Chapter 02 Demonstration Problems Recording Business Transactions Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall2-1

Chapter 02

Demonstration Problems

Recording Business

Transactions

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 2-1

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall2-2

The following transactions occurred for Mission Cable Services.

E2-16D

July 2 Received $20,000 contribution from Thomas in exchange for Common Stock

4 Paid utilities expense of $800.

5 Purchased equipment on account, $4,200.

10 Performed services for a client on account, $4,000.

12 Borrowed $14,000 cash, signing a notes payable.

19 Cash dividends of $1,000 were paid to stockholders.

21 Purchased office supplies for $1,600 and paid cash.

27 Paid the liability from July 5.

Requirements

1. Journalize the transactions of Mission Cable Services. Include an explanation.2. Open T-accounts for Mission Cable Services.3. Compute the July 31 balance for each account.


E2-16D—Req.1 and 2

Date Accounts and Explanation Debit Credit

Jul. 2 Cash 20,000

Common Stock 20,000

Issued common stock in exchange for cash.

Cash

Jul. 2

20,000

Common Stock

20,000 Jul. 2

July 2 Received $20,000 contribution from Thomas in exchange for common stock.


July 4 Paid utilities expense of $800.



Jul. 4 Utilities Expense 800

Cash 800

Paid utility expense.

Cash

Jul. 2

20,000

800 Jul. 4

Utilities Expense

Jul. 4 800


July 5 Purchased equipment on account, $4,200.



Jul. 5 Equipment 4,200

Accounts Payable 4,200

Purchased equipment on account.

Equipment

Jul. 5 4,200

Accounts Payable

4,200 Jul. 5


July 10 Performed services for a client on account, $4,000.



Jul. 10 Accounts Receivable 4,000

Service Revenue 4,000

Performed services for client on account.

Accounts Receivable

Jul. 10

4,000

Service Revenue

4,000 Jul. 10


July 12 Borrowed $14,000 cash, signing a notes payable.



Jul. 12 Cash 14,000

Notes Payable 14,000

Borrowed cash by signing note.

Cash

Jul. 2 20,000 800 Jul. 4

12 14,000

Notes Payable

14,000 Jul. 12


July 19 Cash dividends of $1,000 were paid to stockholders.



Jul. 19 Dividends 1,000

Cash 1,000

Paid cash dividends.

Cash

Jul. 2 20,000 800 Jul. 4

12 14,000 1,000 19

Dividends

Jul. 19 1,000


July 21 Purchased office supplies for $1,600 and paid cash.



Jul. 21 Office Supplies 1,600

Cash 1,600

Purchased office supplies with cash.

Cash

Jul. 2 20,000 800 Jul. 4

12 14,000 1,000 19

1,600 21

Office Supplies

Jul. 21 1,600


July 27 Paid the liability from July 5.



Jul. 21 Accounts Payable 4,200

Cash 4,200

Paid cash on account.

Cash

Jul. 2 20,000 800 Jul. 4

12 14,000 1,000 19

1,600 21

4,200 27

Accounts Payable

Jul. 27 4,200 4,200 Jul. 5


E2-16D—Req.3

Cash

Jul. 2 20,000 800 Jul. 4

12 14,000 1,000 19

1,600 21

4,200 27

Bal. 26,400

Accounts Receivable

Jul. 10

4,000

Bal. 4,000

Office Supplies

Jul. 21 1,600

Bal. 1,600

Equipment

Jul. 5 4,200

Bal. 4,200


E2-16D—Req.3

Accounts Payable

Jul. 27 4,200 4,200 Jul. 5

0 Bal.

Notes Payable

14,000 Jul.12

14,000 Bal.

Common Stock

20,000 Jul. 2

20,000 Bal.

Dividends

Jul. 19 1,000

Bal. 1,000


E2-16D—Req.3

Service Revenue

4,000 Jul.10

4,000 Bal.

Utilities Expense

Jul. 4 800

Bal. 800


The following trial balance of Luxury Tours and Travels Service as of Mar 31, 2014, does not balance.

E2-27D

LUXURY TOURS AND TRAVELS SERVICES Trial Balance March 31, 2014

Balance

Account Title Debit Credit Cash $5,000 Accounts Receivable 3,000 Office Supplies 1,000 Computer Equipment 15,000 Accounts Payable $10,000 Utilities Payable 400 Common Stock 12,000 Dividends 8,000 Service Revenue 9,000 Salaries Expense 1,500 Rent Expenses 500 Utilities Expense 600 Total $34,600 $31,400


E2-27D

Investigation of the accounting records reveals that the bookkeeper:

a. Recorded a $200 cash revenue transaction by debiting Accounts Receivable. The credit entry was correct.

b. Posted a $2,250 credit to Accounts Payable as $250.

c. Did not record Utilities Expense or the related Utilities Payable in the amount.

d. Understated Common Stock by $1,000.

Requirement

Prepare the corrected trial balance as of March 31, 2014, complete with a heading; journal entries are not required.


E2-27D


Balance Correction Corrected Balance Account Title Debit Credit Debit Credit Debit Credit

Cash $5,000 $200 $5,200 Accounts Receivable 3,000 $200 2,800

a. Recorded a $200 cash revenue transaction by debiting Accounts Receivable. The credit entry was correct.


E2-27D




Accounts Payable $10,000 2,000 $12,000

b. Posted a $2,250 credit to Accounts Payable as $250


E2-27D




Accounts Payable $10,000 2,000 $12,000 Utilities Payable 400 300 700

Utilities Expense 600 300 900

c. Did not record Utilities Expense or the related Utilities Payable in the amount of $300.


E2-27D




Accounts Payable $10,000 2,000 $12,000 Utilities Payable 400 300 700 Common Stock 12,000 1,000 13,000

Utilities Expense 600 300 900

d. Understated Common Stock by $1,000.


E2-27D



Cash $5,000 $200 $5,200 Accounts Receivable 3,000 $200 2,800 Office Supplies 800 800 Computer Equipment 15,000 15,000 Accounts Payable $10,000 2,000 $12,000 Utilities Payable 400 300 700 Common Stock 12,000 1,000 13,000 Dividends 8,000 8,000 Service Revenue 9,000 9,000 Salaries Expense 1,500 1,500 Rent Expenses 500 500 Utilities Expense 600 300 900 Total $34,400 $31,400 $34,700 $34,700


Peter Scott, M.D. reported the following trial balance as of June 30, 2015.

E2-28D


E2-28D PETER SCOTT, M.D.

Trial Balance 30-June-15

Balance Account Title Debit Credit Cash 50,000 Accounts Receivable 10,000 Office Supplies 4,000 Office Equipment 15,000 Building 100,000 Land 30,000 Accounts Payable 4,000 Utilities Payable 1,500 Unearned Revenue 20,000 Notes Payable 80,000 Common Stock 140,000 Dividends 75,000 Service Revenue 70,000 Salaries Expense 30,000 Utilities Expense 1,000 Advertising Expense 500 Total $315,500 $315,500

Calculate the debt equity ratio for Peter Scott, M.D..


E2-28DAccounts Payable $4,000 Accounts Receivable $10,000 Utilities Payable 1,500 Office Supplies 4,000 Unearned Revenue 20,000 Office Equipment 15,000 Notes Payable 80,000 Building 100,000

Cash 50,000 Land 30,000

Debt ratio ═ Total liabilities ∕ Total assets



Cash $50,000 Land 30,000

Liabilities Assets

Accounts Payable $4,000

Utilities Payable 1,500

Unearned Revenue 20,000

Notes Payable 80,000



Cash $50,000 Land 30,000

Liabilities Assets

Accounts Payable $4,000 Cash $50,000

Utilities Payable 1,500 Accounts Receivable 10,000

Unearned Revenue 20,000 Office Supplies 4,000

Notes Payable 80,000 Office Equipment 15,000

Building 100,000

Land 30,000



Cash $50,000 Land 30,000

Liabilities Assets

Accounts Payable $4,000 Cash $50,000

Utilities Payable 1,500 Accounts Receivable 10,000

Unearned Revenue 20,000 Office Supplies 4,000

Notes Payable 80,000 Office Equipment 15,000

Building 100,000

Land 30,000

Total liabilities $105,500 Total assets $209,000


E2-28D


═ $105,000 ∕ $209,000

Total Assets $209,000

Total Liabilities $105,500


E2-28D


═ $105,000 ∕ $209,000

═ 0.50 or 50%

Total Assets $209,000

Total Liabilities $105,500

End of Chapter 2

2-29Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall

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Chapter 02 Demonstration Problems Recording Business Transactions Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall2-1