Usama Asaad

MBA Remedial

Financial Accounting

Exercise 3.1:

a. The span of an income statement is “Accounting period”

b. The sequence of accounting procedures used to record, classify and

summarize accounting information is “Accounting cycle”

c. The traditional accounting practice of resolving uncertainty by choosing the

solution that leads to the lowest amount of income being recognized is
“None” of the technical terms given in the question.

d. An increase in owner’s equity resulting from profitable operations is “Net

Income”

e. The generally accepted accounting principle that determines when revenue

should be recorded in the accounting records is “Realization principle”

f. The type of entry used to decrease an asset or increase a liability or owner’s

equity account is “Credit”

g. The generally accepted accounting principle of offsetting revenue earned

during an accounting period with expenses incurred in generating that
revenue is “Matching principle”

h. The costs of the goods and services used up in the process of generating
revenue “Expenses”
 Exercise 3.4

SUN ORTHOPEDIC CLINIC, Inc.

General Journal
October 1- 30

Account Titles and

Date Explanation Debit Credit
1-Oct Cash $ 200,000
Capital Stock $ 200,000
4-Oct Equipment $ 75,000
Cash $ 25,000
Notes Payable $ 50,000
12-Oct Accounts Payable $ 9,000
Cash $ 9,000
19-Oct Supplies $ 2,600
Accounts
Payable $ 2,600
25-Oct Cash $ 24,000
Accounts Receivable $ 24,000
30-Oct Dividend $ 300,000
Cash $ 300,000
 Exercise 3.10:

Revenue or Not (reasons):

a. Not revenue, as the amount has been put in by shareholders and not earned
by the business through its own operations.

b. Not revenue, as the amount is received for services rendered in April and not
May.

c. Not revenue, as it is provided by the bank as loan and will be recorded as a

liability.

d. Interest is revenue as it has been received on the business money lying with
the bank.

e. It is revenue as the services are provided in the month of May, even though
the payment will be made not before 25th June.

Exercise 3.11:

Expense or Not (reasons)

a) Not an expense for March as the photocopier will be depreciated thru its
workable life.

b) It is an expense as was used in March for fuel of delivery truck

c) It is an expense as the amount was paid as salary for the services of the
employ for the month of March.

d) Not an expense as the services were rendered in January

 e) Not an expense as the dividends are not recorded as expense and are only
the shareholders money going back to them

Usama Asaad

MBA Remedial

Financial Accounting

Exercise 3.13: (a)

Donegan's Lawn Care Service

General Journal
July, 2005

Date Account Titles & Explanation Debit Credit

18-Jul Cash $ 1,500
Capital stock $ 1,500
Issued 500 shares to Patrick Donegan
Exp: for $3 each

22-Jul Offices supplies $ 100

Account payable $ 100
Exp: Bought office supplies

23-Jul Mowing equipment $ 2,000

Cash $ 400
Note paybale $ 1,600
Exp: Purchased mowing equipment

24-Jul Fuel expenses $ 25

Cash $ 25
Exp: Purchased mowing equipment
 25-Jul Account recievable $ 24,000
Cash Revenue $ 24,000
Exp: Billed Lost Creek Cemetry

26-Jul Account recievable $ 200

Cash
Revenu
e $ 200
Exp: Billed Golf View Condominiums

30-Jul Cash $ 150

Account recievable $ 150
Received payment from Lost Creek
Exp: Cemetry

July,31 Salary Expense $ 80

Cash $ 80
Exp: Paid salary to Teddy Grim
Exercise 3.13: (b)

Donegan's Lawn Care Service

The Ledger
July, 2005

Cash Accounts Payable

$ $
18-Jul 1,500 22-Jul 100
$ Balanc $
23-Jul 400 e 100
$
24-Jul 25
$
30-Jul 150 Note Payable
$ $
31-Jul 80 23-Jul 1,600
Balanc $ Balanc $
e 1,145 e 1,600

Accounts Recievable Fuel Expenses

$ $
25-Jul 150 24-Jul 25
$ Balanc $
26-Jul 200 e 25
 $
30-Jul 150
Balanc $
e 200 Patrick's Capital Stock
$
18-Jul 1,500
Balanc $
Office Supplies e 1,500
$
22-Jul 100
Balanc $
e 100 Mowing Revenue
25-Jul $ 150
Mowing Equipment 26-Jul $ 200
$ Balanc
23-Jul 2,000 e $ 350
Balanc $
e 2,000
Salary Expense
31-Jul $ 80
Balanc
e $ 80

Exercise 3.13: (c)

Donegan's Lawn Care Service

Trial Balance
31st July

Cash $ 1,145
Accounts Recievable $ 200
Office Supplies $ 100
Mowing Equipment $ 2,000
Account Payable $ 100
Note Payable $ 1,600
Capital Stock $ 1,500
Retained Earnings $ -
Mowing Revenue $ 350
Salary Expenses $ 80
Fuel Expenses $ 25
$ 3,550 $ 3,550

Exercise 3.13: (d)

“Retained Earning” is zero as the company has only started business during the
month of July.

Problem 3.1 (a)

HEARTLAND CONSTRUCTION
General Journal
Feb 1-28

Date Account Titles & Explanation Debit Credit

$
1-Feb Cash 500,000
$
Capital Stock 500,000
10- Land $
Feb 100,000
$
Building 200,000
$
Cash 60,000
$
Note Payable 240,000
16- $
Feb Computer Systems 12,000
$
Cash 12,000
18- $
Feb Office Furnishings 9,000
$
Cash 1,000
Accounts $
Payable 8,000
22- $
Feb Office Supplies 300
$
Cash 300
23- $
Feb Accounts Receivable 36
Computer $
Systems 36
27- $
Feb Accounts Payable 4,000
$
Cash 4,000
28- $
Feb Cash 36
Accounts $
Receivable 36
 Problem 3.1 (b)

Transac Owner's
tion Assets = Liabilities + Equity
$ $ $
1-Feb 500,000 - 500,000
$ $ $
10-Feb 300,000 240,000 -
$
(60,000)
$ $ $
16-Feb 12,000 - -
$
(12,000)
$ $ $
18-Feb 9,000 8,000 -
$
(1,000)
$ $ $
22-Feb 3,000 - -
$
(3,000)
$ $ $
23-Feb 36 - -
$
(36)
$ $
27-Feb (4,000) (4,000)
$ $ $
28-Feb 36 - -
$
(36)