ndi di Asco 1. Give an example of a transaction that results in: (a) A decrease in an asset and a decrease in a liability. (b) A decrease in one asset and an increase in another asset. (c) A decrease in one liability and an increase in another liability 2. o the following events represent business transactions? Explain your answer in each case. (a) A computer is purchased on account (b) A customer returns merchandise and is given credit ven credit on account. (c) A prospective employee is interviewed. (d) The owner of the business withdraws cash from the business for personal use. (e) Merchandise is ordered for delivery next month. Name the accounts debited and credited for each of the following transactions. (a) Billing a customer for work done. (b) Receipt of cash from customer on account. (c) Purchase of office supplies on account. (d) Purchase of 15 gallons of gasoline for the delivery truck. Why are revenue and expense accounts called temporary or nominal accounts? Andrea Pafko, a fellow student, contends that the double- entry system means that each transaction must be re- corded twice. Is Andrea correct? Explain. 6. Is it necessary that a trial balance be taken periodically? What purpose does it serve? ndicate whether each of the following items is a real or ominal account and whether it appears in the balance sheet or the income statement. (a) Prepaid Rent (b) Salaries and Wages Payable. (c) Inventory (d) Accumulated Depreciation Equipment. (e) Equipment. (f) Service Revenue. (g) Salaries and Wages Expense. (h) Supplies. 8. Employees are paid every Saturday for the preceding work week. If a balance sheet is prepared on Wednesday, December 31, what does the amount of wages earned during the first three days of the week (12/29, 12/30, 12/31) represent? Explain. 9. (a) How are the components of revenues and expenses different for a merchandising company? (b) Explain the in- come measurement process of a merchandising company. 10. What differences are there between the trial balance before closing and the trial balance after closing with respect to the following accounts? (a) Accounts Payable. (b) Expense accounts. (c) Revenue accounts. (d) Retained Earnings account. (e) Cash 11. What are adjusting entries and why are they necessary? 12. What are closing entries and why are they necessary? 13. Jay Hawk, maintenance supervisor for Boston Insurance Co., has purchased a riding lawnmower and accessories to be used in maintaining the grounds around corporate headquarters. He has sent the following information to the accounting department. 4 BE3-1 Transactions for Mehta Company for the month of May are presented below. Prepare journal entries for each of these transactions. (You may omit explanations.) May 1 B.D. Mehta invests $4.000 cash in exchange for common stock in a small welding corporation. 3 Buys equipment on account for $1.100 13 Pays $400 to landlord for May rent. 21 Bills Noble Corp. $500 for welding work done. 4 BE3-2 Agazzi Repair Shop had the following transactions during the first month of business as a propri- etorship. Journalize the transactions. (Omit explanations.) Aug. 2 Invested $12,000 cash and $2,500 of equipment in the business. 7 Purchased supplies on account for $500. (Debit asset account.) 12 Performed services for clients, for which $1,300 was collected in cash and $670 was billed to the clients. 15 Paid August rent $600. 19 Counted supplies and determined that only $270 of the supplies purchased on August 7 are still on hand. 4 5 BE3-3 On July 1, 2014, Crowe Co, pays $15,000 to Zubin Insurance Co. for a 3-year insurance policy. Both companies have fiscal years ending December 31. For Crowe Co., journalize the entry on July 1 and the adjusting entry on December 31. 45 BE3-4 Using the data in BE3-3, journalize the entry on July 1 and the adjusting entry on December 31 for Zubin Insurance Co. Zubin uses the accounts Unearned Service Revenue and Service Revenue. BE3-5 Assume that on February 1, Procter & Gamble (P&G) paid $720,000 in advance for 2 years' insur- ance coverage. Prepare P&G's February 1 journal entry and the annual adjusting entry on June 30. 4 5 BE3-6 LaBouche Corporation owns a warehouse. On November 1, it rented storage space to a lessee (tenant) for 3 months for a total cash payment of $2,400 received in advance. Prepare LaBouche's Novem- ber 1 journal entry and the December 31 annual adjusting entry. 4 5 BE3-7 Dresser Company's weekly payroll, paid on Fridays, totals $8,000. Employees work a 5-day week. Prepare Dresser's adjusting entry on Wednesday, December 31, and the journal entry to record the $8,000 cash payment on Friday, January 2. BE3-8 Included in Gonzalez Company's December 31 trial balance is a note receivable of $12,000. The note is a 4-month, 10% note dated October 1. Prepare Gonzalez's December 31 adjusting entry to record $300 of accrued interest, and the February 1 journal entry to record receipt of $12,400 from the borrower. 134 Chapter 3 The Accounting Information System 5 BE3-9 Prepare the following adjusting entries at August 31 for Walgreens. (a) Interest on notes payable of $300 is accrued. (b) Services performed but unbilled total $1,400 (c) Salaries and wages eamed by employees of $700 have not been recorded. (d) Bad debt expense for year is $900. Use the following account titles: Service Revenue, Accounts Receivable, Interest Expense, Interest Payable, Salaries and Wages Expense, Salaries and Wages Payable, Allowance for Doubtful Accounts, and Bad Debt Expense