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Q.2-5E

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Financial & Managerial Accounting
Found in: Page 82
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: Groro Co. bills a client $62,000 for services provided and agrees to accept the following three items in full payment: (1) $10,000 cash, (2) computer equipment worth $80,000, and (3) to assume responsibility for a $28,000 note payable related to the computer equipment. The entry Groro makes to record this transaction includes which one or more of the following?

a. $28,000 increase in a liability account

b. $10,000 increase in the Cash account

c. $10,000 increase in a revenue account

d. $62,000 increase in an asset account

e. $62,000 increase in a revenue account

f. $62,000 increase in an equity account

Answer

The correct options are a, b, e, and f.

See the step by step solution

Step by Step Solution

Step 1: Affected accounts in the transactions

In the given transactions, service revenue has been earned, and so the revenue account would be affected. Apart from this, the other accounts are Cash (asset), Computer equipment (asset), Notes payable (liability).

Step 2: Transactional effect on the accounts

As the service revenue has been earned, there is an increase in the revenue account by $62,000 and so in equity too. In lieu of revenue cash, computer equipment, and notes payable have been accepted. This would increase the cash (asset) by $10,000, equipment (asset) by $80,000, and notes payable (liability) by $28,000.

Based on this, the correct answer would be option a, b, e, and f.

Most popular questions for Business-studies Textbooks

At the beginning of April, Bernadette Grechus launched a custom computer solutions company called Softworks. The company had the following transactions during April.

a. Bernadette Grechus invested $65,000 cash, office equipment with a value of $5,750, and $30,000 of computer equipment in the company in exchange for common stock.

b. The company purchased land worth $22,000 for an office by paying $5,000 cash and signing a longterm note payable for $17,000.

c. The company purchased a portable building with $34,500 cash and moved it onto the land acquired in b.

d. The company paid $5,000 cash for the premium on a two-year insurance policy.

e. The company provided services to a client and immediately collected $4,600 cash.

f. The company purchased $4,500 of additional computer equipment by paying $800 cash and signing a long-term note payable for $3,700.

g. The company completed $4,250 of services for a client. This amount is to be received within 30 days.

h. The company purchased $950 of additional office equipment on credit.

i. The company completed client services for $10,200 on credit.

j. The company received a bill for rent of a computer testing device that was used on a recently completed job. The $580 rent cost must be paid within 30 days.

k. The company collected $5,100 cash in partial payment from the client described in transaction i.

l. The company paid $1,800 cash for wages to an assistant.

m. The company paid $950 cash to settle the payable created in transaction h.

n. The company paid $608 cash for minor maintenance of the company’s computer equipment.

o. The company paid $6,230 cash in dividends.

p. The company paid $1,800 cash for wages to an assistant.

q. The company paid $750 cash for advertisements on the web during April.

Required

2. Open the following ledger accounts—their account numbers are in parentheses (use the balance column format): Cash (101); Accounts Receivable (106); Prepaid Insurance (108); Office Equipment (163); Computer Equipment (164); Building (170); Land (172); Accounts Payable (201); Notes Payable (250); Common Stock (307); Dividends (319); Fees Earned (402); Wages Expense (601); Computer Rental Expense (602); Advertising Expense (603); and Repairs Expense (604). Post the journal entries from part 1 to the accounts and enter the balance after each posting.

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