[Dog1937]

Having some trouble with the two following questions...

On April 30, 2005, Zono Electronics, Inc. made a payment of $3,500 to Imperial Distributors, a supplier. Choose the statement that best describes the recording of this financial transaction by Imperial Distributors.

A.Debit cash $3,500; credit accounts payable $3,500
B.Debit accounts receivable $3,500; credit cash $3,500
C.Debit accounts payable $3,500; credit cash $3,500
D.Debit cash $3,500; credit accounts receivable $3,500

I believe the answer would be D as they are receiving cash which would lessen their accounts receivable balance.

On December 31, 2005, Juan Foods purchases a van for $12,000. How does the purchase of the van affect Juan Foods' 2005 income statement?

A.Decreases sales by $12,000
B.Increases operating expenses by $12,000
C.No material effect
D.Increases cost of goods sold by $12,000

I believe this one would be D as purchasing an asset does not effect B or A. However, it could be C as well?

Any insight would be appreciated...

[pready]

1. This is letter C because they are making a payment on account. A Debit to Accounts Payable reduces your Accounts Payable and a Credit to Cash reduces your cash balance.

A is incorrect because you are not decreasing cash and increasing an Account Payable.

B is incorrect because you are not dealing with an Account Receivable. This is where a customer purchases something on account with your company.

D is incorrect because you are not increasing Cash and Accounts Receivable is not affected.

2. This does not affect the Income Statement because you are dealing with permanent accounts(balance sheet accounts) only. Therefore the answer is letter C. Note the wording on C could have been better. There is no material effect to the income statement. Your other 3 choices are all dealing with income statement accounts.

[Dog1937]

Thanks for the quick reply! I'm still a bit confused on the first question. As it reads I believe the answers are related to receiving the payment, not sending the payment so the answers would have to be in regards to Imperial Distributors correct?

[pready]

You are correct. After reading the transaction again I realized that I gave you the answer for Zono, not for Imperial. The correct answer for Imperial would be letter D because they received cash and reduced an account receivable.

When there is a question or problem you should read the question or problem a few times to understand what is the question or problem, what information you are trying to get, from which company's perspective, or how to solve a problem with what information that has been provided. I failed to read the question more than once, which resulted in me providing the answer for the wrong company.