ans~ch5

Answers to Practical Exercises and Problems for CHAPTER 5

Name: Score: Subject / Section: Professor:

P5-1. In the spaces provided below, refer to the same transactions for Rose Restaurant given in Problem 4-3 on page 273 and indicate the effect of each transaction on the accounting equation elements and performance elements in terms of debits and credits. The number of each transaction is given to the left of the space provided for the transaction.

EQUITYASSETS LIABILITIES INVESTMENT WITHDRAWAL

SREVENUE EXPENSES

Ex. 1. Debit Credit 2. Debit Credit Credit 3. Debit Credit Credit Debit 4. Credit Debit 5. Credit Debit 6. Credit Debit 7. Credit Debit 8. Credit Debit

P5-2. Now correctly debit and credit the balance sheet and performance elements with the actual amounts of the transactions of Rose Restaurant in the spaces provided below. Determine the balance of the accounts. Does the balance sheet equation balance for the month?

EQUITYASSETS LIABILITIES INVESTMENT WITHDRAWAL

SREVENUE EXPENSES

Ex. 1. 10,000 10,000 2. 5,000 4,000 1,000 3. 8,000 4,000 8,000 4,000 4. 1,000 1,000 5. 1,500 1,500 6. 1,000 1,000 7. 300 300 8. 1,000 1,000

Totals 23,000 12,500 1,000 1,300 Bal. 10,500 300 10,000 1,000 8,000 6,800

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P5-3. The following T-accounts for Jessica’s Restaurant show twelve transactions that have been recorded for the month of June. The number of each transaction is shown in parentheses to the left of each transaction entry.

Cash Food Inventory Fixtures(1)10,000 (2) 500 (4) 4,000 (10) 4,000 (3) 3,000(7) 3,000 (3) 1,000(11) 800 (4) 4,000

(6) 500(8) 1,000 Jessica Reyes, Capital Jessica Reyes, Drawing(9) 1,000 (1) 10,000 (8) 1,000

Accounts Receivable Accounts Payable Food Sales Revenue(5)7,000 (7) 3,000 (9) 1,000 (3) 2,000 (5) 7,000

(11) 800

Supplies Rent Expense Cost of Food Sales(2) 500 (12) 150 (6) 500 (10) 4,000

Supplies Expense(12)150

Problem 5-3 (Cont'd......)

Required: Next to the number of each transaction given below, indicate the nature of the transaction, type of account affected (asset, liability, investment,

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withdrawal, revenue, or expense). Then indicate whether the effect of the transaction is to increase or decrease the account.

Nature of ACCOUNT DEBITED ACCOUNT CREDITEDTransaction Type Effect Type Effect

1. Owner’s investment. Asset IncreaseOwner’s Equity Increase

2. Purchased supplies for cash. Asset Increase Asset Decrease

3.Purchased fixtures for P3,000 paying P1,000 cash and the balance on account. Asset Increase

Asset Liability

Decrease Increase

4. Purchased food supplies worth P4,000 and paid cash for them. Asset Increase Asset Decrease

5. Billed customers for food served, P7,000. Asset Increase Revenue Increase

6. Paid rent of P500. Expense Increase Asset Decrease

7. Collected P3,000 from charge customers billed in the No. (5). Asset Increase Asset Decrease

8. J. Reyes, withdrew cash of P1,000 for personal use. Withdrawal Increase Asset Decrease

9. Paid P1,000 of debt incurred in No. 3. Liability Decrease Asset Decrease

10. Cost of food served in No. (5) P4,000. Expense Increase Asset Decrease

11. Collected P800 from customers billed in No. (5). Asset Increase Asset Decrease

12. Cost of used supplies, P150. Expense Increase Asset Decrease


P5-4. In the space provided below, determine the balance of the accounts for Jessica’s Restaurant in Problem 5-3 for the month of June. Does the

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accounting equation balance for the month? What was the net income of the store for the month?

Cash Food Inventory Fixtures10,000 500 4,000 4,000 3,000

3,000 1,000 800 4,000

5001,000 Jessica Reyes, Capital Jessica Reyes, Drawing1,000 10,000 1,000

Accounts Receivable Accounts Payable Food Sales Revenue7,000 3,000 1,000 2,000 7,000

800

Supplies Rent Expense Cost of Food Sales500 150 500 4,000

Supplies Expense150

Answer sheet for Problem 5-4

Balance of the accounts for Jessica's Restaurant:

1. Cash P 5,800 2. Accounts Receivable 3,2003. Food Inventory 0

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12,350 Assets


4. Supplies 3505. Fixtures 3,0006. Accounts Payable 1,0007. Jessica Reyes, Capital 10,0008. Jessica Reyes, Drawing 1,0009. Food Sales Revenue 7,00010.Cost of Food Sales 4,00011.Rent Expense 50012.Supplies Expense 150

Does the accounting equation balance for the month?

Assets = Liabilities + Owner's Equity 12,350 = 1,000 + 11,350

Net income for the month: P 2,350 (7,000 – 4,650)


P5-5. The following accounts show the transaction of Karl's Inn for the month. The number of each transaction is given to the left of each entry.

Cash Accounts Payable Karl, Drawing(1)50,000 (3) 7,000 (9) 2,500 (2) 5,000 (7) 1,000(4) 50,000 (6) 5,000

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11,350 Owner’s Equity

1,000 Liabilities

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(7) 1,000 (11) 35,000 (9) 2,500

Accounts Receivable Notes Payable Revenue(5)60,000 (11) 35,000 (6) 5,000 (4) 50,000 (5) 60,000(10) 4,000 (10) 4,000

Supplies Inventory Karl, Capital Rent Expense(2) 5,000 (8) 1,000 (1) 50,000 (3) 7,000

Supplies Expense(8)1,000

Problem 5-5 (Cont'd......)

Required:Next to the number of each transaction given below, analyze the transaction by describing it, then filling in the type of balance sheet element (asset, liability, or equity) affected by the transaction and whether the effect is to increase or decrease the account. The first transaction is analyzed for you as an example.

Effect on Account Debited

Effect on Account Credited

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1. Karl invested P50,000 cash in the business. increase asset increase equity

2. Purchased supplies amounting to P5,000 on account. increase asset increase liability

3. Paid rent of P7,000. decrease equity decrease asset

4. Borrowed P50,000 and issued a promissory note. increase asset increase liability

5. Billed customers for room charges P60,000. increase asset increase equity

6. Made partial payment of P5,000 on note payable. decrease liability decrease asset

7. Karl withdrew P1,000 cash for personal use. decrease equity decrease asset

8. Supplies used P1,000. decrease equity decrease asset

9. Paid account payable incurred in No. 2. decrease equity decrease asset

10. Billed customers for various services P4,000. increase asset increase equity

11. Collected P35,000 from charge customers. increase asset decrease asset


P5-6. Below is a list of accounts of Karen Company. For each of the transactions below, indicate the accounts that would be debited and credited by placing the number of the appropriate account in the debit and credit column.

1. Cash 6. Accounts Payable2. Accounts Receivable 7. Karen Cabrera, Capital3. Food Supplies 8. Karen Cabrera, Drawing4. Catering Equipment 9. Revenues

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5. Accumulated Depreciation-Office Equipment

10. Expenses

TransactionsAccount

sDebited

Accounts

Credited

Example: Owner invested P10,000 cash in business

1 7

1. Purchased food supplies on account. 3 6 2. Paid this month's rent 10 1 3. Billed customers for catering services

rendered during the current month. 2 9

4. Owner withdrew cash from the business. 8 1 5. Additional food equipment is purchased;

P100 cash is paid now and the balance is to be paid in 30 days.

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6. Received cash from customers for services rendered and billed in prior month.

1 2

7. Paid employees wages. 10 1 8. Received cash from customer at time

service was rendered.

1 9

9. Paid balance due on office equipment in (5) above.

6 1

10. Recorded depreciation on office equipment for current month.

10 5

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P5-7. Keyman Catering Services began operations in January 2001. During its first month of operations the following transactions occurred:

a. Sold 1,000 shares of no-par common stock for cash of P10,000.

b. Borrowed P12,000 from National Bank. A promissory note was signed stating that the loan plus 12% interest would be repaid in 18 months.

c. Purchased P500 worth of office supplies for cash.

d. Purchased kitchen equipment costing P11,000, paying P2,000 down with the balance on account.

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e. Received cash P7,500 for catering services performed during January.

f. Billed customers P9,000 for catering services performed during January.

g. Paid P2,500 rent for January 2001.

h. Paid P500 for utilities for January 2001.

i. Paid P900 to part-time employees for wages.

j. Paid a cash dividend to shareholders in the amount of P500.

k. Cost of food purchased for the month on cash basis amounted to P6,500. There were no food supplies left the by end of the month.

Required:1. Record the above transactions in the provided T-accounts.2. Calculate ending account balances.

Problem 5-7 (Cont'd.....)

Requirement (1)

ASSETS LIABILITIES REVENUESCash Notes Payable Catering Service

(a) 10,000 (c) 500 (b) 12,000 Revenue(b) 12,000 (d) 2,000 (e) 7,500(e) 7,500 (g) 2,500 (f) 9,000

(h) 500 Accounts Payable(i) 900 (d) 9,000(j) 500 EXPENSES(k) 6,500 Rent Expense

(g) 2,500Accounts Receivable

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(f) 9,000 EQUITYCommon Stock Utilities Expense

(a) 10,000 (h) 500

Food SuppliesInventory Dividends Wages Expense

(k) 6,500 (k) 6,500 (j) 500 (i) 900

Supplies Inventory Cost of Food (c) 500 Sales

(k) 6,500

Equipment(d) 11,000

Requirement (2)

Balance of the accounts for Keyman Catering Services:

Cash P16,100 Common Stock P10,000Accounts Receivable 9,000 Dividends 500Food Supplies Inventory 0 Catering Service Revenue 16,500Supplies Inventory 500 Rent Expense 2,500Equipment 11,000 Utilities Expense 500Notes Payable 12,000 Wages Expense 900Accounts Payable 9,000 Cost of Food Sales 6,500


P5-8. Annie Domingo began Annie's Rainbow Inn in October 2001 and completed the following transactions during the first month of operations.

a. Invested P400,000 cash to start the business, which is to be organized as a sole proprietorship.

b. Purchased P8,750 of office supplies on account.c. Purchased equipment of P250,000 with a down payment of

P150,000, and signed a 3-year note for the balance, with interest at 12%.

d. Performed services for customers for P58,000 cash.

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e. Paid P5,000 of the amount owed from transaction b.f. Performed services of P70,000 for customers on account.g. Collected P32,500 from customers on account.h. Paid the following expenses for October: rent P24,000, wages

P33,000, and utilities P13,750.i. Annie withdrew P11,000 from the business for personal expenses.

Required:Record the above transactions in T-accounts and determine the ending balance in each account.

Answer sheet for Problem 5-8Cash Notes Payable Service Revenue

(a)400,000 (c)150,000 (c)100,000 (d) 58,000(d) 58,000(e) 5,000 (f) 70,000(g) 32,500(h) 70,750

(i) 11,000Accounts Payable

Accounts Receivable (e) 5,000 (b) 8,750(f) 70,000(g) 32,500 Rent Expense

(h) 24,000

Office Supplies Annie, Capital Utilities Expense(f) 8,750 (a)400,000 (h) 13,750

Equipment Annie, Withdrawals Wages Expense(c)250,000 (i) 11,000 (h) 33,000

Answer sheet for Problem 5-8 (Cont’d.....)

Balance of the accounts for Annie’s Rainbow Inn:

Cash P 253,750Accounts Receivable 37,500Office Supplies 8,750Equipment 250,000Notes Payable 100,000Accounts Payable 3,750Annie, Capital 400,000Annie, Withdrawals 11,000Service Revenue 128,000

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Rent Expense 24,000Utilities Expense 13,750Wages Expense 33,000


P5-9. Using the information from Problem 5-8, list the T-account balances in the table below. Then, total the debit and credit columns to see if debits equal credits.

Do Debits = Credits?

AccountsDEBIT

BalancesCREDIT Balances

Accounts Payable P 3,750Accounts Receivable P 37,500Annie, Withdrawals 11,000Annie, Capital 400,000

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Cash 253,750Equipment 250,000Notes Payable 100,000Office Supplies 8,750Rent Expense 24,000Service Revenue 128,000Utilities Expense 13,750Wages Expense 33,000

TOTALS P 631,750 P 631,750

P5-10. Using the information in Problem 5-9, prepare an income statement, a statement of capital, and a balance sheet for Annie's Rainbow Inn as of October 31, 2001.

Annie’s Rainbow InnIncome Statement

For the month ended October 31, 2001

Service Revenue P128,000Less: Operating Expenses

Rent Expense P 24,000Utilities Expense 13,750Wages Expense 33,000 70,750

Net Income P 57,250

Problem 5-10 (Cont'd.....)

Statement of CapitalFor the Month ended October 31, 2001

Capital, October 1 P400,000Add: Net Income 57,250

P457,250Less: Withdrawals 11,000Capital, October 31 P446,250

Balance SheetOctober 31, 2001

Assets

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Cash P253,750Accounts receivable 37,500Office supplies 8,750Equipment 250,000

Total Assets P550,000

Liabilities and Owner’s Equity

Accounts payable P 3,750Notes payable 100,000Annie, Capital 446,250

Total Liabilities and Owner’s Equity P550,000

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