Author Question: Expenses on the income statement could be listed in alphabetical order by dollar amount. a. True ... (Read 67 times)

Melani1276 · **on:** Jul 5, 2018

Expenses on the income statement could be listed in alphabetical order by dollar amount.
a. True
b. False
Indicate whether the statement is true or false

Question 2

(Transaction analysis, journal entries, and adjusting journal entries)

Ricardo Sanchez repairs automobiles.

He started calendar year 2013 year with the following account balances: Cash - 5,000; Accounts receivable - 30,000; Allowance for uncollectible accounts - 3,000; Repair parts inventory - 23,000; Equipment - 60,000; Accumulated depreciation - 25,000; Accounts payable - 10,000; and R. Sanchez, Capital -80,000 . The following transactions occurred during the month of January.
a. Ricardo paid rent of 8,000 for the months of January and February.
b. He purchased 10,000 of repair parts for inventory. The purchase was made on credit.
c. He paid outstanding invoices in the amount of 12,000
d. He billed customers a total of 35,000 for repair services.
e. In performing the repairs in transaction d., he used repair parts that cost him 13,000
f. He received 40,000 from his customers against previous billings for repair work.
g. One of his customers, who owed him 2,000, went bankrupt. Ricardo received 400 in cash and wrote off the remaining 1,600 as a bad debt.
h. He paid his mechanics 8,000 for four weeks' salary.
i. He used 10,000 of his idle cash to purchase a short-term certificate of deposit (CD). The CD pays interest at the rate of 3 a year.
j. He purchased new equipment for 5,000 on credit.

Ricardo wants financial statements at the end of the month. The following adjusting journal entries are needed:

k. To recognize one month's depreciation on the 60,000 of equipment on hand at the beginning of the month. Ricardo assumes the equipment will have a 10-year life.
l. To recognize estimated bad debts. Ricardo wants to provide for additional bad debts at the rate of 2 of the month's billings (see transaction d.)
m. To recognize unpaid salaries of 1,200 for the last few days in January.
n. To recognize interest earned for one-month on the CD purchased in transaction i., above.
o. To recognize the expiration of one month's rent paid in transaction a.

Required
a. Analyze the above transactions on a work sheet. The work sheet should show columns for individual accounts classified as cash, other assets, liabilities, and equity.
b. Prepare journal entries to record all of the above transactions.

tjayeee · **Reply #1 on:** Jul 5, 2018

Answer to Question 1

False

Answer to Question 2

Assets = Liabilities + Equity
Other Cash Assets

Opening balances 5,000 85,000 10,000 80,000
a. Paid rent - 8,000 + 8,000
b. Purchased parts + 10,000 + 10,000
c. Paid bills - 12,000 - 12,000
d. Billed clients + 35,000 + 35,000
e. Used parts - 13,000 - 13,000
f. Rec'd payment + 40,000 - 40,000
g. Cash, bad debt + 400 - 2,000
+ 1,600
h. Paid salaries -8,000 - 8,000
i. Investment - 10,000 + 10,000
j. Purchase equipment + 5,000 +5,000
k. Depreciation. exp.- - 500 - 500
l. Bad debts allow. -700 - 700
m. Accrue salaries +1,200 - 1,200
n. Accrue interest + 25 + 25
o. Rent expires - 4,000 - 4,000
Totals +7,400 + 94,425 + 14,200 + 87,625
+ 101,825 = +101,825

Answer, part b.

a. Prepaid rent 8,000
Cash 8,000

b. Repair parts inventory 10,000
Accounts payable 10,000

c. Accounts payable 12,000
Cash 12,000

d. Accounts receivable 35,000
Repair revenue 35,000

e. Parts expense 13,000
Repair parts inventory 13,000

f. Cash 40,000
Accounts receivable 40,000

g. Cash 400
Allowance for uncollectible accounts 1,600
Accounts receivable 2,000

h. Salaries expense 8,000
Cash 8,000

i. Investments 10,000
Cash 10,000

j. Equipment 5,000
Accounts payable 5,000

k. Depreciation expense 500
Accumulated depreciation, equipment 500

l. Bad debts expense 700
Allowance for uncollectible accounts 700

m. Salaries expense 1,200
Salaries payable 1,200

n. Accrued interest receivable 25
Interest revenue 25

o. Rent expense 4,000
Prepaid rent 4,000