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Practice Problems

Site: Saylor Academy
Course: BUS103: Introduction to Financial Accounting
Book: Practice Problems
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Date: Friday, 4 April 2025, 10:21 AM

Description

Complete these exercises and practice problems. Check your answers after you finish.

Table of contents

Demonstration problem

Green Hills Riding Stable, Incorporated, had the following balance sheet on 2010 June 30:

GREEN HILLS RIDING STABLE, INCORPORATED
Balance sheet 2010 June 30
Assets
Cash $7,500
Accounts receivable 5,400
land 40,000
total assets $52,900
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable $800
Notes payable 40,000
Total liabilities  $40,800
Stockholders' equity:
Capital stock  $10,000
Retained earnings  2,100
Total stockholders' equity 12,100
Total liabilities and stockholders' equity  $52,900

a. Prepare the journal entries to record the transactions for July 2010.

b. Post the journal entries to the ledger accounts after entering the beginning balances in those accounts. Insert cross-indexing references in the journal and ledger. Use the following chart of accounts:

100 Cash 320 Dividends
103 Accounts Receivable 402 Horse Boarding Fees Revenue
130 Land 404 Riding and Lesson Fees Revenue
140 Buildings  507 Salaries Expense
200 Accounts Payable   513 Feed Expense
201 Notes Payable   540 Interest Expense
300 Capital Stock   568 Miscellaneous Expense
310 Retained Earnings

c. Prepare a trial balance.

Source: Textbook Equity, https://learn.saylor.org/pluginfile.php/41229/mod_resource/content/8/AccountingPrinciples.pdf
Creative Commons License This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 License.

Solution

a.
GREEN HILLS RIDING STABLE, INCORPORATED
General Journal
Date Account Titles and Explanation Post. Ref. Debit Credit
2010 July 1 Cash (+A) 100 2 5 0 0 0
Capital Stock (+SE)  300 2 5 0 0 0
Additional capital stock issued
1 Buildings (+A)  140 2 4 0 0 0
Cash (-A) 100 2 4 0 0 0
Paid for building
8 Account Payable (-L) 200 8 0 0
Cash (-A) 100 8 0 0
Paid accounts payable
10 Cash (+A) 100 5 4 0 0
Accounts Receivable (-A) 103 5 4 0 0
Collected accounts receivable
12 Feed Expense (-SE) 513 1 1 0 0
Accounts Payable (+L)  200 1 1 0 0
Purchased feed on account
15 Accounts Receivable (+A) 103 4 5 0 0
Horse Boarding Fee Revenue (+SE) 402 4 5 0 0
Billed boarding fees for July
24 Miscellaneous Expense (-SE) 568 8 0 0
Cash (-A) 100 8 0 0
Paid miscellaneous expenses for July.
31 Interest Expense (-SE) 540 2 0 0
Cash (-A) 100 2 0 0
Paid interest
31 Salaries Expense (-SE) 507 1 4 0 0
Cash (-A) 100 1 4 0 0
Paid salaries for July
31 Accounts Receivable (+A) 103 3 6 0 0
Riding and Lesson Fee Revenue (+SE)  404 3 6 0 0
Billed riding and lesson fees for July.
31 Dividends (-SE) 320 1 0 0 0
Cash (-A) 100 1 0 0 0
Paid a dividend to stockholders

b.

GREEN HILLS RIDING STABLE, INCORPORATED - General Ledger
Land   Account No. 100
Date Explanation Post
Ref.		 Debt Credit Balance
2010 June 30 Balance 7 5 0 0 0 Dr
July 1 Stockholders' investment G1 2 5 0 0 0 3 2 5 0 0 Dr
1 Buildings G1 2 4 0 0 0 8 5 0 0 Dr
8 Accounts payable G1 8 0 0 7 7 0 0 Dr
10 Accounts receivable G1 5 4 0 0 1 3 1 0 0 Dr
24 Miscellaneous expense G1 8 0 0 1 2 3 0 0 Dr
31 Interest expense G1 2 0 0 1 2 1 0 0 Dr
31 Salaries expense G1 1 4 0 0 1 0 7 0 0 Dr
31 Dividends G1 1 0 0 0 9 7 0 0 Dr
Accounts Receivable Account No. 103
Date Explanation Post
Ref.		 Debt Credit Balance
2010 June 30 Balance 5 4 0 0 Dr
July 10 Cash G1 5 4 0 0 . 0 .
15 Horse boarding fees G1 4 5 0 0 4 5 0 0 Dr
31 Riding and &essons fees G1 3 6 0 0 8 1 0 0 Dr
land  Account No. 130
Date Explanation Post
Ref.		 Debt Credit Balance
2010 June 30 Balance 4 0 0 0 0 Dr
Buildings Account No. 140
Date Explanation Post
Ref.		 Debt Credit Balance
2010 July 1 Cash G1 2 4 0 0 0 2 4 0 0 0 Dr
Accounts Payable   Account No. 200
Date Explanation Post
Ref.		 Debt Credit Balance
2010 June 30 Balance 8 0 0 Cr
July 8 Cash G1 8 0 0 . 0 .
12 Feed expense G1 1 1 0 0 0 1 1 0 0 Cr
Date Explanation Post Ref. Debt Credit Balance
2010 June 30 Balance 4 0 0 0 0 Cr
Date Explanation Post Ref. Debt Credit Balance
2010 June 30 Balance 1 0 0 0 0 Cr
July 1 Cash G1 2 5 0 0 0 3 5 0 0 0 Cr
Date Explanation Post Ref. Debt Credit Balance
2010 June 30 Balance 2 1 0 0 Cr
Dividends Account No. 320
Date Explanation Post Ref. Debt Credit Balance
2010 July 31 Cash G1 1 0 0 0 1 0 0 0 Dr
Date Explanation Post Ref. Debt Credit Balance
2010 July 15 Accounts receivable G1 4 5 0 0 4 5 0 0 Cr
Date Explanation Post Ref. Debt Credit Balance
2010 July 31 Accounts receivable G1 3 6 0 0 3 6 0 0 Cr
Date Explanation Post Ref. Debt Credit Balance
2010 July 31 Cash G1 1 4 0 0 1 4 0 0 Dr
Date Explanation Post Ref. Debt Credit Balance
2010 July 12 Accounts payable G1 1 1 0 0 1 1 0 0 Dr
Date Explanation Post Ref. Debt Credit Balance
2010 July 31 Cash G1 2 0 0 2 0 0 Dr
Date Explanation Post Ref. Debt Credit Balance
2010 July 24 Cash G1 8 0 0 8 0 0 Dr



c.

GREEN HILLS RIDING STABLE,INCORPORATED  Trial Balance
2010 July 31
Acct. No. Account Title Debits Credits
100 Cash $9,700
103 Accounts Receivable 8,100
130 Land 40,000
140 Buildings 24,000
200 Accounts Payable $1,100
201 Notes Payable 40,000
300 Capital Stock 35,000
310 Retained Earnings 2,100
320 Dividends 1,000
402 Horse Boarding Fee Revenue 4,500
404 Riding and Lesson Fee Revenue 3,600
507 Salaries Expense 1,400
513 Feed Expense 1,100
540 Interest Expense 200
568 Miscellaneous Expense 800
$86,300 $86,300


Self-test

True-false

Indicate whether each of the following statements is true or false.

  1. All of the steps in the accounting cycle are performed only at the end of the accounting period.
  2. A transaction must be journalized in the journal before it can be posted to the ledger accounts.
  3. The left side of any account is the credit side.
  4. Revenues, liabilities, and capital stock accounts are increased by debits.
  5. The dividends account is increased by debits.
  6. If the trial balance has equal debit and credit totals, it cannot contain any errors.


Multiple-choice

Select the best answer for each of the following questions.

  1. When the stockholders invest cash in the business:
    1. Capital Stock is debited and Cash is credited.
    2. Cash is debited and Dividends is credited.
    3. Cash is debited and Capital Stock is credited.
    4. None of the above.

  2. Assume that cash is paid for insurance to cover a three-year period. The recommended debit and credit are:
    1. Debit Insurance Expense, credit Cash.
    2. Debit Prepaid Insurance, credit Cash.
    3. Debit Cash, credit Insurance Expense.
    4. Debit Cash, credit Prepaid Insurance.

  3. A company received cash from a customer in payment for future delivery services. The correct debit and credit are:
    1. Debit Cash, credit Unearned Delivery Fees.
    2. Debit Cash, credit Delivery Fee Revenue.
    3. Debit Accounts Receivable, credit Delivery Fee Revenue.
    4. None of the above.

  4. A company performed delivery services for a customer for cash. The correct debit and credit are:
    1. Debit Cash, credit Unearned Delivery Fees.
    2. Debit Cash, credit Delivery Fee Revenue.
    3. Debit Accounts Receivable, credit Delivery Fee Revenue.
    4. None of the above.

  5. A cash dividend of USD 500 was declared and paid to stockholders. The correct journal entry is:
    1. Capital stock 500 Cash 500
    2. Cash 500 Dividends 500
    3. Dividends 500 Cash 500
    4. Cash 500 Capital stock 500

Answers

True-false

  1. False. Only the last five steps are performed at the end of the period. The first three steps are performed throughout the accounting period.
  2. True. The journal is the book of original entry. Any amounts appearing in a ledger account must have been posted from the journal.
  3. False. The left side of any account is the debit side.
  4. False. These accounts are all increased by credits.
  5. True. Since dividends reduce stockholders' equity, the Dividends account is increased by debits. 
  6. False. An entire journal entry may not have been posted, or a debit or credit might have been posted to the wrong account.

Multiple-choice

  1. c. An asset, Cash, is increased by a debit, and the Capital Stock account is increased by a credit.
  2. b. Since the insurance covers more than the current accounting period, an asset is debited instead of an expense. The credit is to Cash.
  3. a. The receipt of cash before services are performed creates a liability, Unearned Delivery Fees. To increase a liability, it is credited. Cash is debited to increase its balance.
  4. b. Cash is increased by the debit, and Delivery Service Revenue is increased by the credit.
  5. c. Dividends is increased by the debit, and Cash is decreased by the credit.