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Charlize · Nov 22, 2005, 02:10 PM

Could someone tell me if I have these correct and if not what'd I do wrong. Thank you.

January 8 Purchased a one-year insurance policy, effective February 1, for $3,360.

Debit: Insurance Expense

Credit: Prepaid Insurance

Completed several consulting jobs, which totaled $52,000. Cash of $26,000 was collected with the balance due in 30 days.

Credit: Consulting Revenue 52,000

Debit: Cash 26,000

Debit: Accounts Receivable 26,000

Placed an order in the local newspaper for advertising, which will run during January, February, and March. The advertising, which cost $4,500, was paid for on this date in order to obtain a lower price.

Debit Advertising Expense: 4500

Credit Prepaid Advertising: 4500

CaptainForest · Nov 22, 2005, 02:23 PM

1) Incorrect

Should be:
Jan 8.
Debit: Prepaid Insurance 3,360
Credit: Cash or AP 3,360

2) Correct, as long as you are suppost to ignore Tax considerations

3) Incorrect.

I am assuming the date here is Jan 1?
Debit: Prepaid Advertising 4,500
Credit: Cash or AP 4,500

On Jan 31, Feb 28, and March 31:

Debit: Prepaid Avertising 1,500
Credit: Advertising Expense 1,500

Charlize · Nov 22, 2005, 05:13 PM

THANKS

The date on the third one is January 7, sorry I left that out. How would I figure the dates in that case.

Question about the first one? I wouldn't do it like the third one?

Deb: Ppaid Insurance 3360
Crd: Insurance Expense 3360

Deb: Advertising Expense 280
Crd: Prepaid Insurance 280

CaptainForest · Nov 22, 2005, 05:16 PM

No, for the first one...

You are buying it on Jan 8, but it does not take effect until Feb 1.

Therefore, you cannot accure any expense until you start using it. So until Feb 1, it is ALL Prepaid.

And for the 3rd one...

My answer is still the same with the date being Jan 7.
You won't accure anything really until your fiscal end (be it annual, quarterlly, monthly).

Charlize · Nov 22, 2005, 05:24 PM

Right, that's the expense recognition rule: recognize expenses when you incur them not when you pay for them, I just looked through my notes :o Thx... So for February 1 I should make those entries for 280?

Is it okay if I ask you another one?

It deals with this one, I'd asked before:

January 10 Completed several consulting jobs, which totaled $52,000. Cash of $26,000 was collected with the balance due in 30 days.

Credit: Consulting Revenue 52,000
Debit: Cash 26,000
Debit: Accounts Receivable 26,000

January 31 Collected $10,000 of the receivable recorded on January 10. In addition, a client indicated that a $9,000 receivable due to Bayou would not be paid for 6 months. Bayou accepted an 8% 6-month note receivable on this date.

This is what I figured:

Credit Accounts Receivable 10,000

Debit Cash 120

Debit Notes Receivable 8880

I divided 9,000 by 6, got 1500, found 8% of 1500 which came out to be 120... I guess that's how much was paid that date, 8880 is how much of the note is left to pay

Does that seem right?

CaptainForest · Nov 22, 2005, 05:39 PM

the Jan 10 entry is correct

But are you suppost to record Sales Tax? Such as here in Ontario Canada, its 7% GST and 8% Provincial. If you are to ignore taxes, which in highschools typically do, then it is correct.

Jan 31.

to record the collection of $10,000

Debit: Cash 10,000
Credit: A/R 10,000

to record the $9,000 6-month note at 8%...

Debit: Notes Receivable 9,000
Credit : A/R 9,000

because in essence, the customer has just paid you the 9,000 he owes you from A/R. You are simply financing him the money (similar to if he went to a bank to borrow money to pay you back)

Then, when it is time to do your financial statements, you would accure the interest. Or after 6 months, record it when they pay the loan back to you plus the interest...

so on July 31... the entry would be..

Debit: Cash 9,360
Credit: Interest Earned 360
Credit: Notes Receivable 9,000

Interest Earned calculation:
You loaned them $9,000 and they promised to pay you interst at 8% per year. However, the loan comes due after 6 months, so the interest rate is only 8%/2 = 4%

9,000 x .04 = 360

Charlize · Nov 22, 2005, 06:00 PM

Okay, that makes sense... Are you an accountant, accounting major? I appreciate you taking the time out to help me. :) Accounting gives me headaches :(

January 15: Paid the semi-monthly payroll, which totalled $35,000, to the firm's consultants, all of which are classified as independent contractors.

My initial thought was to Debit: Payroll Expense, Crd: Cash

Then on January 31: Paid the payroll for the second half of January

CaptainForest · Nov 22, 2005, 06:05 PM

Your J/E for Jan 15 and 31 seem to be correct.

I'm a university student, majoring in accounting.

Your quite welcome.

Charlize · Nov 22, 2005, 06:12 PM

Well, you're my angel, cause I sure have been praying for one lately to help me with this. Don't want to be all mushy up in here lol I have an accounting practice set due next Tuesday. This is Thanksgiving break so I can't go to the Accounting Lab and get help. I doubt if even get all of this done.

How do I figure the payroll for the second half of January though? :confused:

Charlize · Nov 22, 2005, 09:01 PM

Could somebody help me with this transaction?

January 16 Declared a cash divedend of $.75 per share on this date payable on February 18.

Does this deal with the Common Stock I already have.

CaptainForest · Nov 23, 2005, 02:59 PM

How do I figure the payroll for the second half of January though?

I'm not quite sure but since:
January 15: Paid the semi-monthly payroll, which totalled $35,000

I would assume that the second half would be the same. Unless there is other information in the question that says otherwise.

How to record your decleration of a cash dividend?

Jan 16
Debit: Retained Earnings for 0.75 x all the outstanding common shares you have
Credit: Dividends Payable for the same amount

Then on Feb 18 when you pay the dividend,
Debit: Dividends Payable, by same amoutn as before
Credit: Cash, by same amount as before

YES, this does deal with the Common Stock that you already have.

Charlize · Nov 23, 2005, 03:21 PM

Okay, I was somewhat on the right track...

I did this transaction, I was confident in the answer but when I looked at it again, I'm wasn't so sure.

Issued $16,000 shares of $5 dollar par value common stock in exchange for an initial investment of $230,000 by the firm's owners...

Debit: Common Stock for 230,000
Crd: Cash $80,000

or is it the other way around?

Deb: Cash 230
Crd: Common Stock 80

CaptainForest · Nov 24, 2005, 08:22 PM

Couple tips:

Debits MUST ALWAYS EQUAL CREDITS in monetary value.

So if you Debit Cash for 10,000 and Credit Land for 9,000, than you must Credit something else for 1,000

When ever you receive an asset (such as cash), it is ALWAYS a Debit

Liabilities work the other way. Whenever you receive notification to pay someone money, that is ALWAYS a Credit.

In terms of this problem…

You are receiving cash of $230,000 (that is what he is investing into your business)
In exchange for the cash, you are giving him some common shares (Value $5 x 16,000=$80,000)

230,000 does not equal 80,000. The remaining $150,000 is a simple invest he is making into your company, so you Credit Retained Earnings

Debit Cash 230,000
Credit Common Shares 80,000
Credit Retained Earnings 150,000

Charlize · Nov 25, 2005, 08:43 PM

I get that... On the chart of accounts there's an account for 'Paid in capital in excess of par value' I know to credit that for 150,000, I didn't credit Retained Earnings though.

Thx