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Accounting: Transaction analysis.

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E2-2 Selected transactions for D. Reyes, Inc., an interior decorating firm, in its first month of business, are as follows.
Jan. 2 Invested $10,000 cash in the business in exchange for common stock.
3 Purchased used car for $4,000 cash for use in business.
9 Purchased supplies on account for $500.
11 Billed customers $1,800 for services performed.
16 Paid $200 cash for advertising.
20 Received $700 cash from customers billed on January 11.
23 Paid creditor $300 cash on balance owed.
28 Declared and paid a $1,000 cash dividend.

Instructions
For each transaction indicate the following.
(a) The basic type of account debited and credited (asset, liability, stockholders equity).
(b) The specific account debited and credited (cash, rent expense, service revenue, etc.).
(c) Whether the specific account is increased or decreased.
(d) The normal balance of the specific account.
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E2-3 Data for D. Reyes, Inc., interior decorating, are presented in E2-2.

Instructions
Journalize the transactions
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E7-3 Presented below are the assumptions, principles, and constraints discussed in this chapter.
1. Economic entity assumption 6. Matching principle
2. Going concern assumption 7. Full disclosure principle
3. Monetary unit assumption 8. Revenue recognition principle
4. Time period assumption 9. Materiality
5. Cost principle 10. Conservatism

Instructions
Identify by number the accounting assumption, principle, or constraint that describes each situation below. Do not use a number more than once.

(a) Is the rationale for why plant assets are not reported at liquidation value. (Do not use
historical cost principle.)
(b) Indicates that personal and business record-keeping should be separately maintained.
(c) Ensures that all relevant financial information is reported.
(d) Assumes that the dollar is the â??measuring stickâ? used to report on financial performance.
(e) Requires that the operational guidelines be followed for all significant items.
(f ) Separates financial information into time periods for reporting purpose.
(g) Requires recognition of expenses in the same period as related revenues.
(h) Indicates that market value changes subsequent to purchase are not recorded in the accounts.

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Solution Summary

The problem deals with topics under accounting: analyzing effects of transactions, and matching accounting concepts.

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