Practice Problems
| Site: | Saylor Academy |
| Course: | BUS103: Introduction to Financial Accounting |
| Book: | Practice Problems |
| Printed by: | Guest user |
| Date: | Saturday, April 20, 2024, 3:37 AM |
Description
Complete these practice problems. Check your answers after you finish.
Demonstration problem
On 2010 June 1, Green Hills Riding Stable, Incorporated, was organized. The following transactions
occurred during June:
June 1: Shares of capital stock were issued for USD 10,000 cash.
June 4: A horse stable and riding equipment were rented (and paid for) for the month at a cost of USD
1,200.
June 8: Horse feed for the month was purchased on credit, USD 800.
June 15: Boarding fees of USD 3,000 for June were charged to those owning horses boarded at the stable.
(Fee is due on July 10)
June 20: Miscellaneous expenses of USD 600 were paid.
June 29: Land was purchased from a savings and loan association by borrowing USD 40,000 on a note
from that association. The loan is due to be repaid in five years. Interest payments are due at the end of
each month beginning July 31.
June 30: Salaries of USD 700 for the month were paid.
June 30: Riding and lesson fees were billed to customers in the amount of USD 2,800. (Fees are due on
July 10)
a) Prepare a summary of the preceding transactions. Use columns headed Cash, Accounts Receivable,
Land, Accounts Payable, Notes Payable, Capital Stock, and Retained Earnings. Determine balances
after each transaction to show that the basic accounting equation is in balance.
b) Prepare an income statement for June 2010.
c) Prepare a statement of retained earnings for June 2010.
d) Prepare a balance sheet as of 2010 June 30.
Source: Textbook Equity, https://learn.saylor.org/pluginfile.php/41229/mod_resource/content/8/AccountingPrinciples.pdf
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License.
Solution
| a. | GREEN HILLS RIDING STABLE, INCORPORATED Summary of Transactions Month of June 2010 |
|||||||
|---|---|---|---|---|---|---|---|---|
| Assets | = Liabilities + | Stockholders Equity | ||||||
| Date | Explanation | Cash | Accounts Receivable |
Land | Accounts Payable |
Notes Payable |
Capital + Stock |
Retained Earnings |
| June 1 |
Capital stock issued | 10,000 | = | +$10,000 | ||||
| 4 | Rent expense | (1,200) | $(1,200) | |||||
| $8,800 | = | +$10,000 | $(1,200) | |||||
| 8 | Feed expense | $800 | (800) | |||||
| $8,800 | = | $800 | +$10,000 | $(2000) | ||||
| 15 | Boarding fees | $3,000 | 3,000 | |||||
| $8,800 | $3,000 | = | $800 | +$10,000 | $1,000 | |||
| 20 | Miscellaneous expenses |
(600) | (600) | |||||
| $8,200 | $3,000 | = | 800 | +$10,000 | $400 | |||
| 29 | Purchased land by borrowing | $40,000 | ||||||
| $8,200 | $3,000 | = |
$800 | $40,000 | +$10,000 | $400 | ||
| 30 | Salaries paid | (700) | $40,000 | (700) | ||||
| $7,500 | $3,000 | $40,000= | $800 | $40,000 | +$10,000 | $(300) | ||
| 30 | Riding and lesson fees billed |
2,800 | 2,800 | |||||
| $7,500 | $5,800 | $40,000 | $800 | $40,000 | +$10,000 | $2,500 |
b)
| GREEN HILLS RIDING STABLE, INCORPORATE Income Statement For the Month Ended 2010 June 30 |
||
|---|---|---|
| Revenues: | ||
| Horse boarding fees revenue | $3,000 | |
| Riding and lesson fee revenue | 2,800 | |
| Total revenues |
$5,800 | |
| Expenses: | ||
| Rent expense | $1,200 |
|
| Feed expense | 800 | |
| Salaries expense | 700 | |
| Miscellaneous expense | 600 | |
| Total expenses | 3,300 | |
| Net income | $2,500 |
| GREEN HILLS RIDING STABLE, INCORPORATED Statement of Retained Earnings For the Month Ended 2010 June 30 |
|
|---|---|
| Retained earnings, June 1 | $-0- |
| Add: Net income for June |
2,500 |
| Total | $2,500 |
| Less: Dividends |
-0- |
| Retained earnings, June 30 | $2,500 |
| GREEN HILLS RIDING STABLE, INCORPORATE Balance Sheet 2010 June 30 |
||
|---|---|---|
| Cash |
$7,500 | |
| Accounts receivable | 5,800 | |
| Land | 40,000 | |
| Total assets |
$53,300 | |
| Liabilities and Stockholders' Equity | ||
| Liabilities: | ||
| Accounts payable |
$800 | |
| Noted payable | 40,000 | |
| Total liabilities | $40,800 | |
| Stockholders' equity: | ||
| Capital stock |
$10,000 | |
| Retained earnings |
2,500 | |
| Total stockholders' equity |
$12,500 | |
| Total liabilities and stockholders' equity |
$53,300.00 |
Self-test
True-False
Indicate whether each of the following statements is true or false.
- The three forms of business organizations are single proprietorship, partnership, and trust.
- The three types of business activity are service, merchandising, and manufacturing.
- The income statement shows the profitability of the company and is dated as of a particular date,
such as 2010 December 31.
- The statement of retained earnings shows both the net income for the period and the beginning and
ending balances of retained earnings.
- The balance sheet contains the same major headings as appear in the accounting equation.
Multiple-choice
- The ending balance in retained earnings is shown in the:
- Income statement.
- Statement of retained earnings.
- Balance sheet.
- Both (b) and (c).
- Which of the following is not a correct form of the accounting equation?
- Assets = Equities.
- Assets = Liabilities + Stockholders' equity.
- Assets – Liabilities = Stockholders' equity.
- Assets + Stockholders' equity = Liabilities.
- Which of the following is not one of the five underlying assumptions or concepts mentioned in the chapter?
- Exchange-price concept.
- Inflation accounting concept.
- Business entity concept.
- Going-concern concept.
- When the stockholders invest cash in the business, what is the effect?
- Liabilities increase and stockholders' equity increases.
- Both assets and liabilities increase.
- Both assets and stockholders' equity increase.
- None of the above.
- When services are performed on account, what is the effect?
- Both cash and retained earnings decrease.
- Both cash and retained earnings increase.
- Both accounts receivable and retained earnings increase.
- Accounts payable increases and retained earnings decreases.
Solution
True-False
1. False. Corporation, not trust, is the third form.
2. True. The accounting for all three of these is covered in this text.
3. False. The income statement is dated using a period of time, such as "For the Year Ended
2010 December 31".
4. True. In addition, the statement of retained earnings shows dividends declared.
5. True. Both show assets, liabilities, and stockholders' equity.
Multiple-choice
- d. The ending balance in retained earnings is shown in both the statement of retained earnings
and in the balance sheet.
- d. This form of the equation would not balance.
- b. The inflation accounting concept was not one of the ones discussed. The other two were the
money measurement concept and the periodicity concept.
- c. When the stockholders invest cash, assets and stockholders' equity increase.
- c. The performance of services on account increases both accounts receivable and retained
earnings.