Question

Question 10 Linda Morrow operates Oulumber Riding Academy, Inc. The academy's primary sources of revenue are riding fees and lesson fees, which are provided on a cash basis. Linda also boards horses for owners, who are billed monthly for boarding fees. In a few cases, boarders pay in advance of expected use. For its revenue transactions, the academy maintains these accounts: Cash, Accounts Receivable, Uneared Service Revenue, and Service Revenue The academy owns 10 horses, a stable, a riding corral, riding equipment, and office equipment. These assets are accounted for in the following accounts: Horses, Buildings, and Equipment The academy employs stable helpers and an office employee, who receive weekly salaries. At the end of each month, the mail usually brings bills for advertising, Utilities, and veterinary service Other expenses include feed for the horses and insurance. For its expenses, the academy maintains the following accounts: Supplies, Prepaid Insurance, Accounts Payable, Salaries and Wages Expense, Advertising Expense, Utilities Expense, Maintenance and repairs Expense, Supplies Expense, and Insurance Expense. Unda's sole source of personal income is dividends from the academy. Thus, the corporation declares and pays periodic dividends. To account for stockholders' equity in the business and dividende, two accounts are maintained: Common Stock and Dividends. During the first month of corations, an inexperienced bookkeeper was employed. Unda asks you to review the following eight entries of the 50 entries made during the month. In each case, the explanation for the entry is correct

Answer 1

a1.

1 2 3 4 5 A B Date Explanation May-01 Not Correct It should be cash account dr. and common stock cr. May-05 Correct May-07 Not Correct It should be cash account dr. and unearned revenue account cr. Since revenue would be earned starting June 1 May-09 Incorrect The credit of journal entry should be accounts payable as supplies are purchased on account. May-14 Incorrect The debit amount should be $600. May-15 Incorrect Personal withdrawals are drawings which are reduced from capital May-20 Incorrect The debit amount should be $120. May-31 Incorrect The account to be credited is accounts payable as services are taken, so accounts payable should be credited. 6 7 8 9

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