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Q.2-12E

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Financial & Managerial Accounting
Found in: Page 83
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Question: 1. Prepare general journal entries for the following transactions of Valdez Services.

a. Brina Valdez invested $20,000 cash in the company in exchange for common stock.

b. The company provided services to a client and immediately received $900 cash.

c. The company received $10,000 cash from a client in payment for services to be provided next year.

d. The company received $3,500 cash from a client in partial payment of accounts receivable.

e. The company borrowed $5,000 cash from the bank by signing a note payable.

2. Transactions a, c, d, and e did not yield revenue. Match each transaction (a, c, d, and e) with one of the following reasons for not recording revenue.

_______This transaction changed the form of an asset from a receivable to cash. Total assets were not increased (revenue was recognized when the services were originally provided).

_______This transaction brought in cash (increased assets), and it also increased a liability by the same amount (represented by the signing of a note to repay the amount).

_______This transaction brought in cash, but this is an owner investment.

This transaction brought in cash, and it created a liability to provide services to the client in the next year.

Answer

Total of journal matches at $39,400 and the transactions (d), (e), (a), and (c) are the correct fit for statements 1, 2, 3, and 4 respectively.

See the step by step solution

Step by Step Solution

Step 1: Journal entries

Date

Description

Debit

Credit

a

Cash

$20,000

Common Stock

$20,000

Being amount invested in the stock

b

Cash

$900

Service Revenue

$900

Being services provided for cash

c

Cash

$10,000

Unearned Revenue

$10,000

Being cash received for undelivered service

d

Cash

$3,500

Accounts Receivables

$3,500

Being cash collected from receivables

e

Cash

$5,000

Notes Payable

$5,000

Being amount borrowed against notes payable

Total

$39,400

$39,400

Step 2: Matching transaction with the statement

Statement 1–In transaction (d), $3,500 is being received as a collection from the receivables. So, this transaction has only changed the asset form but the asset has not increased.

Statement 2–In transaction (e), an amount is being borrowed against a liability (notes payable). So, this transaction has increased assets as well as the liability.

Statement 3–In transaction (a), the owner has invested the amount for common stock. So, this has brought in cash against the owner’s equipment.

Statement 4–In transaction (c), the amount has been received for the undelivered service. So, this has not only created an asset but also a liability to provide service.

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