Reference no: EM132465605

Gemmex Inc. is a consulting company that specializes in systems design and implementation. The following transactions are recorded by Gemmex during July, its first month of operations.

Point 1: July 1: Issued common shares in exchange for $50,000 in cash.

Point 2: July 1: Paid $2,400 representing the rent for the months of July, August, and September.

Point 3: July 1: Signed a three-year note for $50,000 at the bank. The note bears an annual interest rate of 12%, and both the note and its accrued interest are due at the end of three years.

Point 4: July 1: Purchased a packaged set of computer systems for $18,000 to be used in future consulting jobs. The package has a useful life of three years and no residual value.

Point 5: July 15: Received $8,000 cash from a customer for services to be performed over the next two months.

Point 6: July 20: Paid employees $7,500 for the first half of July. A payment of the same amount but for the second half will be made on August 5.

Point 7: July 31: Billed customers $17,500 for the work performed during July.

Point 8: July 31: Received a utility bill for $300. The amount is due in 30 days.

Gemmex follows an accrual accounting system. It has an effective rate of 40% for income tax which is accrued monthly but paid annually at the end of year.

 fill-in-the-blanks questions are based on this problem.

Question 1) The July 1 journal entry to record the payment of $2,400 will include a:

A) Debit to Prepaid Rent of $800

B) Debit to Rent Expense of $2,400

C) Debit to Rent Expense of $800

D) Debit to Cash of $2,400

E) Debit to Prepaid Rent of $2,400

Question 2) The July 1 journal entry to record the signing of the three-year note will include a:

A) Credit to Cash of $50,000

B) Credit of $50,000 to Note payable

C) Debit to Interest Expense of $6,000

D) Debit to Bank Loan of $50,000

E) Credit of $6,000 to Interest Payable

Question 3) The July 1 journal entry to record the purchase of computer systems will include a:

A) Debit of $6,000 to Computer Expense

B) Debit of $6,000 to Computers

C) Debit of $18,000 to Computer Expense

D) Debit to Cash of $18,000

E) Debit of $18,000 to Computers

Question 4) The July 15 journal entry to record the receipt of cash from the customer will include a:

A) Debit of $8,000 to Service revenue

B) Credit to Cash of $8,000

C) Credit of $8,000 to Unearned revenue

D) Credit of $8,000 to Service revenue

E) Debit of $8,000 to Unearned revenue

Question 5) The July 20 journal entry to record the payment to employees will include a:

A) Debit to Cash of $7,500

B) Debit of $15,000 to Employee expense

C) Debit of $7,500 to Employee expense

D) Credit of $7,500 to Employee expense

E) Credit of $15,000 to Employee expense