Accounting Tutoring - Ac 210, University of Alabama

Account Classification Chapter 3

What type of account is increased with a debit but is a decrease to retained earnings?

Liability
Asset
Revenue
Expense

Journal Entry - Inventory Chapter 3

Prepare the journal entry for the following transaction:

Purchased $16,000 of inventory, paid $12,000 in cash and the rest remained on account.

Journal Entry 1
Inventory		16,000
	Cash		12,000
	Accounts Payable		4,000

Journal Entry - Sales Chapter 3

Prepare the journal entry for the following transaction:

Sold $90,000 of goods to customers, receiving $65,000 in cash and the remained on account.

Journal Entry 2
Cash		65,000
Accounts Receivable		25,000
	Revenue		90,000

Land Purchased With Cash Chapter 3

Determine the effect on a company’s Assets and Net Income from the following transaction: land is purchased with cash.

	Assets	Net Income
A	Decreased	Decreased
B	Decreased	No effect
C	Increased	No effect
D	Increased	Increased
E	None of the above

T/F: Liabilities and Equity Chapter 3

The payment of a liability in cash will decrease stockholders’ equity.

True / False

False

Normal Balances Chapter 3

For each account listed below, mark whether it has a debit or credit normal balance.

Account	Debit	Credit
Revenues Correct Incorrect Revenues increase Income. An increase in Income increases Retained Earnings. An increase in Retained Earnings is a credit. Therefore Revenues are credits.
Assets Correct Incorrect Assets live on the left side of the accounting equation and are therefore normal debit accounts. They are also the A in the DEAD acronym.
Retained Earnings Correct Incorrect Retained Earnings lives on the right side of the accounting equation, as a part of Owner's Equity, and are therefore credits.
Inventory Correct Incorrect Inventory is an asset, and assets are debited
Prepaid Insurance Correct Incorrect Prepaid Insurance is an asset, and assets are debited
Prepaid Rent Correct Incorrect Prepaid Rent is an asset, and assets are debited
Prepaid Expenses Correct Incorrect Prepaid Expenses is an asset, and assets are debited
Accounts Receivable Correct Incorrect Accounts Receivable is an asset, and assets are debited
Expenses Correct Incorrect Expenses decrease Income. A decrease in Income decreases Retained Earnings. A decrease in Retained Earnings is a debit. Therefore Expenses are debits. Also, Expenses are in the E in the DEAD acronym.
Insurance Expense Correct Incorrect Insurance Expense is an Expense, and Expenses are debited
Accounts Payable Correct Incorrect Accounts Payable are Liabilities and Liabilities are credited.
Cost of Goods Sold Correct Incorrect Cost of Goods Sold is an Expense, and Expenses are debited
Dividends Correct Incorrect Dividends decrease Retained Earnings. A decrease in Retained Earnings is a debit. Therefore Dividends are debits. Also, Dividends are in the D in the DEAD acronym.
Land Correct Incorrect Land is an asset, and assets are debited
Liabilities Correct Incorrect Liabilities live on the right side of the accounting equation and are therefore normal credit accounts. They are also the opposite of Assets, if that helps you remember.
Cash Correct Incorrect Cash is an asset, and assets are debited
Notes Payable Correct Incorrect Notes Payable are Liabilities and Liabilities are credited.
Rent Expense Correct Incorrect Rent Expense is an Expense, and Expenses are debited
Capital Stock Correct Incorrect Capital Stock lives on the right side of the accounting equation, as a part of Owner's Equity, and are therefore credits.

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What Should Be Journaled Chapter 3

A company experienced the following financial events on Sept. 29, Year 1. How many of these economic events would require a journal entry on that day?

The company signed a new contract with an employees’ union that requires a $2.00 per hour increase in wages and a longer lunch break, effective 10/1/Y1.
The company president is retiring and will be replaced by the vice president of finance who will be paid $50,000 more per year.
The company purchased a fire insurance policy for $5,000 that will pay $1,000,000 if the facility is destroyed. The policy insures the company from 11/1/Y1 - 10/31/Y2

One
Two
Three
None

Calculating Operating Income Chapter 3

A company began operations at the start of Year 1.

During the year, it had cash sales of $50,000 and credit sales of $450,000. The company collected $420,000 in cash from the credit sales. The company purchased inventory costing $250,000 and paid $18,000 in dividends. The company incurred the following expenses:

Cost of goods sold	210,000	Rent expense	6,000
Salary expense	80,000	Depreciation expense	4,000
Interest expense	5,000	Income tax expense	57,000

Using this information, answer the following questions.

What would Operating Income on the Dec. 31, Year 1 Income Statement be reported as?
As of Dec. 31, Year 1, determine the ending balance in the Accounts Receivable
Determine Ending Retained Earnings as of December 31, Year 1

Operating Income - 200,000
Ending Accounts Receivable - 30,000
Ending Retained Earnings - 120,000