Journal Entry Review Questions 5



Q50. Review questions 5
(1) Entity A issued 20,000 shares of common stock at $26 per share. The par value of common stock is $1 per share.
(2) Entity B declared a cash dividend: $1.20 per share on 400,000 shares of common stock.
Prepare journal entries to record these transactions.

A50. Issuance of common stock and cash dividend

(1) Entity A issued 20,000 shares of common stock at $26 per share. The par value of common stock is $1 per share.

debit credit
Cash 520,000
    Common stock, par value 20,000
    Additional paid-in capital 500,000

[Note]
1. Par value portion is recorded in the common stock, par value account.
2. Issue price over the par value is recorded in the additional paid-in capital account.
3. Common stock, par value = 20,000 shares x $1 par value = $20,000
4. Additional paid-in capital = $520,000 – $20,000 = $500,000

(2) Cash dividend declared: $1.20 per share on 400,000 shares of common stock.

  Debit Credit
Retained earnings (or cash dividend) 480,000  
     Dividends payable   480,000

[Note]
1. Dividends payable = 400,000 shares x $1.20 per share = $480,000
2. When a cash dividend is declared, retained earnings account decreases and the dividends payable account increases.

 

 

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Journal Entry Review Questions 4



Q49. Review questions 4
(1) Entity A issued $800,000 bonds at a discount and received $780,000 in cash.
(2) Entity B issued $900,000 bonds at a premium and received $950,000 in cash.
Prepare journal entries to record these transactions.

A49. Bonds payable is recorded on the credit side.

(1) Entity A issued $800,000 bonds at a discount and received $780,000 in cash.

  Debit Credit
Cash 780,000  
Discount on bonds payable 20,000  
     Bonds payable   800,000

[Note]
1. Increase in discount on bonds payable (contra-liability): debit
2. Discount on bonds payable is a contra-liability account, which is subtracted from bonds payable.
3. Discount on bonds payable is amortized over the life of bonds payable using the effective interest method.

(2) Entity B issued $900,000 bonds at a premium and received $950,000 in cash.

  Debit Credit
Cash 950,000  
     Bonds payable   900,000
     Premium on bonds payable   50,000

[Note]
1. Increase in premium on bonds payable (liability): credit
2. Premium on bonds payable is a liability account, which is added to bonds payable.
3. Premium on bonds payable is amortized over the life of bonds payable using the effective interest method.

 

 

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Journal Entry Review Questions 3



Q48. Review questions 3
(1) Entity A recorded annual depreciation expense of $4,300.
(2) Entity B accrued $9,200 salaries expense to be paid on the 5th of the following month.
Prepare journal entries to record these transactions.

A48. Depreciation and salaries expense

(1) Depreciation expense = $4,300

  Debit Credit
Depreciation expense 4,300  
     Accumulated depreciation   4,300

[Note]
Increase in accumulated depreciation (contra-asset): credit

(2) Salaries expense accrued during the period = $9,200

  Debit Credit
Salaries expense 9,200  
     Salaries payable   9,200

[Note]
Increase in salaries payable (liability): credit

 

 

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Journal Entry Review Questions 2



Q47. Review questions 2
(1) On May 2, 20×1, Entity A purchased 600 units of merchandise at $9 per unit and paid $5,400 in cash.
(2) On May 10, 20×1, Entity A sold 200 units of merchandise at $12 per unit and received $2,400 in cash.
Prepare journal entries to record these transactions.

A47. Cash purchase and cash sale

(1) May 2, 20×1: to record the purchase of merchandise

  Debit Credit
Merchandise 5,400  
     Cash   5,400

[Note]
600 units x $9 per unit = $5,400

(2) Entity A sold 200 units of merchandise at $12 per unit and received $2,400 in cash.

(2a) May 10, 20×1: to record sales revenue

  Debit Credit
Cash 2,400  
     Sales revenue   2,400

[Note]
Sales revenue = 200 units x $12 per unit = $2,400

(2b) May 10, 20×1: to record the cost of goods sold

  Debit Credit
Cost of goods sold 1,800  
     Merchandise   1,800

[Note]
Cost of goods sold = 200 units x $9 per unit = $1,800

 

 

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Journal Entry Review Questions 1



Section 8. Review

Q46. Review questions 1
(1) What are the examples of transactions recorded on the debit side of a journal entry?
(2) What are the examples of transactions recorded on the credit side of a journal entry?

A46. Assets + Expenses = Liabilities + Equity + Revenues

(1) Examples of transactions recorded on the debit side.
a. Increase in cash
b. Increase in accounts receivable
c. Increase in prepaid insurance expense
d. Increase in building
e. Increase in goodwill
f. Increase in cost of goods sold
g. Decrease in accounts payable
h. Decrease in retained earnings
i. Decrease in unearned revenue
j. Decrease in notes payable

(2) Examples of transactions recorded on the credit side.
a. Increase in salaries payable
b. Increase in common stock
c. Increase in additional paid-in capital
d. Increase in retained earnings
e. Increase in sales revenue
f. Increase in accounts payable
g. Decrease in equipment
h. Decrease in goodwill
i. Decrease in prepaid rent expense
j. Decrease in notes receivable

 

 

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Cash dividend



Q45. Cash dividend
(1) On January 10, 20×1, Entity A declared a $1.50 per share cash dividend on 500,000 shares of common stock.
(2) On February 10, 20×1, Entity A paid $750,000 cash dividend declared on January 10, 20×1.
Prepare journal entries to record these transactions.

A45. Cash dividend decreases retained earnings.

(1) January 10, 20×1: to record the cash dividend declared

  Debit Credit
Retained earnings (or cash dividend) 750,000  
     Dividends payable   750,000

[Note]
500,000 shares x $1.50 = $750,000

(2) February 10, 20×1: to record the payment of cash dividend

  Debit Credit
Dividends payable 750,000  
     Cash   750,000

[Note]
Decrease in dividends payable (liability): debit

 

 

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