A1. (Debit and credit recognition) Which of the following accounts increase with debits? a. Cash b. Interest expense c. Interest revenue d. Land e. Accounts payable f. Retained earnings g. Sales h. Cost of goods sold i. Dividends j. Bank loans payable A2 (Debit and credit recognition) Which of the followings accounts increase with credits? a. Common stock (an equity account) b. Contributed capital in excess of par value c. Accounts receivable d. Prepaid expenses e. Revenue for services rendered f. Unearned revenues g. Accrued income taxes payable h. Insurance expense i. Prepaid insurance j. Intangible assets A3 (Journal entries) For each of the following transactions, propose a journal entry, and also state how the transaction affected the fundamental accounting equation. Assume each one occurred June 1, 2015. a. The company issued stock of $2 million for cash. b. The company spent $200,000 to buy equipment c. The company bought a 12-month insurance policy for $50,000. d. The company provided services to a customer and earned $10,000. The customer paid cash. e. The company paid a previously outstanding account payable, of $4,000, using cash. A4 (Journal entries) For each of the following transactions, propose a journal entry, and also state how the transaction affected the fundamental accounting equation. Assume each one occurred May 1, 2015. a. The company made a sale of $30,000 for cash. b. In connection with the sale in part a, the company delivered inventory with a cost of $25,000 to the customer. (You need to record the reduction of inventory, and the cost of goods sold.) c. The company bought a car for $25,000 in cash. d. The company bought inventory from a supplier, for $30,000, on account. The company has 30 days to pay. e. A customer who had bought inventory in the previous month pays his bill of $2,400. A6 (Adjusting entries) Make the appropriate adjusting entries in the situations below. a. The company has a machine with a cost of $60,000 which it bought in prior years. Depreciation expense should be $2,000 per month. No depreciation has been recorded yet this month. b. Four months ago, the company bought prepaid insurance for 24 months for a total price of $48,000. The company has been recognizing some insurance expense each month. An entry is needed this month to record the insurance expense. c. The company loaned another company $100,000 at an interest rate of 6% per year. No interest is due to be paid this month, but an entry is needed to record the interest earned during this month. d. The company has bonds payable of $12,000,000, with an effective interest rate of 4% per year. An entry is needed to accrue the interest expense and interest payable for this month. A8 (Understanding entries) This question tests your ability to understand accounting entries. Each of the following is a typical journal entry, made either to record a transaction, or to adjust the books at the end of the month. Your task is to explain what the function of the entry is, and what event it is recording. For example, is it recording a sale for cash? a. Dr. dividends 10,000 Cr. Cash 10,000 b. Dr. Inventory 47,200 Cr. Accounts payable 47,200 c. Dr. Accounts receivable 9,000 Dr. Cost of goods sold 6,000 Cr. Sales 9,000 Cr. Inventory 6,000 d. Dr. Prepaid rent 6,000 Cr. Cash 6,000 e. Dr. Income tax expense 132,000 Cr. Income taxes payable 132,000 f. Dr. Interest receivable 4,200 Cr. Interest revenue 4,200 A9 -- Problem on sales of depreciable equipment. Note any time some depreciable asset is sold, the entry to record the sale will have the following pieces: Debit the cash or other assets received in the sale Debit the accumulated depreciation account related to the asset, to zero it out Credit the equipment (or building, or other fixed assets) account for the full original cost of the asset, to zero it out If there is a gain on sale, credit it. If there is a loss on sale, debit it. Make entries for the following two transactions: a. Sell a machine with an original cost of $10,000, and accumulated depreciation of $8,000, for cash of $3,000. b. Sell a building with an original cost of $10 million, and accumulated depreciation of $2 million, for $5,500,000 in cash.