Question

Required information [The following information applies to the questions displayed below.) Below are several transactions for Scarlet Knight Corporation. A junior accountant, recently employed by the company. proposes to record the following transactions. External Transaction 1 Owners Invest $10.500 in the company and receive common stock. Accounts Common Stock Cash Debit 10,500 Credit 10,500 2. Receive cash of $3,100 for services provided in the current period. Cash Service Revenue 3,100 3,100 3. Purchase office supplies on account, $210. Supplies Cash 210 4. Pay $510 for next month's rent. Rent Expense Cash 510 5. Purchase office equipment with cash of $1750. Cash Equipment 1750 Required: 1. Assess whether the proposed entries are correct or incorrect. External Transaction

Answer 1

--Requirements

External transaction
1	INCORRECT, Cash should have been debited and Common Stock to be credited.
2	CORRECT, Cash is being received hence debited and Revenue earned is credited.
3	INCORRECT. The supplies are purchased on account, hence cash should not have been credited.
4	INCORRECT. Next month rent should be DEBITED to Prepaid Insurance account.
5	INCORRECT. Equipment should be DEBITEd and Cash should be credited as Cash is being paid out.