Accounting Chapter 3 Exercises Wiley 16th Edition - 1 Acc 301 Dr S Huang Basic Example for Chapter 3 1 On Sept 15 Lipe Co issues 1,000 shares of stock

Accounting Chapter 3 Exercises Wiley 16th Edition - 1 Acc...

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1 Acc 301 Basic Example for Chapter 3 Dr. S. Huang 1 . On Sept. 15, Lipe Co. issues 1,000 shares of stock at its par value of $100 each. 2 . On Oct. 1, Lipe Co. buys a building for $40,000 and some equipment for $10,000, paying cash. 3 . On Nov. 1, the firm buys inventory on account for $5,000. Assume the firm uses a perpetual inventory system. 4 . On Dec. 1, the firm pays its workers $1,500. 5 . On Dec. 1, the firm agrees to rent out some excess space for $1,000/mo to Tenant Co. Tenant pays $6,000 in advance. 6 . On Dec. 2, the firm pays $2,000 of its bill for inventory. 7 . On Dec. 5, the firm sells half of its inventory for $8,000 on account. 8 . On Dec. 20, the firm collects half of its sales receivables. 9 . On Dec. 26, the firm pays a dividend of $1/share. Potential Errors: - turn around entry 8 - forget to journalize: On Nov. 1 purchased a 2 year insurance policy for $2,400. Step #1: Journalizing 1. 9/15 Cash ............................ 100,000 Common Stock ............... 100,000 (Issued shares of stock) 2. 10/1 Equipment ....................... 10,000 Buildings ....................... 40,000 Cash ....................... 50,000 (Bought building & equipment) 3. 11/1 Inventory ....................... 5,000 Accounts Payable ........... 5,000 (bought inventory on account) 4. 12/1 Salaries and Wages Expense ...... 1,500 Cash ....................... 1,500 (paid workers)
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2 5. 12/1 Cash ............................ 6,000 Unearned Rent .............. 6,000 (rent out excess space-paid ahead) 6. 12/2 Accounts Payable ................ 2,000 Cash ....................... 2,000 (paid on inventory balance) 7. 12/5 Accounts Receivable ............. 8,000 Sales ...................... 8,000 (sold half inventory) Cost of Goods Sold .............. 2,500 Inventory .................. 2,500 8. 12/20 Cash ............................ 4,000 Accounts Receivable ......... 4,000 (firm collects ½ sales receivable) 9. 12/26 Dividends ....................... 100,000 Cash ........................ 100,000 (declared & paid dividend) 10 11/1 Prepaid Insurance ............... 2,400 Cash ........................ 2,400 (purchased 2 year insurance policy) Step #2: Posting to the t-accounts Cash Acct/Receivable Inventory Bldg__ 9/15 100,000 12/5 8,000 11/1 5,000 10/1 40,000 10/1 (50,000) 12/20 (4,000) 12/5 (2,500) ------------ 12/1 (1,500) ------------------ --------------- 40,000 12/1 6,000 4,000 2,500 12/2 (2,000) 12/20 4,000 12/26 (100,000) -------------- (43,500)
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3 Eqpmt Acct/Payable Unearned Rent C. Stock 10/1 10,000 11/1 (5,000) 12/1 (6,000) 9/15 (100,000) ----------- 12/2 2,000 --------------- ------------ 10,000 ------------- (6,000) (100,000) (3,000) Sales Salaries Exp c/g/s Dividends 12/5 (8,000) 12/1 1,500 12/5 2,500 12/26 100,000 ------------- ------------- ---------- ------------- (8,000) 1,500 2,500 100,000 Note: At the end of the posting, there are several things we can do with these t-accounts to help us check our work so far. Method (1): Check whether credits equal debits; Method (2): Check whether A=L+SE; Method (2): Check with a Trial Balance
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4 Step #3: Trial Balance : List all accounts and their balances. Put the debit balances in one column and the credits in another because we will want to get a total of each of them. Debit Credit Cash 43,500 Accounts Receivable 4,000 Inventory 2,500 Equipment 10,000 Buildings 40,000 Accounts Payable 3,000 Unearned Rent 6,000 Common Stock 100,000 Dividends 100,000 Salaries and Wages Expense 1,500 Sales 8,000 Cost of Goods Sold 2,500 $160,500 $160,500 Note: If debits do not equal to credits, go back and check journal entries. Each should balance. If assets do not equal to liability+SE, some transactions was recorded incorrectly. Forgot whether debits are increases or decreases.
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