for office supplies.
6. Earned $11,000 for services rendered: $3,000 cash is received from customers, and the balance of
$8,000 is billed to customers on account.
7. Paid a $500 cash dividend.
8. Paid Chicago Tribune amount due in transaction (4).
9. Paid employees’ salaries $2,200.
10. Received $4,000 in cash from customers who have previously been billed in transaction (6).
Instructions
(a) Prepare a tabular analysis of the transactions using the following column headings: Cash,
Accounts Receivable, Supplies, Office Equipment, Accounts Payable, Common Stock, and
Retained Earnings.
(b) From an analysis of the column Retained Earnings, compute the net income or net loss for April.

Exercise 10: Jenny Brown opened a law office Jenny Brown, Attorney at Law, on July 1, 2008. On
July 31, the balance sheet showed Cash $5,000, Accounts Receivable $1,500, Supplies $500, Office
Equipment $6,000, Accounts Payable $4,200, Common Stock $5,000, and Retained Earnings
$3,800. During August the following transactions occurred.
1. Collected $1,200 of accounts receivable.
2. Paid $2,800 cash on accounts payable.
3. Earned revenue of $8,000 of which $3,000 is collected in cash and the balance is due in
September.
4. Purchased additional office equipment for $2,000, paying $400 in cash and the balance on
account.
5. Paid salaries $2,500, rent for August $900, and advertising expenses $400.
6. Paid a $700 cash dividend.
7. Received $1,500 from Standard Federal Bank—money borrowed on a note payable.
8. Incurred utility expenses for month on account $220.
Instructions

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(a) Prepare a tabular analysis of the August transactions beginning with July 31 balances. The
column headings should be as follows: Cash, Accounts Receivable, Supplies, Office
Equipment, Notes Payable, Accounts Payable, Common Stock, Retained Earnings.
(b) Prepare an income statement for August, a retained earnings statement for August, and a
balance sheet at August 31.

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 CHAPTER 3
Exercise 1:
Jake Chinley has prepared the following list of statements about accounts.
1. An account is an accounting record of either a specific asset or a specific stockholders’ equity
item.
2. An account shows both increases and decreases in the item it relates to.
3. Some items, such as Accounts Payable and Accounts Receivable, are combined into one account.
4. An account has a left, or debit side, and a right, or credit side.
5. A simple form of an account consisting of just the account title, and one column, is called a T-
account.
Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.

Exercise 2: Ho Siah has prepared the following list of statements about the general ledger.
1. The general ledger contains all the liability and Stockholders’ equity accounts, but no asset
accounts.
2. The general ledger is sometimes referred to as simply the journal.
3. The accounts in the general ledger are arranged in alphabetical order.
4. Each account in the general ledger is numbered for easier identification.
5. The general journal is a book of original entry.
Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.

Exercise 3: Selected transactions for T. Carter Inc., an interior decorating firm, in its first month of
business, are as follows.
Jan. 2 Invested $20,000 cash in business in exchange for common stock.
3 Paid $500 cash for advertising.
9 Purchased equipment for $7,000 cash.
11 Billed customers $2,300 for services performed.
16 Purchased supplies on account for $700.
20 Received $1,100 cash from customers billed on January 11.
23 Paid creditor $400 cash on balance owed.
28 Declared and paid a $1,200 cash dividend.
Instructions: Journalize the transactions

Exercise 4:
Presented below is the ledger for Hurley Co.

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Instructions
(a) Reproduce the journal entries for the transactions that occurred on October 1, 10, and 20,
and provide explanations for each.
(b) Determine the October 31 balance for each of the accounts above, and prepare a trial
balance at October 31, 2008.

Exercise 5:
The bookkeeper for Sam Hurd Equipment Repair made a number of errors in journalizing and
posting, as described below.
1. A credit posting of $500 to Accounts Receivable was omitted.
2. A debit posting of $750 for Insurance Expense was debited to Prepaid Insurance.
3. A collection from a customer of $200 in payment of its account owed was posted as a debit to
Cash $200 and a debit to Service Revenue $200.
4. A debit posting of $400 to Property Taxes Payable was made twice.
5. A cash purchase of supplies for $250 was journalized and posted as a debit to Supplies $25 and a
credit to Cash $25.
6. A debit of $594 to Advertising Expense was posted as $549.
Instructions

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For each error:
(a) Indicate whether the trial balance will balance.
(b) If the trial balance will not balance, indicate the amount of the difference.
(c) Indicate the trial balance column that will have the larger total.

Exercise 6: The accounts in the ledger of Saget Delivery Service contain the following balances on
July 31, 2008.

Instructions
Prepare a trial balance with the accounts arranged as illustrated in the chapter and fill in the missing
amount for Cash.

Exercise 7: Hyzer Disc Golf Course was opened on March 1 by Barry Schultz and Associates. The
following selected events and transactions occurred during March:
Mar. 1. Stockholders invested $20,000 cash in the business in exchange for common stock.
Mar 3. Purchased Heeren’s Golf Land for $15,000 cash. The price consists of land $12,000,
shed $2,000, and equipment $1,000. (Make one compound entry.)
Mar 5. Advertised the opening of the driving range and miniature golf course, paying advertising
expenses of $700.
Mar 6. Paid cash $600 for a one-year insurance policy.
Mar 10. Purchased golf discs and other equipment for $1,050 from Innova Company payable in 30
days.
Mar 18. Received $340 in cash for golf fees earned.
Mar 19. Sold 100 coupon books for $10 each. Each book contains 4 coupons that enable the
holder to play one round of disc golf.
Mar 25. Declared and paid a $800 cash dividend.
Mar 30. Paid salaries of $250.
Mar 30. Paid Innova Company in full.
Mar 31. Received $200 cash for fees earned.
Barry Schultz uses the following accounts: Cash, Prepaid Insurance, Land, Buildings, Equipment,
Accounts Payable, Unearned Revenue, Common Stock, Dividends, Golf Revenue, Advertising
Expense, and Salaries Expense.

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Instructions
Journalize the March transactions.

Exercise 8:
Slowhand Services was formed on May 1, 2008. The following transactions took place during the
first month.
Transactions on May 1:
1. Stockholders invested $50,000 cash in the company, in exchange for stock.
2. Hired two employees to work in the warehouse. They will each be paid a salary of $2,800 per
month.
3. Signed a 2-year rental agreement on a warehouse; paid $24,000 cash in advance for the first year.
4. Purchased furniture and equipment costing $30,000. A cash payment of $10,000 was made
immediately; the remainder will be paid in 6 months.
5. Paid $1,800 cash for a one-year insurance policy on the furniture and equipment.
Transactions during the remainder of the month:
6. Purchased basic office supplies for $500 cash.
7. Purchased more office supplies for $1,500 on account. 8. Total revenues earned were $20,000—
$8,000 cash and $12,000 on account.
9. Paid $400 to suppliers for accounts payable due.
10. Received $3,000 from customers in payment of accounts receivable.
11. Received utility bills in the amount of $200, to be paid next month.
12. Paid the monthly salaries of the two employees, totaling of $5,600.
Instructions
(a) Prepare journal entries to record each of the events listed.
(b) Post the journal entries to T accounts.
(c) Prepare a trial balance as of May 31, 2008.
Exercise 9: The trial balance of Syed Moiz Co. shown below does not balance.

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Each of the listed accounts has a normal balance per the general ledger. An examination of the
ledger and journal reveals the following errors.
1. Cash received from a customer in payment of its account was debited for $480, and Accounts
Receivable was credited for the same amount. The actual collection was for $840.
2. The purchase of a computer on account for $620 was recorded as a debit to Supplies for $620 and
a credit to Accounts Payable for $620.
3. Services were performed on account for a client for $890. Accounts Receivable was debited for
$890, and Service Revenue was credited for $89.
4. A debit posting to Salaries Expense of $700 was omitted.
5. A payment of a balance due for $306 was credited to Cash for $306 and credited to Accounts
Payable for $360.
6. The payment of a $600 cash dividend was debited to Salaries Expense for $600 and credited to
Cash for $600.
Instructions
Prepare a correct trial balance.

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 CHAPTER 4
Exercise 1: Lagasse Corporation encounters the following situations:
1. Lagasse purchased $1,400 of supplies in 2008; at year-end, $500 of supplies remained unused.
2. Lagasse incurs utility expense which is not yet paid in cash or recorded.
3. Lagasse’s employees worked 3 days in 2008, but will not be paid until 2009.
4. Lagasse earned service revenue but has not yet received cash or recorded the transaction.
5. Lagasse received cash for future services to be performed in 2009.
6. Lagasse paid $8,000 rent on October 1 for the 4 months starting October 1.
7. Lagasse performed consulting services for a client in December 2008. On December 31, it billed
the client $3,300.
8. Lagasse paid cash for an expense and recorded an asset until the item was used up.
9. Lagasse collects $2,000 from a customer for services to be performed next year.
10. Lagasse purchased equipment on January 1, 2008; the equipment will be used for 5 years.
11. Lagasse borrowed $20,000 on October 1, 2008, signing a 10% one-year note payable.
Instructions
Identify what type of adjusting entry (prepaid expense, unearned revenue, accrued expense, accrued
revenue) is needed in each situation, at December 31, 2008.

Exercise 2: Ryan Stiles Company has the following balances in selected accounts on December 31,
2008.

All the accounts have normal balances.

The information below has been gathered at December 31, 2008.
1. Ryan Stiles Company borrowed $25,000 by signing a 12%, one-year note on October 1, 2008.
2. A count of supplies on December 31, 2008, indicates that supplies of $700 are on hand.
3. Depreciation on the equipment for 2008 is $2,000.
4. Ryan Stiles Company paid $2,520 for 12 months of insurance coverage on August 1, 2008.
5. On December 1, 2008, Ryan Stiles collected $50,000 for consulting services to be performed
from December 1, 2008, through March 31, 2009.
6. Ryan Stiles performed consulting services for a client in December 2008. The client will be billed
$5,300.

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7. Ryan Stiles Company pays its employees total salaries of $10,000 every Monday for the
preceding 5-day week (Monday through Friday). On Monday, December 30, employees were paid
for the week ending December 27. All employees worked the last 2 days of 2008.
Instructions
Prepare adjusting entries for the seven items described above.

Exercise 3: The ledger of Fiddler Rental Agency on March 31 of the current year includes the
following selected accounts before adjusting entries have been prepared.

An analysis of the accounts shows the following.

1. The equipment depreciates $500 per month.
2. The unearned rent represents $10,800 collected on March 1 for the period March 1 through June
30.
3. Interest of $750 is accrued on the notes payable.
4. Supplies on hand total $1,100.
5. The company paid $4,200 on January 1 for a 2-year insurance policy.
Instructions
Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly.
Additional accounts are: Depreciation Expense, Insurance Expense, Interest Payable, and Supplies
Expense.

Exercise 4:
The trial balances before and after adjustment for Vasquez Company at the end of its
fiscal year are presented below.

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Instructions
Prepare the adjusting entries that were made.

Exercise 5:
Henry Morris Company has the following balances in selected accounts on December 31, 2008.
Consulting Revenue $65,000
Insurance Expense 3,600
Supplies Expense 4,100
All the accounts have normal balances. Henry Morris Company debits prepayments to expense
accounts when paid, and credits unearned revenues to revenue accounts when received. The
following information below has been gathered at December 31, 2008.
1. Henry Morris Company paid $3,600 for 12 months of insurance coverage on August 1, 2008.
2. On December 1, 2008, Henry Morris Company collected $65,000 for consulting services to be
performed from December 1, 2008, through April 30, 2009.
3. A count of supplies on December 31, 2008, indicates that supplies of $1,200 are on hand.
Instructions
Prepare the adjusting entries needed at December 31, 2008.

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Exercise 6: At Boris Company, prepayments are debited to expense when paid, and unearned
revenues are credited to revenue when received. During January of the current year, the following
transactions occurred.
Jan. 2. Paid $2,700 for fire insurance protection for the year.
Jan. 10 Paid $2,100 for supplies.
Jan. 15 Received $7,000 for services to be performed in the future.
On January 31, it is determined that $4,500 of the services fees have been earned and that there are
$900 of supplies on hand.
Instructions
(a) Journalize and post the January transactions. (Use T accounts.)
(b) Journalize and post the adjusting entries at January 31.
(c) Determine the ending balance in each of the accounts.

Exercise 7:
Ken Ham started his own consulting firm, Hambone Consulting, on May 1, 2008. The
trial balance at May 31 is as follows.

In addition to those accounts listed on the trial balance, the chart of accounts for Hambone
Consulting also contains the following accounts and account numbers: No. 150 Accumulated
Depreciation—Office Furniture, No. 229 Travel Payable, No. 212 Salaries Payable, No. 717

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Depreciation Expense, No. 722 Insurance Expense, No. 736 Travel Expense, and No. 631 Supplies
Expense.
Other data:
1. $900 of supplies have been used during the month.
2. Travel expense incurred but not paid on May 31, 2008, $250.
3. The insurance policy is for 2 years.
4. $400 of the balance in the unearned service revenue account remains unearned at the end of the
month.
5. May 31 is a Wednesday, and employees are paid on Fridays. Hambone Consulting has two
employees, who are paid $800 each for a 5-day work week.
6. The office furniture has a 5-year life with no salvage value. It is being depreciated at $170 per
month for 60 months.
7. Invoices representing $1,200 of services performed during the month have not been recorded as
of May 31.
Instructions
(a) Prepare the adjusting entries for the month of May. Use J4 as the page number for your journal.
(b) Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as
beginning account balances and place a check mark in the posting reference column.
(c) Prepare an adjusted trial balance at May 31, 2008.

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 CHAPTER 5
Exercise 1: Kimmie Meissner Company had the following adjusted trial balance.

Instructions
(a) Prepare closing entries at June 30, 2008 and a post-closing trial balance.
Exercise 2: Commanche Company ended its fiscal year on July 31, 2008. The company’s adjusted
trial balance as of the end of its fiscal year is as shown below.

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Instructions
(a) Prepare the closing entries.
(b) Post to Retained Earnings and No. 350 Income Summary accounts.
(c) Prepare a post-closing trial balance at July 31.
(a) Prepare an income statement and a retained earnings statement for the year.
(b) Prepare a classified balance sheet at July 31.
Exercise 3: Angela Borke has prepared the following list of statements about the accounting cycle.
1. “Analyze business transactions” is the first step in the accounting cycle.
2. Adjusting entries are a required step in the accounting cycle.
3. Correcting entries are a required step in the accounting cycle.
4. If a worksheet is prepared, all the steps of the accounting cycle are incorporated into the
worksheet.
5. The accounting cycle begins with the analysis of business transactions and ends with the
preparation of a post-closing trial balance.
6. All steps of the accounting cycle occur daily during the accounting period.
7. The step of “post to the ledger accounts” occurs after the step of “journalize the transactions.”
8. Closing entries must be prepared before financial statements can be prepared.
Instructions: Identify each statement as true of false. If false, indicate how to correct the statement.
Exercise 4: Jenny Company has an inexperienced accountant. During the first 2 weeks on the job,
the accountant made the following errors in journalizing transactions. All entries were posted as
made.
1. A payment on account of $720 to a creditor was debited to Accounts Payable $270 and credited
to Cash $270.
2. The purchase of supplies for $650 cash was debited to Inventory $65 and credited to Cash $65.
3. A $500 cash dividend was debited to Salaries Expense $500 and credited to Cash $500.
Instructions: Prepare the correcting entries.
Exercise 5: The adjusted trial balance for Anthony Bowling Alley at December 31, 2008, contains
the following accounts.

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Instructions
(a) Prepare a classified balance sheet; assume that $15,000 of the note payable will be paid in 2009.
(b) Comment on the liquidity of the company.

Exercise 6: The following items were taken from the financial statements of Cat Company.
(All dollars are in thousands.)

Instructions: Prepare a classified balance sheet in good form as of December 31, 2008.

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