Saira Morrow operates Dressage Riding Academy, Inc. The academy\'s primary sourc
ID: 2341667 • Letter: S
Question
Saira Morrow operates Dressage Riding Academy, Inc. The academy's primary sources of revenue are riding fees and lesson fees, which are provided on a cash basis. Saira 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, Unearned 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.
Saira'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 dividends, two accounts are maintained: Common Stock and Dividends.
During the first month of operations, an inexperienced bookkeeper was employed. Saira 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.
May 1
Cash
15,000
Unearned Service Revenue
15,000
(Issued common stock in exchange for $15,000 cash)
5
Cash
250
Service Revenue
250
(Received $250 cash for lesson fees)
7
Cash
500
Service Revenue
500
(Received $500 for boarding of horses beginning June 1)
9
Supplies Expense
1,500
Cash
1,500
(Purchased estimated 5 months' supply of feed and hay for $1,500 on account)
14
Equipment
80
Cash
800
(Purchased desk and other office equipment for $800 cash)
15
Salaries and Wages Expense
400
Cash
400
(Issued check to Saira Morrow for personal use)
20
Cash
145
Service Revenue
154
(Received $154 cash for riding fees)
31
Maintenance and Repairs Expense
75
Accounts Receivable
75
(Received bill of $75 from carpenter for repair services performed)
Instructions
(a)
For each journal entry that is correct, so state. For each journal entry that is incorrect, prepare the entry that should have been made by the bookkeeper.
May 1
Cash
15,000
Unearned Service Revenue
15,000
(Issued common stock in exchange for $15,000 cash)
5
Cash
250
Service Revenue
250
(Received $250 cash for lesson fees)
7
Cash
500
Service Revenue
500
(Received $500 for boarding of horses beginning June 1)
9
Supplies Expense
1,500
Cash
1,500
(Purchased estimated 5 months' supply of feed and hay for $1,500 on account)
14
Equipment
80
Cash
800
(Purchased desk and other office equipment for $800 cash)
15
Salaries and Wages Expense
400
Cash
400
(Issued check to Saira Morrow for personal use)
20
Cash
145
Service Revenue
154
(Received $154 cash for riding fees)
31
Maintenance and Repairs Expense
75
Accounts Receivable
75
(Received bill of $75 from carpenter for repair services performed)
Explanation / Answer
1-May Cash 15000 Common stock 15000 (Issued common stock in exchange for $15,000 cash) 5 Correct 7 Cash 500 Unearned Service Revenue 500 (Received $500 for boarding of horses beginning June 1) 9 Supplies 1500 Accounts Payable 1500 (Purchased estimated 5 months' supply of feed and hay for $1,500 on account) 14 Equipment 800 Cash 800 (Purchased desk and other office equipment for $800 cash) 15 Dividends 400 Cash 400 (Issued check to Saira Morrow for personal use) 20 Cash 154 Service Revenue 154 (Received $154 cash for riding fees) 31 Maintenance and Repairs Expense 75 Accounts Payable 75 (Received bill of $75 from carpenter for repair services performed)
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