Accounting Answers

define retained earnings also explain its composition what are objectives of retained earning

July 1 The company issued USD 600,000 of capital stock for cash.

5 Office space was rented for July, and USD 5,000 was paid for the rental.

8 Desks and chairs were purchased for the office on account, USD 28,800.

10 Equipment was purchased for USD 50,000; a note was given, to be paid in 30 days.

15 Purchased trucks for USD 150,000, paying USD 120,000 cash and giving a 60-day note to the dealer for USD 30,000.

18 Paid for supplies received and already used, USD 2,880.

23 Received USD 17,280 cash as service revenue.

27 Insurance expense for July was paid, USD 4,500.

30 Paid for gasoline and oil used by the truck in July, USD 576.

31 Billed customers for services rendered, USD 40,320.

31 Paid salaries for July, USD 51,840.

31 Paid utilities bills for July, USD 5,280.

31 Paid cash dividends, USD 9,600.

a. Prepare general ledger accounts for all of these accounts except Retained Earnings.

b. Journalize the transactions

c. Post the ledger accounts.

d. Prepare a trial balance

Economy Laundry Company had the following transactions in August 2010:

Aug. 1 Issued capital stock for cash, USD 150,000.

3 Borrowed USD 40,000 from the bank on a note.

4 Purchased cleaning equipment for USD 25,000 cash.

6 Performed services for customers who promised to pay later, USD 16,000.

7 Paid this month's rent on a building, USD 2,800.

10 Collections were made for the services performed on August 6, USD 3,200.

14 Supplies were purchased on account for use this month, USD 3,000.

17 A bill for USD 400 was received for utilities for this month.

25 Laundry services were performed for customers who paid immediately, USD 22,000.

31 Paid employee salaries, USD 6,000.

31 Paid cash dividend, USD 2,000.

a. Prepare journal entries for these transactions.

b. Post the journal entries to T-accounts.

Exercise B Prepare the journal entry required for each of the following transactions:

a. Cash was received for services performed for customers, USD 1,200.

b. Services were performed for customers on account, USD 4,200.

Exercise C Prepare the journal entry required for each of the following transactions:

a. Capital stock was issued for USD 100,000.

b. Purchased machinery for cash, USD 30,000.

Exercise D Prepare the journal entry required for each of the following transactions:

a. Capital stock was issued for USD 200,000 cash.

b. A USD 30,000 loan was arranged with a bank. The bank increased the company's checking account by USD

30,000 after management of the company signed a written promise to return the USD 30,000 in 30 days.

c. Cash was received for services performed for customers, USD 700.

d. Services were performed for customers on account, USD 1,200.

A diagram of the various types of accounts follows. Show where pluses (+) or minuses (-) should be

inserted to indicate the effect debits and credits have on each account.

Asset Accounts = Liability Accounts + Stockholders' Equity Accounts

Debit Credit Debit Credit Debit Credit

Expense and Dividends

Accounts Account

Revenue Accounts

Debit* Credit Debit Credit*

Apr. 1 Sold merchandise on account for USD 288,000; terms 2/10, n/30, FOB shipping point, freight collect.

5 USD 43,200 of the goods sold on account on April 1 were returned for a full credit. Payment for these goods had not yet been received.

8 A sales allowance of USD 5,760 was granted on the merchandise sold on April 1 because the merchandise was damaged in shipment.

10 Payment was received for the net amount due from the sale of April 1.

b. High Stereo Company engaged in the following transactions in July 2010.

July 2 Purchased stereo merchandise on account at a cost of USD 43,200; terms 2/10, n/30, FOB destination, freight prepaid.

15 Sold merchandise for USD 64,800, terms 2/10, n/30, FOB destination, freight prepaid.

16 Paid freight costs on the merchandise sold, USD 2,160.

20 High Stereo Company was granted an allowance of USD 2,880 on the purchase of July 2 because of damaged merchandise.

31 Paid the amount due on the purchase of July 2.

Prepare journal entries to record the transactions.

Exercise K Given the balances in this partial trial balance, indicate how the balances would be treated in the

work sheet. The ending inventory is USD 96. (The amounts are unusually small for ease in rewriting the numbers.

We purposely left out the Statement of Retained Earnings columns since they are not used.)

Accounts Titles Trial Balance Adjustments Adjusted

Trial Balance

Income

Statement Balance Sheet

Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit

Merchandise

Inventory 120

Sales S40

Sales Discounts 18

Sales Returns

and Allowances 45

Purchases 600

Purchase

Discounts 12

Purchase Returns

and Allowances 24

Transportation-In 36

You have purchased merchandise with a list price of USD 36,000. Because you are a wholesaler,

you are granted a trade discount of 49.6 per cent. The cash discount terms are 2/EOM, n/60. How much will you

remit if you pay the invoice by the end of the month of purchase? How much will discounts on payment you remit if

you do not pay the invoice until the following month?