PART I: SHORT RESPONSE
Directions: Please respond to each of the following questions. Write at least 3 to 5 sentences for each question.
1. List and explain the four items under the umbrella of owner’s equity, including whether it increases or decreases overall equity.
2. What is the fundamental accounting equation, including examples of each item of the equation?
3. Explain the separate entity concept, including why it is important to accounting.
PART II: APPLICATION
Directions: Please answer each of the following questions. Show your work as necessary.
1. T. Richtor established her own business, called Richtor’s Self-Storage. Use the account headings presented below in the expanded accounting equation to record the monthly transactions.
Assets | = | ||
Cash + Accounts Receivable + Supplies + Prepaid Insurance + Office Equipment | |||
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Liabilities | + | Owner’s Equity | |
Accounts Payable | T. Richtor, Capital T. Richtor, Drawing + Revenue Expenses | ||
a. | Deposited $12,000 in a bank account in the name of the business. |
b. | Bought office equipment on account from Molly Company, $3,100. |
c. | Paid rent for the month, $2,400. |
d. | Bought supplies for cash, $450. |
e. | Paid wages, $980. |
f. | Received cash for storage services, $3,600. |
g. | Received and paid the utility bill, $252. |
h. | Paid Lar’s Graphics for advertising, $428. (The bill was not previously recorded.) |
i. | Paid for a one-year liability insurance policy, $835. |
j. | Billed customers for storage services on account, $3,370. |
k. | Received cash for storage services, $2,300. |
l. | Paid wages, $990. |
m. | Paid Molly Company $1,100 as partial payment on the office equipment bought in transaction b. |
n. | Richter withdrew $1,200 for personal use. |
Instructions:
1. | Record the transactions in columnar form, write plus and minus signs, and show the balance after each transaction to be sure that the equation remains in balance. |
2. | Write the proof of totals at the bottom to show that one side of the equation equals the other side. |
Assets | = | > | |||||||||
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| Office |
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| Cash | + | Receivable | + | Supplies | + | Insurance | + | Equipment | = | > |
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Bal. |
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e. |
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h. |
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< |
| Liabilities | + | Owner’s Equity | ||||||
< |
| Accounts |
| T. Richtor, |
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Left Side of Equals Sign: |
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| Right Side of Equals Sign: |
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Cash | $ |
| Accounts Payable | $ |
Accounts Receivable |
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| T. Richtor, Capital |
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Supplies |
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| T. Richtor, Drawing |
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Prepaid Insurance |
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| Revenue |
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Office Equipment |
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2. On September 1 of this year, B. Rourk established Rourk Delivery Service. During the month, the company had the following transactions:
a. | B. Rourk invested $24,000 in the business (increase Cash; increase B. Rourk, Capital). |
b. | Bought two used delivery vans from The Van Lot for $20,000 and paid $5,000 as a down payment (increase Delivery Equipment, $20,000; decrease Cash, $5,000; increase Accounts Payable, $15,000). |
c. | Received $2,500 in cash for delivery services (increase Cash; increase Delivery Service Income). |
d. | Received bill from Central News for advertising, $350 (increase Advertising Expense; decrease Cash). |
e. | Billed Hager Surgical Supply for delivery services provided, $620 (increase Accounts Receivable; increase Delivery Service Revenue). |
f. | Received and paid telephone bill, $100 (decrease Cash; decrease Telephone Expense). |
g. | Rourk invested in his business office equipment having a fair market value of $960 (increase Office Equipment; decrease Cash). |
h. | Received and paid bill for gas and oil, $150 (decrease Cash; increase Maintenance Expense). |
i. | Paid $350 to Central News to pay account in full (increase Advertising Expense; increase Cash). |
j. | Received $2,900 cash for delivery services performed (increase Cash; increase Delivery Service Revenue). |
k. | Rourk withdrew $1,100 for personal use (decrease Cash; increase Wages Expense). |
l. | Received $400 from Hager Surgical Supply to apply on account (increase Cash; increase Delivery Service Revenue). |
m. | Paid wages to part-time employee, $800 (increase Wages Expense; decrease Cash). |
Instructions:
Find six errors that were made in recording the transactions, and state how they should have been recorded.
3. L. Hamilton established his own business, called Fix-It Yourself. Using the fundamental accounting equation, record the transactions for the month provided below for the business:
Assets | = | Liabilities | + | Owners Equity | Accounts Used |
a.) Owner deposited $5,800 in a bank account in the name of the business.
b.) Company bought equipment, paying cash, $1,500.
c.) L. Hamilton invested personal equipment in the business with fair market value of $3,300.
d.) Company bought supplies on account from a creditor, $750.
e.) Company paid creditor from transaction d, $250.
f.) Owner deposited $1,000 in personal checking account.
Instructions:
1. | Record the transactions in columnar form including the following: |
| *write plus and minus signs, |
| * show the balance after each transaction to verify |
| *and list the account titles needed to record each transaction. |
2. | Write the proof of totals at the bottom to show that one side of the equation equals the other side. |
| Assets | = | Liabilities | + | Owners Equity | Accounts Used |
a.) |
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b.) |
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