Question

PROBLEM 3.28 Analyzing and Journalizing Transactions L03-3.103-4 .L03-8 .L03-6 .103-7 .0 8 Lyon, Inc.provides consulting services. A few of the company's business transactions occurring during June are described as follows 1. On June 1, the company billed customers $6,000 on account for consulting services rendered. Customers are required to make full payment within 30 days (Lyons, Inc. uses an account entitled Consulting Revenue when billing customers.) 2. On June 3. the company purchased office supplies costing 53.840. paying 960 cash and charging the remainder on company's 30-day account at Office Warehouse. The supplies are expected to last several months 3. On June 5, the company returned to Office Warehouse S120 of supplies that were not needed. The return of these supplies reduced by S120 the amount owed to Office Warehouse 4. On June 17, the company issued an additional 1.000 shares of capital stock at S6 per share. The cash raised will be used to purchase new equipment in September 5. On June 22. the company received $1.440 cash from customers it had billed on June 1 6. On June 29. the company paid its outstanding account payable to Office Warehouse 7. On June 30, a cash dividend totaling $2.160 was declared and paid to the company's stockholders Instructions a. Prepare an analysis of each of these transactions Transaction serves as an example of the form of analysis to be used 1. (a) The asset Accounts Receivable was increased Increases in assets are recorded by debita Debit Accounts Receivable 56.000 (b) Revenue has been earned. Revenue increases owners' equity Increases in owners' equity are recorded by credits. Credit Consulting Revenue 50.000 b. Prepare journal entries, including explanations, for these transactions e. How does the realization principle influence the manner in which the June 1 billing to customers are recorded in the Page 137 accounting records? d. How does the matching principle influence the manner in which the June 3 purchase of supplies is recorded in the accounting records

Answer 1

Journal Entries with Explanation

Transaction 2, June 3

• Office supplies purchased, therefore debit Office supplies(consumables A/c) with $3840
• Cash paid is $ 960 , therefore credit cash by $ 960
• 3840-960=2880, Therefore credit account office warehouse by 2880

Transaction 3, June 5

• Since , office supplies amounting to $120 is returned, therefore we will credit office supplies account by $120
• debit office warehouse by $ 120

Transaction 4 , June 17

• Assuming $6 is par value , we will credit share capital by $6000
• Since , its issued for cash, we will debit cash by $6000

Transaction 5, June 22

• since there is a decrease in account receivable account, so now we will credit account receivable by $1440
• since there is increase in cash , therefore we will debit cash by $1440

Transaction 6, June 29

• since company paid to office warehouse , so we will debit office warehouse by $2760
• since we paid cash , therefore cash decreased hence credit cash by $2760

Transaction 7, June 30

• for declaring dividend, debit retained earnings and credit dividend payable 2160
• for payment, debit dividend payable and credit bank by $2160

Part c

Realization Principal means revenue is recognized when it is earned. since the revenue is recorded as on 1 june that means sale is made and revenue is earned and there is no uncertanity in recepit of the revenue

Part d

Matching principle suggest to recognise the expense for the period for which the income is earnrd. in the given question , the supplies are useable for few months , considering it will be consumed in the same year, the amount is recorded as an expense