ACC 204 Chapter 1 Accounting Elements

ACC 204 Chapter 1 Accounting Elements – In class practice in $18 only

Is the account an Asset, Liability, Capital/Equity, Revenue, Expense?

On which financial statement does the account appear?

Land Rent Expense

Inventory Retained Earnings

Accounts Payable Accounts Receivable

Utilities Expense Common Stock

Wages Payable Wages Expense

Rent Expense Notes Payable

Equipment Sales

Supplies Supplies Expense

Service Revenue Fee Revenue

Dividends Dividend Income

Interest Expense Interest Payable

Interest Income Interest Receivable

Cost of Goods Sold Building

Income Tax Expense Income Tax Payable

Insurance Expense Cash

Prepaid Insurance Unearned Revenue

ACC 204 – Chapter 1 Accounting Elements – In class practice

Classify each account as an Asset, Liability, Capital, Revenue, Expense and indicate on which financial statement(s) the account appears.

Advertising Expense Automobiles

Common Stock Buildings

Cash Sales of Services

Accounts Payable Inventory

Office Supplies Notes Payable

Land Retained Earnings

Accounts Receivable Equipment

Sales of Products Interest Income

Bonds Payable Wages Payable

Office Supplies Exp. Dividends

Prepaid Insurance Unearned Rental Income

What is the income statement equation?

What is the statement of retained earnings equation?

What makes Retained Earnings increase?

What makes Retained Earnings decrease?

What is the link between the income statement and the statement of retained earnings?

What is the balance sheet equation?

What is the link between the statement of retained earnings and the balance sheet?

ACC 204 – Chapter 2 Review

Prepare the journal entry and/ort-accounts for the following transactions.

1. A two-year promissory note is signed at the local bank. The cash received from the loan is $3,000.

2. Equipment is purchased with a $1,000 check.

3. Sales on account are $2,000.

4. The monthly utility bill of $100 is received and paid.

5. Received $800 from customers as payment on account.

ACC 204 – Chapter 2 Practice Problem

Analyze the following transactions and record them in t-accounts

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

b. Paid $800 cash for office rent.

c. Purchased office equipment for $3,000 for cash.

d. Purchased on account advertising in the newspaper for $300.

e. Earned $9,000 for services provided on account.

f. Earned $1,000 for services provided for cash.

g. Paid $400 cash dividends.

h. Paid for the advertising in item d.

i. Collected $4,000 from customers on account.

j. Paid $500 for employee salaries.

k. Purchased $600 of office supplies on account.

Assets = Liabilities Equity
Cash AP Common Stock
20,000 300 20,000
800 300
3,000 600
300 Dividends
4,000 400
Equipment Revenues
3,000 9,000
Rent Exp
AR 800
Ad Exp
600 Sal Exp
General Journal
Date Description Debit Credit
a Cash 20,000
Common Stock 20,000
b Rent Expense 800
Cash 800
c Equipment 3,000
Cash 3,000
d Advertising Expense 300
Accounts Payable 300
e Accounts Receivable 9,000
Revenue/Sales 9,000
f Cash 1,000
Revenues/Sales 1,000
g Dividends 400
Cash 400
h Accounts Payable 300
Cash 300
i Cash 4000
Accounts Receivable 4,000
j Salaries Expense 500
Cash 500
k Office Supplies 600
Accounts Payable 600

ACC 204 Chapter 3 Review

Nominal accounts Matching principle Contra account

Deferred revenue Accrual basis Cash basis


1. A system of accounting in which revenues are recognized when earned and expenses when incurred.

2. The process of recording an item in the financial statements as an asset, liability, revenue, expense, or the like.

3. The name given to revenue, expense, and dividend accounts because they are temporary and are closed at the end of the period.

4. The association of revenue of a period with all of the costs necessary to generate that revenue.

5. An account with a balance that is opposite that of a related account.

6. Provide a specific example of the matching principle.

1. Accrual; 2 recognition; 3. Nominal accounts; 4. Matching principle; 5. Contra; 6. Recording a sale; adjusting journal entries
ACC 204 Chapter 3 Review

Show the adjusting journal entries for the year ending December.

Adjustments are made once, at the end of the year.

1. At the beginning of the year, two year’s of rent was paid in advance, $19,200.

2. At the beginning of the year, furniture and fixtures were purchased for $40,000 cash. Annual depreciation is $7,000. Also, show the balance sheet presentation of the furniture and fixtures on Dec. 31.

3. On July 1, the firm paid $3,000 for a three-year insurance policy.

4. On November 1, the firm accepted a $15,000 note receivable for services rendered. The note has a 10 percent interest rate. Both the note and the interest will be paid on May 1 of the following year. The interest for November and December is $250.

5. Salaries of $2,300 were earned but unpaid at the end of the year.

  1. Dr rent expense 9.600; Cr prepaid rent 9,600
  2. Dr depreciation expense 7,000; Cr accumulated depreciation 7,000
  3. Dr insurance expense 500; Cr prepaid insurance 500 [half a year]
  4. Dr interest receivable 250; Cr interest income 250
  5. Dr salaries expense 2,300; Cr salaries payable 2,300

Long-Term Assets/PPE

Furniture and Fixtures $40,000

Accumulated Depr – F&F ( 7,000)

Book value or carrying value $33,000
ACC 204 Chapter 3 Review

Prepare the adjusting journal entries for the month of April. For each adjustment indicate the impact on net income.

1. In March a van was purchased for $30,000 cash. Depreciation on the van is $6,000 per year. Also show the balance sheet presentation of the van on April 30.

2. Last year a 3-year insurance policy was purchased for $6,000 cash.

3. In January the company received $12,000 in cash for annual subscriptions to the company’s monthly newsletter. During the month subscriptions worth $1,000 were used.

4. On April 30 wages owed to employees, but unpaid, were $3,000.

1. Dr depreciation expense 500; Cr accumulated depreciation 500

2. Dr insurance expense 167; Cr prepaid insurance 167

3. Dr unearned revenue 1,000; Cr revenue 1,000

4. Dr wages expense 3,000; Cr wages payable 3,000

Total Assets/PPE

Equipment $30,000

Accumulated depr – Equip (1,000) [depreciation for March and April]

Book value/Carrying value $29,000

ACC 204, Chapter 4 handout

Jan 2 Sold merchandise to Ace Company, on account, for $4,000, terms 2/10, n/30. The cost of the merchandise sold was $2,600.

Jan 6 Ace Company returned merchandise that was sold for $525. The cost of the merchandise was $340.

Jan 10 Received payment from Ace Company, in full, less discount.

Jan 20 Purchased merchandise from Beta Corp., on account, for $1,540 terms 1/10, n30.

Jan 23 Paid $200 cash for

freight charges on the

Jan 20 purchase.

Jan 25 Received credit from Beta Corp. for $35 of merchandise that was returned because it was damaged.

Jan 29 Paid Beta Corp. in full, less discount.

2-Jan A/Rec – Ace 4,000 20-Jan M Inv 1,540
Sales/Rev 4,000 AP – Beta 1,540
COGS 2,600
M Inv 2,600 23-Jan M Inv 200
Cash 200
6-Jan Sales R&A 525
A/Rec – Ace 525 25-Jan AP- Beta 35
M Inv 340 M Inv 35
COGS 340
29-Jan AP-Beta 1,505
10-Jan Cash 3,405 M Inv 15
Sales Discounts 70 Cash 1,490
A/Rec – Ace 3,475
2-Jan Rev $4,000
COGS (2,600)
GP $1,400
GM 35%
Company Name
Multi-Step Income Statement
For the Period Ended …..
Sales $ 688,250
Less: Sales Returns and Allowances 0
Sales Discounts 0
Net Sales $ 688,250
Cost of Goods Sold (422,745)
Gross Profit $ 265,505
Operating Expenses
Advertising Expense $ 7,345
Rent Expense 23,456
Depreciation Expense 9,000
Wages Expense 112,144
Total Operating Expenses 151,945
Operating Income $ 113,560
Other Revenues and Gains
Interest/Dividend/Rent Income $ 24,600
Other Expenses and Losses
Interest Expense (3,246) 21,354
Income Before Income Taxes (IBT) $ 134,914
Income Tax Expense (30,000)
Net Income $ 104,914
Company Name
Statement of Retained Earnings
For the Period Ended …..
Beginning Retained Earnings 446,560
Net Income 104,914
Dividends (41,000)
Ending Retained Earnings $ 510,474
Company Name
Balance Sheet
Assets Liabilities
Current Assets Current Liabilities
Cash $95,000 Accounts Payable $60,000
Accounts Receivable 90,000 Travel Payable 50,000
Supplies 5,000 Total Current Liabilities $ 110,000
Total Current Assets $ 190,000 Long-Term Liabilities
Long-term Assets Bonds Payable 75,000
Land 165,474 Total Liabilities $ 185,000
Furniture $ 95,000 Stockholders’ Equity
Accum. Depr. – Furniture (45,000) 50,000 Common Stock $10,000
Building 425,000 Retained Earnings 510,474
Accum. Depr. – Building (125,000) 300,000 Total SE 520,474
Total Assets $ 705,474 Total Liabilities and SE $ 705,474

M.A. Houston

ACC 204

Chapter 5 Questions

Which method (LIFO, FIFO, Weighted Average, Specific Identification)

– Results in cost of goods sold being closest to current product costs?

– Results in highest income during periods of inflation?

– Results in highest ending inventory during period of inflation?

– Smoothes out costs during periods of inflation?

– Is not practical for most businesses?

– Puts more weight on the cost of the larger number of units purchased?

– Results in the ending inventory being closest to current product costs?

– Most closely reflects the physical flow of goods for most businesses?

Chapter 8 Handout

1. The Corporation purchased machinery for $40,000. The machinery has an estimated salvage value of $5,000 and an estimated useful life of 10 years.

A. Compute straight-line depreciation for year two.

B. Compute double declining balance depreciation for year two.

C. What is the adjusting journal entry to record depreciation?

2. The Forum purchased equipment for $80,000. At the end of 2005 the Accumulated Depreciation account had a balance of $21,000. On January 1, 2006, the equipment was sold for $54,000. Compute the amount of gain or loss.

3. Dodge Company purchased a machine for $18,000 on January 1, 2008. The machine is expected to have a salvage value of $2,000 at the end of its 4-year useful life.

A. Compute depreciation expense for year two using the straight-linemethod.

B. What is the adjusting journal entry to record the depreciation computed in A?

C. Compute the depreciation expense for year two using the doubledeclining balance method.

D. Assume that the machine is sold at the end of year 2 for $10,000. Compute the gain or loss on disposal of the machine assumingthe machine was depreciated using double declining balance method.

5.Classify the following as Land, Land Improvements, Building, or Other.

1 Cost of real estate purchased as a plant site
(land $180,000 and existing building $70,000) $250,000
2 Accrued real estate taxes paid at time of purchase 4,900
3 Cost to demolish existing building 27,000
4 Cost of filling and grading the land 7,270
5 Excavation cost for new building basement 21,900
6 Architect’s fees on building plan 51,000
7 Payment to building contractor 629,500
8 Cost of parking lots and driveways 31,800
9 Real estate taxes on land paid for the current year 5,320
10 Proceeds for salvaged materials from demolished building 12,700

Chapter 10

The bond coupon rate (the stated interest rate) is rarely exactly equal to the market rate at the time of sale. Market rates fluctuate constantly, and the market rate that will prevail at the time of issue cannot be determined accurately in advance. The exact rate that the bonds will yield is established by issuing the bonds at a price greater or less than face value.

A bond sold to yield an interest rate greater than the coupon rate will be sold at a discount. Because the prevailing rate is greater than the coupon rate, the bond is of less value to an investor than a bond with a comparable face value paying the prevailing rate; hence, the investor will pay less than the face value for it. A bond discount adjusts the bond issue price so as to align the coupon rate with the prevailing rate. A bond discount can be seen as an amount that the investors did not pay “up front” because the investors will receive “less” interest each year over the life of the bonds.

A bond sold to yield an interest rate less than the coupon rate will be sold at a premium. Because the prevailing rate is less than the coupon rate, the bond is of greater value than a bond with a comparable face value paying the prevailing rate; hence the investor will pay more than the face value for it. The premium can be seen as interest that investors paid “up front” to receive “extra” interest each year over the life of the bonds.

Historically, bonds were printed with a coupon rate days or weeks prior to the issue date and hence there could be a significant difference between the coupon rate and the prevailing market rate at the date of sale. Today many bonds are issued in electronic rather than paper form. Accordingly, premiums and discounts tend to be much smaller than in the past.

ACC 204

Chapter 11 Handout

Prepare journal entries for the following transactions

  1. January 1 – Issued 3,000 shares of $5 par common stock for $6 per share.
  2. June 1 – Repurchased 100 share of common stock for $7.
  3. December 1 – Declared a $1 per share cash dividend.
  4. December 15 – Date of record for the December 1 dividend.
  5. December 31 – Paid the dividend declared on December 1.
  6. When is Retained Earnings reduced … on the date of declaration, record, or payment?
  7. Do corporations have to declare dividends?
  8. Dividends are paid on shares (a) authorized; (b) issued; (c) outstanding.

ACC 204

Financial Accounting Truths

Accrual Accounting

Revenues are recognized when earned not necessarily when cash is received

Expenses are recognized when owed/incurred not necessarily when cash is paid

Dividends are not expenses

Retained Earnings is not an asset

Retained Earnings is not cash


Never depreciate land

Do not change the asset account when recording depreciation

Depreciation expense is an expense account

Accumulated depreciation is a contra asset account


Always at least one B/S and one I/S account

Never cash

What is the top line?

What is the bottom line?

What is eps?

ACC 204

Rules of Debits and Credits

1. a ledger is also called a t-account

2. debit means left; credit means right

3. increase or decrease depends on the type of account

4. increase side = normal balance

5. Equal sign rule

a. Accounting Equation is A = L + Capital

b. For specific accounts, the increase side is the side on which the account appears in the accounting equation

c. For Cash: Cash is an asset; assets appear on the left side of the accounting equation; increases in cash are debits.

d. For Accounts Payable: A/P is a liability; liabilities appear on the right side of the accounting equation; increases in A/P are credits.

6. Equal sign rule holds for all accounts except dividends and expenses

7. Capital or Stockholders’ Equity is

a. Increased by common stock

b. Retained earnings is increased by

i. Net Income

ii. Revenue

c. Retained earnings is decreased by

i. Expenses

ii. Dividends

8. To make a journal entry, answer these questions:

a. which accounts are affected?

b. did the account increase or decrease?

c. determine the debit and credit

d. ensure that debits equal credits

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