Basic Journal Entries

Question 1

Prepare a journal entry to record the following sale using the gross method. Company sells $2,000 of goods, terms 3/10 n30. The sale is subject to a 5% trade discount.

Answer 1

Dr: Accounts Receivable - $1,900
Cr: Sales Revenue - $1,900

Question 2

Prepare a journal entry to record the receipt of the following account receivable within the 10 day discount period using the gross method. Company sells $2,000 of goods, terms 3/10 n30. The sale is subject to a 5% trade discount.

Answer 2

Dr: Cash - $1,843
Dr: Sales Discounts - $57
Cr: Accounts Receivable - $1,900

Question 3

Prepare a journal entry to record the following sale using the net method. Company sells $2,000 of goods, terms 3/10 n30. The sale is subject to a 5% trade discount.

Answer 3

Dr: Accounts Receivable - $1,843
Cr: Sales - $1,843

Question 4

Prepare a journal entry to record the receipt of the following account receivable within the 10 day discount period using the net method. Company sells $2,000 of goods, terms 3/10 n30. The sale is subject to a 5% trade discount.

Answer 4

Dr. Cash - $1,843

Cr. Accounts Receivable - $1,843

Question 5

Prepare a journal entry to record the receipt of the following account receivable after the 10 day discount period using the gross method. Company sells $2,000 of goods, terms 3/10 n30. The sale is subject to a 5% trade discount.

Answer 5

Dr: Cash - $1,900
Cr: Accounts Receivable - $1,900

Question 6

Prepare a journal entry to record the receipt of the following account receivable after the 10 day discount period using the net method. Company sells $2,000 of goods, terms 3/10 n30. The sale is subject to a 5% trade discount.

Answer 6

Dr: Cash - $1,900
Cr: Sales Discounts Forfeited - $57
Cr. Accounts Receivable - $1, 843

Question 7

A company sells $2,000 of goods, terms 3/10 n30. The sale is subject to a 5% trade discount. After the sale, a $200 allowance is made for a defect in the merchandise during the discount period. Record the entry using both the gross and net methods.

Answer 7

Gross:
Dr: Sales Returns and Allowances - $200
Cr: Accounts Receivable - $200

Net:
Dr: Sales Returns and Allowances - $194
Cr: Accounts Receivable - $194

Question 8

At the end of the year, a firm estimates that $30,000 of cash discounts will be taken by customers in the next year on current year’s sales. Prepare the adjusting entry.

Answer 8

Dr: Sales Discounts - $30,000
Cr: Allowance for Sales Discounts - $30,000

Question 9

Prepare an adjusting entry to record the estimate of $30,000 in bad debt expense.

Answer 9

Dr: Bad Debt Expense - $30,000
Cr: Allowance for Doubtful Accounts - $30,000

Question 10

Assume that $10,000 is deemed uncollectible. Prepare the proper journal entry to record this uncollectible account.

Answer 10

Dr: Allowance for Doubtful Accounts - $10,000
Cr: Accounts Receivable - $10,000

Question 11

$10,000 previously written off has been recovered. Prepare the journal entries for this event.

Answer 11

Dr: Accounts Receivable - $10,000
Cr: Allowance for Doubtful Accounts - $10,000

Dr: Cash - $10,000
Cr: Accounts Receivable - $10,000

Question 12

On July 1, Y1, a company sold equipment and accepted as payment a $10,000, 3-year, 6% note. Record this sales transaction and the adjusting entry at the end of the year for accrued interest receivable.

Answer 12

Dr: Note Receivable - $10,000
Cr: Sales Revenue - $10,000

Dr: Interest Receivable - $300 ($10,000 x .06 x 6/12)
Cr: Interest Revenue - $300

Question 13

On January 1, Y1, a company sold equipment and executed a $25,000, 2-yr., non-interest bearing note as payment. The current market interest rate is 8%. How would the sale be recorded? How would the interest be recorded? How would the final payment be recorded?

Answer 13

PV of $1 at 8% for 2 periods is .85734
Multiply .85734 x $25,000 to get the present value of the note.

Dr: Note Receivable - $21,434
Cr: Sales Revenue - $21,434

Interest recognized using the effective interest rate method as follows:

Dr: Note Receivable - $1,715 (21,434 x .08 x 12/12)
Cr: Interest Revenue - $1,715

When cash collected:

Dr: Cash - $25,000
Cr: Note Receivable - $25,000

Question 14

What are the journal entries to retire preferred stock? What are the two scenarios?

Answer 14

Dr: Preferred Stock
Dr: APIC
Cr: APIC - Retirement of stock
Cr: Cash

or

Dr: Preferred Stock
Dr: APIC
Dr: Retained Earnings
Cr: Cash

Question 15

What are the journal entries to convert bonds into common stock under the market value method?

Answer 15

Using the market value of the stock or bond, whichever is more reliable, make the following entries:

Dr: Loss on redemption
Dr: Bonds payable
Dr: Premium on BP
Cr: Common Stock
Cr: APIC - CS

or

Dr: Bonds payable
Cr: Discount on BP
Cr: Common Stock

Question 16

$20,000 of accounts receivable have been factored without recourse. The fact charges 5% and hold back an additional 3% for sales returns. Assume that actual sales returns equals estimated amount. What are the journal entries?

Answer 16

Dr: Cash - $20,000 (1.00 - .05 - .03) = $18,400
Dr: Receivable from factor ($20,000 x .03) = $600
Dr: Loss on sale of receivables ($20,000 x .05) = $1,000
Cr: Accounts receivable = $20,000

Question 17

$20,000 of accounts receivable have been factored with recourse. The factor charges 2%. The firm estimates its liability for bad debts (recourse liability) is $1,000. What are the journal entries to record this transaction if treated as a sale?

Answer 17

Dr: Cash - $20,000 (1.00-.02) = $19,600
Dr: Loss on sales $20,000(.02) + $1000 = $1,400
Cr: Accounts receivable $20,000
Cr: Recourse liability $1,000

Question 18

$20,000 of accounts receivable have been factored with recourse. The factor charges 2%. The firm estimates its liability for bad debts (recourse liability) is $1,000. What are the journal entries to record this transaction if treated as a loan?

Answer 18

Dr: Cash - $20,000 (1.00 -.02) = $19,600
Dr: Discount on factor liability $20,000 (.02) = 400
Cr: Factor liability = $20,000

Question 19

Assume in the firm’s first year the LCM valuation method is applied and cost exceeds market by $4,000. What are the journal entries using the direct method?

Answer 19

Direct method -
Dr: Cost of goods sold = $4,000
Cr: Inventory = $4,000

Question 20

Assume in the firm’s first year the LCM valuation method is applied and cost exceeds market by $4,000. For the beginning inventory, cost exceeded market by $1,000. What are the journal entires using the allowance method?

Answer 20

Allowance method -
Dr: Holding loss = $3,000
Cr: Allowance for LCM = $3,000

Question 21

A loss on purchase contract is both probable and estimable. Record the adjusting year-end entry.

Answer 21

Dr: Loss on purchase contract
Cr: Liability on purchase commitment

Question 22

A firm sells goods with a total sales value of $80,000. The cost of the items sold is $60,000. During the year, the firm collects $25,000. The firm is uncertain about collecting the remaining sales price and elects to use the installment method of revenue recognition. How is the gross profit percentage calculated? What are the journal entries?

Answer 22

Gross profit percentage equals (80,000-60,000)/80,000

Dr: Installment accounts receivable = 80,000
Cr: Installment sales = 80,000

EOY Adjusting Entries:

Dr: Installment Sales
Cr: Deferred gross profit (gross profit percentage in cash)
Cr: Cost of goods sold

Dr: Deferred gross profit (% x cash payments received)
Cr: Recognized gross profit

Question 23

A contractor begins construction of a building for a client. The contract price is $10,000.
Costs incurred in Year 1: $2,000 Year 2: $4000
Estimated remaining cost Y1: $6,000 Y2: $1,500
Progress billings: Y1: $1,000 Y2: $3.500
Collections on billings Y1: $800 Y2: 3,000

Answer 23

Year 1 Journal Entries:
Dr: Construction in progress = $2,000
Cr: Materials, cash, etc. = $2,000
Dr: Accounts receivable = $1,000
Cr: Billings = $1,000
Dr: Cash = $800
Cr: Accounts receivable = $800

Adjusting entry:
Dr: Construction in progress = $500
Dr: Construction expenses = $2,000
Cr: Construction revenue = $2,500

Question 24

The journal entries to complete the contract and close the accounts for the completed contract and percentage of completion methods are:

Answer 24

Completed contract:
Dr: Billings
Dr: Construction Expense
Cr: Construction in progress
Cr: Construction revenue

Percentage of completion:
Dr: Billings
Cr: Construction in progress

Question 25

What are the journal entries to record an overall loss for both the completed contract method and the percentage of completion method?

Answer 25

Completed contract:
Dr: Loss on construction contract
Cr: Construction in progress

Percentage of completion:
Dr: Construction expenses
Cr: Construction in progress
Cr: Construction revenue