CHAPTER 2mathiabat4m.weebly.com/uploads/2/3/0/5/23057532/ch0… · · 2014-02-10Problems Set A Problems Set B 1. Explain what an account is and how it helps in the recording process

2-1

CHAPTER 2 The Recording Process

ASSIGNMENT CLASSIFICATION TABLE

Study Objectives

Questions

Brief

Exercises

Exercises

Problems

Set A

Problems Set B

1. Explain what an account is and

how it helps in the recording process.

2. Define debits and credits and illustrate how they are used to record business transactions.

1, 2, 3, 4, 5, 6, 7, 8, 9

1, 2, 3 1, 2, 3 1, 2 1, 2

3. Describe the basic steps in the recording process.

10, 18 4 10 10

4. Explain what a journal is, how it helps in the recording process, and journalize business transactions.

11, 12, 13, 14, 18

5, 6 4, 5, 6, 7 2, 3, 4, 5, 6, 7 2, 3, 4, 5, 6, 7

5. Explain what a ledger is and how it helps in the recording process.

14, 15, 18 4, 5, 6, 7 12 12

6. Explain what posting is, and how it helps in the recording process.

15, 16, 18 7 6, 8, 9 3, 4, 5, 6, 7 3, 4, 5, 6, 7

7. Explain the purpose of, and prepare, a trial balance.

17, 18, 19 8, 9 7, 8, 9, 10

3, 4, 5, 6, 7, 8, 9, 10, 11, 12

3, 4, 5, 6, 7, 8, 9, 10, 11, 12

2-2

ASSIGNMENT CHARACTERISTICS TABLE

Problem Number

Description

Difficulty Level

Time Allotted (min.)

1A Identify increases, decreases, normal balances, and

types of accounts.

Simple 15-20

2A Journalize a series of transactions. Simple 20-30

3A Journalize transactions, post, and prepare trial balance. Moderate 40-50



6A Journalize transactions, post, and prepare trial balance and financial statements.

Moderate 80-90

7A Journalize transactions, post, prepare trial balance, and determine elements of financial statements.

Moderate 65-75

8A Prepare financial statements from trial balance. Simple 25-35

9A Prepare trial balance and financial statements.

Simple 30-40

10A Answer questions about trial balance error and identify source documents.

Moderate 25-30

11A Identify errors and prepare correct trial balance. Moderate 25-35

12A Prepare correct trial balance. Complex 30-40

1B Identify increases, decreases, normal balances, and types of accounts.

Simple 15-20

2B Journalize a series of transactions. Simple 20-30

3B Journalize transactions, post, and prepare trial balance. Moderate 40-50



6B Journalize transactions, post, and prepare trial balance and financial statements.

Moderate 80-90

7B Journalize transactions, post, prepare trial balance, and determine elements of financial statements.

Moderate 65-75

8B Prepare financial statements from trial balance. Simple 25-35

9B Prepare trial balance and financial statements.

Simple 30-40

10B Answer questions about trial balance error and identify source documents.

Moderate 25-30

11B Identify errors and prepare correct trial balance. Moderate 25-35

12B Prepare correct trial balance. Complex 30-40

2-3

BLOOM’S TAXONOMY TABLE Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Material Study Objective Knowledge Comprehension Application Analysis Synthesis Evaluation 1. Explain what

an account is and how it helps in the recording process.

2. Define debits and credits and illustrate how they are used to record business transactions.

Q2-5 Q2-6 Q2-7 BE2-1 BE2-2 BE2-3 E2-1 E2-2 P2-1A P2-1B

Q2-1 Q2-2 Q2-3 Q2-4 Q2-8 Q2-9

E2-3 P2-2A P2-2B

3. Describe the basic steps in the recording process.

BE2-4 Q2-10

Q2-18 P2-10A P2-10B

4. Explain what a journal is, how it helps in the recording process, and journalize business transactions.

Q2-11 Q2-12 Q2-13, Q2-14 Q2-18 BE2-5 BE2-6 E2-4 E2-5 E2-6 E2-7 P2-2A P2-3A

P2-4A P2-5A P2-6A P2-7A P2-2B P2-3B P2-4B P2-5B P2-6B P2-7B

5. Explain what a ledger is and how it helps in the recording process.

Q2-14 Q2-15 Q2-18

P2-12A P2-12B

6. Explain what posting is, and how it helps in the recording process.

Q2-15 Q2-16 Q2-18 BE2-7 E2-6 E2-8 P2-3A P2-4A

P2-5A P2-6A P2-7A P2-3B P2-4B P2-5B P2-6B P2-7B

E2-9

7. Explain the purpose of, and prepare, a trial balance.

Q2-17 Q2-18 BE2-8 BE2-9 E2-7 E2-8 E2-10 P2-3A P2-4A P2-5A P2-6A

P2-7A P2-8A P2-9A P2-3B P2-4B P2-5B P2-6B P2-7B P2-8B P2-9B

E2-9 P2-10A P2-11A P2-12A P2-10B P2-11B P2-12B

Q2-19

Broadening Your Perspective

BYP2-1 BYP2-2 BYP2-3 BYP2-4 BYP2-5 BYP2-6

2-4

ANSWERS TO QUESTIONS 01. A T account is the shape of the letter T. It has three parts: (1) the

account title across the top of the T; (2) the left side of the T in which debit entries are recorded; and (3) the right side in which credit entries are recorded.

02. Disagree. The terms debit and credit are synonymous with the left and

right sides of an account, respectively. Whether they mean increase or decrease depends on the type of account being considered.

03. Jos is incorrect. The double-entry system merely records the effect of

a transaction on the accounting equation. A transaction is not recorded twice; it is recorded once, with a dual effect on the equation.

04. Kim is incorrect. A debit balance only means that debit amounts

exceed credit amounts in an account. Conversely, a credit balance only means that credit amounts are greater than debit amounts in an account. Whether a debit or credit balance is favourable or unfavourable depends on the type of account being considered.

05. (a) Asset accounts are increased by debits and decreased by credits. The normal balance of asset accounts is a debit balance.

(b) Liability accounts are decreased by debits and increased by credits. The normal balance of liability accounts is a credit balance.

(c) Owner's equity accounts are decreased by debits and increased by credits. The normal balance of equity accounts is a credit balance.

06. (a) Accounts Receivable—debit balance.

(b) Cash—debit balance. (c) Owner's Drawings—debit balance. (d) Accounts Payable—credit balance. (e) Service Revenue—credit balance. (f) Salaries Expense—debit balance. (g) Owner's Capital—credit balance.

2-5

Questions Chapter 2 (Continued) 07. (a) Accounts Receivable—asset—debit balance.

(b) Accounts Payable—liability—credit balance. (c) Equipment—asset—debit balance. (d) Owner's Drawings—owner's equity—debit balance (since it is a

reduction of capital). (e) Supplies—asset—debit balance.

(f) Unearned Revenue—liability—credit balance. 08. (a) Debit Supplies and credit Accounts Payable.

(b) Debit Cash and credit Notes Payable. (c) Debit Salaries Expense and credit Cash.

9. 1. Accounts Payable—both debit and credit entries.

2. Accounts Receivable—both debit and credit entries. 3. Cash—both debit and credit entries. 4. Owner's Drawings—debit entries only. 5. Salaries Expense—debit entries only. 6. Service Revenue—credit entries only.

10. The basic steps in the recording process are:

(1) Analyse each transaction. In this step, business documents are examined to determine the effects of the transaction on the accounts.

(2) Enter each transaction in a journal. This step is called journalizing and it results in making a chronological record of the transactions.

(3) Transfer journal information to ledger accounts. This step is called posting. Posting makes it possible to accumulate the effects of journalized transactions on individual accounts.

11. (a) The debit should be entered first.

(b) The credit should be indented. 12. When three or more accounts are required in one journal entry, the

entry is referred to as a compound entry. An example of a compound entry is the purchase of equipment, part of which is paid for with cash and the remainder is on account (Debit Equipment, credit Cash and credit Accounts Payable).

2-6

Questions Chapter 2 (Continued) 13. (a) Cash............................................................................. 9,000

Doris Wang, Capital.............................................. 9,000 Invested cash in the business.

(b) Prepaid Insurance....................................................... 800 Cash....................................................................... 800 Paid one-year insurance policy.

(c) Supplies ...................................................................... 1,500 Accounts Payable................................................. 1,500 Purchased supplies on account.

(d) Cash............................................................................. 7,500 Service Revenue................................................... 7,500

Received cash for services rendered. 14. (a) Yes, debits and credits could be recorded directly in the ledger.

(b) The benefits of using the journal are: 1. It discloses in one place the complete effect of a transaction. 2. It provides a chronological record of all transactions. 3. It helps to prevent or locate errors, because the debit and credit

amounts for each entry can be readily compared. The advantage of the last step in the posting process is to indicate that the item has been posted, and to provide a cross-reference.

15. (a) The entire group of accounts maintained by a company, including

all the asset, liability, and owners' equity accounts, is referred to collectively as the ledger.

(b) The chart of accounts is important, particularly for a company that has a large number of accounts, because it helps organize the accounts and identify their location in the ledger. A chart of accounts lists the accounts and account numbers that identify their location in the ledger. The numbering system used to identify the accounts usually starts with the balance sheet accounts and follows with the income statement accounts.

2-7

Questions Chapter 2 (Continued) 16. The advantage of the last step in the posting process is to indicate that

the item has been posted, and to provide a cross-reference. 17. A trial balance is a list of accounts and their balances at a given time.

The primary purpose of a trial balance is to prove the mathematical equality of debits and credits, after all journalized transactions have been posted. A trial balance also facilitates the discovery of errors in journalizing and posting. In addition, it is useful in preparing financial statements.

18. The proper sequence is as follows: 1. Business transaction occurs.

2. Information entered in the journal. 3. Debits and credits posted to the ledger. 4. Trial balance is prepared. 5. Financial statements are prepared.

19. (a) The trial balance would balance, because the debits ($600) are

equal to the credits ($600). (b) The trial balance would not balance, because the debits ($900) and

credits ($90) are not equal.

2-8

SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 2-1

(a)

Debit Effect

(a)

Credit Effect

(b)

Normal Balance

1. Accounts Payable 2. Advertising Expense 3. Service Revenue 4. Accounts Receivable 5. J. Takamoto, Capital 6. J. Takamoto, Drawings 7. Prepaid Insurance 8. Office Equipment 9. Rent Expense 10. Unearned Revenue 11. Advertising Supplies 12. Notes Payable

Decrease Increase Decrease Increase Decrease Increase Increase Increase Increase Decrease Increase Decrease

Increase Decrease Increase Decrease Increase Decrease Decrease Decrease Decrease Increase Decrease Increase

Credit Debit Credit Debit Credit Debit Debit Debit Debit Credit Debit Credit

BRIEF EXERCISE 2-2

Account Debited Account Credited June 1 Cash D. Ing, Capital

2 Equipment Accounts Payable 3 Rent Expense Cash 12 Accounts Receivable Service Revenue

2-9

BRIEF EXERCISE 2-3

(a) Basic Analysis

(b) Debit-Credit Analysis

Aug. 1

4

16

27

The asset Cash is increased; the owner's equity account A. Fisher, Capital is increased. The asset Prepaid Insurance is increased; the asset Cash is decreased. The asset Cash is increased; the revenue Service Revenue is increased. The expense Salaries Expense is increased; the asset Cash is decreased.

Debits increase assets: debit Cash $6,000. Credits increase owner's equity: credit A. Fisher, Capital $6,000. Debits increase assets: debit Prepaid Insurance $1,800. Credits decrease assets: credit Cash $1,800. Debits increase assets: debit Cash $900. Credits increase revenues: credit Service Revenue $900. Debits increase expenses: debit Salaries Expense $500. Credits decrease assets: credit Cash $500.

BRIEF EXERCISE 2-4 The basic steps in the recording process are: (1) Analyse each transaction. In this step, business documents are

examined to determine the effects of the transaction on the accounts. (2) Enter each transaction in a journal. This step is called journalizing and

it results in making a chronological record of the transactions. (3) Transfer journal information to ledger accounts. This step is called

posting. Posting makes it possible to accumulate the effects of journalized transactions on individual accounts.

2-10

BRIEF EXERCISE 2-5 June 1 Cash ........................................................................ 2,000

D. Ing, Capital ................................................. 2,000

2 Equipment .............................................................. 900 Accounts Payable........................................... 900

3 Rent Expense ......................................................... 500 Cash ................................................................ 500

12 Accounts Receivable ............................................. 300 Service Revenue............................................. 300

BRIEF EXERCISE 2-6 Aug. 1 Cash ........................................................................ 6,000

A. Fisher, Capital ............................................ 6,000

4 Prepaid Insurance .................................................. 1,800 Cash ................................................................ 1,800

16 Cash ........................................................................ 900 Service Revenue............................................. 900

27 Salaries Expense.................................................... 500 Cash ................................................................ 500

2-11

BRIEF EXERCISE 2-7

Cash

Service Revenue

5/12 2,400 5/15 2,000

5/5 3,200

5/15 2,000 4,400 5,200

Accounts Receivable

5/5

5/12 2,400

800

BRIEF EXERCISE 2-8 BEIRSDORF COMPANY Trial Balance June 30, 2003

Debit

Credit Cash ...............................................................................Accounts Receivable ....................................................Equipment......................................................................Accounts Payable..........................................................Beirsdorf, Capital ..........................................................Beirsdorf, Drawings ......................................................Service Revenue............................................................Salaries Expense...........................................................Rent Expense ................................................................

$04,800 003,000 017,000

001,200

4,000 001,000 $31,000

$05,000 020,000

006,000

0000000 $31,000

2-12

BRIEF EXERCISE 2-9 BOURQUE COMPANY Trial Balance December 31, 2002

Debit

Credit

Cash................................................................................Prepaid Insurance .........................................................Accounts Payable..........................................................Unearned Revenue ........................................................Bourque, Capital ............................................................Bourque, Drawings........................................................Service Revenue............................................................Salaries Expense ...........................................................Rent Expense.................................................................

$16,800 003,500

004,500

018,600 002,400 $45,800

$03,000 002,200 015,000

025,600

0000-00 $45,800

2-13

SOLUTIONS TO EXERCISES

EXERCISE 2-1

Account (a)

Normal Balance

(b) Decreased

By

(c) Financial Statement

1. Accounts Payable Credit Debit Balance Sheet 2. Accounts Receivable Debit Credit Balance Sheet 3. Cash Debit Credit Balance Sheet 4. H. Poitras, Drawings Debit Credit Statement of Owner’s

Equity 5. Interest Revenue Credit Debit Income Statement 6. Office Equipment Debit Credit Balance Sheet 7. Prepaid Insurance Debit Credit Balance Sheet 8. Rent Expense Debit Credit Income Statement

2-14

EXERCISE 2-2

Account Debited Account Credited

Trans- action

(a) Basic Type

(b) Specific Account

(c)

Effect

(d) Normal Balance

(a) Basic Type

(b) Specific Account

(c)

Effect

(d) Normal Balance

Mar. 3

6

7

12

21

25

28

31

Asset Asset Asset Asset Owner’s Equity—Expense Asset Liability Owner’s Equity—Drawings

Cash Equipment (or Vehicle) Supplies Accounts Receivable Advertising Expense Cash Accounts Payable L. Visser, Drawings

Increase Increase Increase Increase Increase Increase Decrease Increase

Debit Debit Debit Debit Debit Debit Credit Debit

Owner’s Equity—Capital Asset Liability Owner’s Equity—Revenue Asset Asset Asset Asset

L. Visser, Capital Cash Accounts Payable Service Revenue Cash Accounts Receivable Cash Cash

Increase Decrease Increase Increase Decrease Decrease Decrease Decrease

Credit Debit Credit Credit Debit Debit Debit Debit

2-15

EXERCISE 2-3 Oct. 1 Debits increase assets: debit Cash $15,000.

Credits increase owner's equity: credit Lynn Gardiner, Capital $15,000.

2 No transaction at this point in time (see Oct. 30).

3 Debits increase assets: debit Office Furniture $1,900.

Credits increase liabilities: credit Accounts Payable $1,900. 6 Debits increase assets: debit Accounts Receivable $3,200.

Credits increase revenues: credit Fees Earned $3,200.

10 Debits increase assets: debit Cash $140. Credits increase revenues: credit Fees Earned $140.

27 Debits decrease liabilities: debit Accounts Payable $700.

Credits decrease assets: credit Cash $700.

30 Debits increase expenses: debit Salaries Expense $960. Credits decrease assets: credit Cash $960.

2-16

EXERCISE 2-4

GENERAL JOURNAL

J1

Date Account Titles and Explanation

Ref.

Debit

Credit

March 3

6

7

12

21

25

28

31

Cash ....................................................

L. Visser, Capital.......................... Equipment (or Vehicle) ......................

Cash.............................................. Supplies ..............................................

Accounts Payable ........................ Accounts Receivable .........................

Service Revenue..........................

Advertising Expense.......................... Cash..............................................

Cash ....................................................

Accounts Receivable................... Accounts Payable...............................

Cash.............................................. L. Visser, Drawings............................

Cash..............................................

8,000

04,000

00,500

01,800

00,200

00,700

00,300

00,500

8,000

04,000

00,500

01,800

00,200

00,700

00,300

00,500 Note: Explanations have not been reproduced from the text in this exercise. Students should recognize, however, that explanations are a critical part of the journal entry in real life.

2-17

EXERCISE 2-5

GENERAL JOURNAL Date

Account Titles and Explanation

Ref.

Debit

Credit

Oct. 1 2 3 6 10 27 30

Cash ..................................................

Lynn Gardner, Capital................ No entry. Office Furniture.................................

Accounts Payable ...................... Accounts Receivable........................

Fees Earned ............................... Cash ..................................................

Fees Earned ............................... Accounts Payable.............................

Cash............................................ Salaries Expense..............................

Cash............................................

15,000

01,900

03,200

00,140

00,700

00,960

15,000

01,900

03,200

00,140

00,700


2-18

EXERCISE 2-6 (a)

GENERAL JOURNAL

J1


Ref.

Debit

Credit

Sept. 1 5 25 30

Cash....................................................

Shirley Basler, Capital ................ Equipment ..........................................

Cash ............................................. Accounts Payable........................

Accounts Payable ..............................

Cash ............................................. Shirley Basler, Drawings...................

Cash .............................................

101 301

157 101 201

201 101

306 101

12,000

10,000

03,000

00,500

12,000

04,000 06,000

03,000


2-19

EXERCISE 2-6 (Continued) (b) Cash No. 101 Date

Explanation

Ref.

Debit

Credit

Balance

Sept. 1 5 25 30

J1 J1 J1 J1

12,000

04,000 03,000 00,500

12,000 8,000 05,000 04,500

Equipment No. 157 Date

Explanation

Ref.

Debit

Credit

Balance

Sept. 5

J1

10,000

10,000

Accounts Payable No. 201 Date

Explanation

Ref.

Debit

Credit

Balance

Sept. 5 25

J1 J1

03,000

6,000

6,000 3,000

Shirley Basler, Capital No. 301 Date

Explanation

Ref.

Debit

Credit

Balance

Sept. 1

J1

12,000

12,000

Shirley Basler, Drawings No. 306 Date

Explanation

Ref.

Debit

Credit

Balance

Sept. 30

J1

00,500

00,500

2-20

EXERCISE 2-7 (a) Oct. 1 Cash .............................................................. 5,000

A. Fortin, Capital................................... 5,000 Invested cash in business. 3 Furniture ....................................................... 2,000 Accounts Payable................................. 2,000 Purchased furniture on account.

4 Supplies........................................................ 400 Cash ...................................................... 400 Purchased supplies.

6 Accounts Receivable ................................... 800 Service Revenue................................... 800 Billed clients for services rendered.

10 Cash .............................................................. 650 Service Revenue................................... 650 Received cash for services rendered.

10 Cash .............................................................. 5,000 Notes Payable ....................................... 5,000 Obtained loan from bank. 12 Accounts Payable ........................................ 1,500 Cash ...................................................... 1,500 Paid cash on account.

20 Cash .............................................................. 500 Accounts Receivable............................ 500 Received cash in payment of account.

20 Accounts Receivable ................................... 940 Service Revenue................................... 940 Billed clients for services provided.

25 Cash .............................................................. 2,000 A. Fortin, Capital................................... 2,000 Invested cash in business.

2-21

EXERCISE 2-7 (Continued) (a) (Continued)

Oct. 30 A. Fortin, Drawings ...................................... 300 Cash ...................................................... 300 Withdrew cash for personal use.

31 Rent Expense ............................................... 250

Cash ...................................................... 250 Paid rent for month.

31 Store Wages Expense.................................. 500 Cash ...................................................... 500 Paid store wages.

(b) FORTIN CO.

Trial Balance October 31, 2003

Debit

Credit

Cash .......................................................................Accounts Receivable ............................................Supplies .................................................................Furniture ................................................................Notes Payable........................................................Accounts Payable .................................................A. Fortin, Capital ...................................................A. Fortin, Drawings ...............................................Service Revenue ...................................................Store Wages Expense...........................................Rent Expense ........................................................

$10,200 001,240 000,400 002,000

000,300

000,500 250 $14,890

$05,000 000,500 007,000

002,390

000000

$14,890

2-22

EXERCISE 2-8 (a)

Cash

Notes Payable

Aug. 01 2,600 10 2,400 31 900

Aug. 12 1,000

Aug. 12 3,000

4,900 3,000

Accounts Receivable

L. Meche, Capital

Aug. 25 1,400

Aug. 31 900

Aug. 1 2,600

500

2,600

Office Equipment

Service Revenue

Aug. 12 4,000

Aug. 10 2,400

25 1,400 4,000 3,800

(b) L. MECHE, INVESTMENT BROKER Trial Balance August 31, 2003

Debit

Credit

Cash.............................................................................Accounts Receivable ..................................................Office Equipment ........................................................Notes Payable .............................................................L. Meche, Capital.........................................................Service Revenue .........................................................

$4,900 00,500 04,000

00000 $9,400

$3,000 02,600 03,800 $9,400

2-23

EXERCISE 2-9

Error

(a)

In Balance

(b)

Difference

(c)

Larger Column 1. 2. 3. 4. 5. 6.

No Yes Yes No Yes No

$400 00–– 00–– 0300 00–– 180

Debit

–– ––

Credit ––

Debit EXERCISE 2-10 EXPRESS DELIVERY SERVICE Trial Balance July 31, 2003

Debit

Credit

Cash ($81,907 – $67,340 total debits without Cash) Accounts Receivable.................................................. Prepaid Insurance....................................................... Delivery Equipment ......................................................Notes Payable ...............................................................Accounts Payable .........................................................Salaries Payable ...........................................................T. Weld, Capital .............................................................T. Weld, Drawings.........................................................Service Revenue ...........................................................Salaries Expense ..........................................................Gas and Oil Expense ....................................................Repair Expense.............................................................Insurance Expense .......................................................

$14,567 008,642 001,968 049,360

000,700

004,428 000,758 000,961 000,523 $81,907

$18,450 007,396 000,815 044,636

010,610

000,000 $81,907

2-24

SOLUTIONS TO PROBLEMS

PROBLEM 2-1A

Account (1)

Type of Account

(2) Financial Statement

(3) Normal Balance

(4) Increase

(5) Decrease

1. Cash Asset Balance Sheet

Debit Debit Credit

2. Accounts Receivable

Asset Balance Sheet

Debit Debit Credit

3. Drawings Owner’s Equity—Drawings

Statement of Owner’s Equity

Debit Debit Credit

4. Interest Expense

Expense Income Statement

Debit Debit Credit

5. Land Asset Balance Sheet

Debit Debit Credit

6. Office Supplies

Asset Balance Sheet

Debit Debit Credit

7. Salary Expense

Owner’s Equity—Expense

Income Statement

Debit Debit Credit

8. Service Revenue

Owner’s Equity—Revenue

Income Statement

Credit Credit Debit

2-25

PROBLEM 2-2A

GENERAL JOURNAL

J1


Ref.

Debit

Credit

May 1 Cash ..................................................................

Amod Phatarpeker, Capital ....................... Invested cash in business.

45,000

45,000

3 Land .................................................................. Building ............................................................ Equipment ........................................................

Cash ........................................................... Purchased Lee's Golf Land.

23,000 09,000 06,000

38,000

5 Advertising Expense........................................Cash ........................................................... Paid for advertising.

01,600 01,600

6 Prepaid Insurance.............................................Cash ........................................................... Paid for one-year insurance policy.

01,480 01,480

10

Equipment ........................................................Accounts Payable...................................... Purchased equipment on account.

01,600

01,600

18 Cash..................................................................Golf Fees Earned....................................... Received cash for fees earned.

00,800 00,800

19 Cash..................................................................Unearned Golf Fees................................... Received cash for coupon books

sold.

01,500 01,500

2-26

PROBLEM 2-2A (Continued) Date


Ref.

Debit

Credit

May 25 Amod Phatarpeker, Drawings .........................

Cash ........................................................... Withdrew cash for personal use.

0,500

0,500

30 Salaries Expense .............................................Cash ........................................................... Paid salaries expense.

0,600 0,600

30 Accounts Payable ............................................Cash ........................................................... Paid creditor on account.

1,600 1,600

31 Cash...................................................................Golf Fees Earned....................................... Received cash for fees earned.

0,500 0,500

2-27

PROBLEM 2-3A

(a)

GENERAL JOURNAL

J1


Ref.

Debit

Credit

Apr. 1 Cash...............................................................

Maria Rojas, Capital ............................... Invested cash in business.

101 301

15,000

15,000

1 No entry—not a transaction.

2 Rent Expense ................................................Cash ........................................................ Paid monthly office rent.

729 101

00,800 00,800

3 Supplies.........................................................Accounts Payable................................... Purchased supplies on account from Halo Company.

126 201

01,500 01,500

10 Accounts Receivable ....................................Service Revenue..................................... Billed clients for services rendered.

112 400

00,900 00,900

11 Cash...............................................................Unearned Revenue................................. Received cash advance for future service.

101 209

00,500 00,500

20 Cash...............................................................Service Revenue.....................................

Received cash for services rendered.

101 400

01,500 01,500

2-28

PROBLEM 2-3A (Continued) (a) (Continued) Date


Ref.

Debit

Credit

Apr. 30

Salaries Expense ..........................................

Cash ........................................................ Paid monthly salary.

726 101

0 1,200

01,200

30

Accounts Payable .........................................

Cash ........................................................ Paid Halo Company on account.

201 101

600

600

(b)

Cash

No. 101

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 1 2 11 20 30 30

J1 J1 J1 J1 J1 J1

15,000

00,500 01,500

0,800

1,200 0,600

15,000 14,200 14,700 16,200 15,000 14,400

Accounts Receivable

No. 112

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 10

J1

00,900

00,900

Supplies

No. 126

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 3

J1

01,500

01,500

2-29

PROBLEM 2-3A (Continued) (b) (Continued)

Accounts Payable

No. 201

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 3 30

J1 J1

00,600

1,500

01,500 00,900

Unearned Revenue

No. 209

Date

Explanation

Ref.

Debit

Credit

Balance Apr.11

J1

0,500

00,500

Maria Rojas, Capital

No. 301

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 1

J1

15,000

15,000

Service Revenue

No. 400

Date

Explanation

Ref.

Debit

Credit

Balance Apr.10 20

J1 J1

00,900 01,500

00,900 02,400

Salaries Expense

No. 726

Date

Explanation

Ref.

Debit

Credit

Balance Apr.30

J1

01,200

01,200

Rent Expense

No. 729

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 2

J1

00,800

00,800

2-30

PROBLEM 2-3A (Continued) (c) MARIA ROJAS, ARCHITECT

Trial Balance April 30, 2003

Debit

Credit

Cash .......................................................................Accounts Receivable ............................................Supplies .................................................................Accounts Payable .................................................Unearned Revenue................................................Maria Rojas, Capital ..............................................Service Revenue ...................................................Salaries Expense...................................................Rent Expense ........................................................

$14,400 000,900 001,500

001,200 000,800 $18,800

$00,900 000,500 015,000 002,400

000,000 $18,800

2-31

PROBLEM 2-4A

(a) & (c)

Cash

No. 101

Date

Explanation

Ref.

Debit

Credit

Balance Oct. 1 5 15 20 22 29 31

Balance

! J1 J1 J1 J1 J1 J1

0,800

200

1,200 1,600

0, 500 0,600

7,500 8,300 7,100 5,500 5,700 5,200 4,600

Accounts Receivable

No. 112

Date

Explanation

Ref.

Debit

Credit

Balance Oct. 1 5 10

Balance

! J1 J1

5,500

0,800

2,200 1,400 6,900

Supplies

No. 126

Date

Explanation

Ref.

Debit

Credit

Balance Oct. 1 26

Balance

! J1

300

1,700 2,000

Equipment

No. 157

Date

Explanation

Ref.

Debit

Credit

Balance Oct. 1

Balance

!

8,000

2-32

PROBLEM 2-4A (Continued) (a) & (c) (Continued)

Accounts Payable

No. 201

Date

Explanation

Ref.

Debit

Credit

Balance Oct. 1 20 26

Balance

! J1 J1

1,600

300

4,000 2,400 2,700

Unearned Revenue

No. 209

Date

Explanation

Ref.

Debit

Credit

Balance Oct. 1 17

Balance

! J1

0,400

00,700 00,300

Jane Kent, Capital

No. 301

Date

Explanation

Ref.

Debit

Credit

Balance Oct. 1

Balance

!

14,700

Jane Kent, Drawings

No. 306

Date

Explanation

Ref.

Debit

Credit

Balance Oct. 29

J1

0,500

00,500

Laundry Revenue

No. 426

Date

Explanation

Ref.

Debit

Credit

Balance Oct. 10 17 22

J1 J1 J1

5,500 0,400 200

05,500 05,900 6,100

Salaries Expense

No. 726

Date

Explanation

Ref.

Debit

Credit

Balance Oct.15

J1

1,200

01,200

2-33


Utilities Expense

No. 732

Date

Explanation

Ref.

Debit

Credit

Balance Oct.31

J1

0,600

00,600

(b)

GENERAL JOURNAL

J1


Ref.

Debit

Credit

Oct. 5

Cash............................................................

Accounts Receivable .......................... Received collections from customers on account.

101 112

0

,800

0 ,800

10 Accounts Receivable ................................. Laundry Revenue ................................ Billed customers for services performed.

112 426

5,500 5,500

15 Salaries Expense ....................................... Cash ..................................................... Paid employee salaries.

726 101

1,200 1,200

17 Unearned Revenue .................................... Laundry Revenue ................................

Performed services for customers who paid in advance.

209 426

0,400 0,400

20 Accounts Payable ......................................

Cash ..................................................... Paid creditors on account.

201 101

1,600 1,600

2-34


GENERAL JOURNAL

J1


Ref.

Debit

Credit

Oct. 22 26

Cash............................................................ Laundry Revenue...............................

Performed services for cash.

Supplies...................................................... Accounts Payable................................

Purchased supplies on account.

101 426

126 201

200

300

200

0, 300

29 Jane Kent, Drawings.................................. Cash ..................................................... Withdrew cash for personal use.

306 101

0,500 0,500

31 Utilities Expense ........................................ Cash ..................................................... Paid utilities.

732 101

0,600 0,600

2-35

PROBLEM 2-4A (Continued) (d) SPEEDY LAUNDRY

Trial Balance October 31, 2003

Debit

Credit

Cash........................................................................Accounts Receivable .............................................Supplies..................................................................Equipment ..............................................................Accounts Payable ..................................................Unearned Revenue.................................................Jane Kent, Capital ..................................................Jane Kent, Drawings..............................................Laundry Revenue ...................................................Salaries Expense ...................................................Utilities Expense ....................................................

$04,600 006,900 002,000 008,000

000,500

001,200 600 $23,800

$02,700 000,300 014,700

006,100

000000

$23,800

2-36

PROBLEM 2-5A

(a) & (c)

Cash

No. 101

Date

Explanation

Ref.

Debit

Credit

Balance Mar. 1 2 9 10 12 20 21 31 31 31

Balance

! J2 J2 J2 J2 J2 J2 J2 J2 J2

6,500

7,200

0,0600 12,500

03,000

9,000 800

3,000 3,800

16,000 13,000 19,500 10,500 9,700

16,900 13,900 10,100 10,700 23,200

Accounts Receivable

No. 112

Date

Explanation

Ref.

Debit

Credit

Balance Mar.31

J2

0,0600

00,0600

Land

No. 140

Date

Explanation

Ref.

Debit

Credit

Balance Mar. 1

Balance

!

42,000

Buildings

No. 145

Date

Explanation

Ref.

Debit

Credit

Balance Mar. 1

Balance

!

018,000

Equipment

No. 157

Date

Explanation

Ref.

Debit

Credit

Balance Mar. 1

Balance

!

016,000

2-37


Accounts Payable

No. 201

Date

Explanation

Ref.

Debit

Credit

Balance Mar. 1 2 10

Balance

! J2 J2

9,000

6,000

012,000 18,000

9,000

L. Baroni, Capital

No. 301

Date

Explanation

Ref.

Debit

Credit

Balance Mar. 1

Balance

!

80,000

Admission Revenue

No. 405

Date

Explanation

Ref.

Debit

Credit

Balance Mar. 9 20 31

J2 J2 J2

6,500 7,200 12,500

06,500 13,700 26,200

Concession Revenue

No. 406

Date

Explanation

Ref.

Debit

Credit

Balance Mar. 31

J2

0,1,200

00,1,200

Advertising Expense

No. 610

Date

Explanation

Ref.

Debit

Credit

Balance Mar. 12

J2

0,800

0,800

Film Rental Expense

No. 632

Date

Explanation

Ref.

Debit

Credit

Balance Mar. 2 21

J2 J2

9,000 3,000

9,000

12,000

2-38


Salaries Expense

No. 726

Date

Explanation

Ref.

Debit

Credit

Balance Mar. 31

J2

3,800

3,800

(b)

GENERAL JOURNAL

J2


Ref.

Debit

Credit

Mar. 2 Film Rental Expense .................................

Cash .................................................... Accounts Payable............................... Paid film rental.

632 101 201

0,9,000

0,3,000 6,000


9 Cash ........................................................... Admission Revenue ........................... Received cash for admissions.

101 405

6,500 6,500

10

Accounts Payable ($6,000 + $3,000) ........ Cash ....................................................

Paid balance due on Star Wars and $3,000 on account.

201 101

9,000 9,000

11 No entry—Not a transaction.

12

Advertising Expense................................

Cash ................................................... Paid advertising expenses.

610 101

800

800

2-39

PROBLEM 2-5A (Continued) (b) (Continued) Date


Ref.

Debit

Credit

Mar. 20

Cash ..........................................................

Admission Revenue .......................... Received cash for admissions.

101 405

7,200

7,200

21 Film Rental Expense ................................ Cash ................................................... Paid for Scream films.

632 101

3,000 3,000

31 Salaries Expense ..................................... Cash ................................................... Paid salaries expense.

726 101

3,800 3,800

31 Cash .......................................................... Accounts Receivable ...............................

Concession Revenue ........................ Received cash and balance on account for concession revenue.

101 112 406

0,0600 0,0600

0,1,200

31 Cash .......................................................... Admission Revenue .......................... Received cash for admissions.

101 405

12,500 12,500

2-40

PROBLEM 2-5A (Continued) (d)

STARLITE THEATRE Trial Balance March 31, 2003

Debit

Credit

Cash ......................................................................Accounts Receivable ...........................................Land .......................................................................Buildings................................................................Equipment .............................................................Accounts Payable .................................................L. Baroni, Capital...................................................Admission Revenue ..............................................Concession Revenue ............................................Advertising Expense.............................................Film Rental Expense .............................................Salaries Expense...................................................

$ 23,200

0,0600 042,000 018,000 016,000

000,800 12,000

0003,800 $116,400

$ 9,000 080,000 026,200 001,200

0000000 $116,400

2-41

PROBLEM 2-6A

(a)


Debit

Credit

May 1 Cash ...........................................................

Jacob Bablad, Capital.........................

120,000

120,000

5 No entry at this time.

5 Prepaid Rent .............................................. Rent Expense ($36,000 ÷ 12 mos.) ...........

Cash.....................................................

4433,000 3,000

036,000

8 Furniture & Equipment..............................Cash.....................................................Accounts Payable ...............................

00,70,000 20,000 50,000

9 Prepaid Insurance ..................................... Insurance Expense ($3,000 ÷ 12 mos.) ....

Cash.....................................................

02,750 250

03,000

12 Office Supplies ..........................................Cash.....................................................

11,000 01,000

15 Office Supplies ..........................................Accounts Payable ...............................

02,000 02,000

20 Cash ........................................................... Accounts Receivable ................................

Brokerage Fees Earned......................

010,000 20,000

030,000

22 Accounts Payable......................................Cash.....................................................

00, 800 00,800

26 Cash ...........................................................

Accounts Receivable..........................00, 5,000

00,5,000

2-42

PROBLEM 2-6A (Continued) (a) (Continued)


Debit

Credit

May 30

Utility Expense ............................................

Accounts Payable................................

00 , 400

00,400

30 Salaries Expense........................................Cash......................................................

00, 2,000 00,2,000

2-43

Cash

Debit

Credit 120,000

10,000

5,000

36,000 20,000

3,000 1,000

800

2,000

72,200

Accounts Receivable Debit

Credit

020,000

5,000 15,000

Office Supplies Debit

Credit

01,000 2,000

3,000

Prepaid Insurance Debit

Credit

0,2,750

Prepaid Rent Debit

Credit

33,000

2-44


Furniture & Equipment Debit

Credit

0,70,000

Accounts Payable Debit

Credit

00,800

50,000 2,000

400

51,600

J. Bablad, Capital Debit

Credit

0120,000

Brokerage Fees Earned Debit

Credit

0,

30,000

Salaries Expense Debit

Credit

2,000

Rent Expense

Debit

Credit 3,000

Utilities Expense Debit

Credit

0,400

Insurance Expense Debit

Credit

0,250

2-45

PROBLEM 2-6A (Continued) (c)

BABLAD BROKERAGE SERVICES Trial Balance May 31, 2003

Debit

Credit

Cash .......................................................................Accounts Receivable ...........................................Office Supplies ......................................................Prepaid Insurance ................................................Prepaid Rent .........................................................Furniture and Equipment......................................Accounts Payable .................................................J. Bablad, Capital ..................................................Brokerage Fees Earned ........................................Salaries Expense...................................................Rent Expense ........................................................Utilities Expense ...................................................Insurance Expense ...............................................

$ 72,200

15,000 3,000 2,750

33,000 70,000

2,000 3,000

400 0000250

0$201,600

$ 51,600 120,000 30,000

,51

000,0600 $201,600

2-46

PROBLEM 2-6A (Continued) (d) BABLAD BROKERAGE SERVICES

Income Statement For the Month Ended May 31, 2003

Revenues Brokerage fees earned....................................................... $30,000

Expenses Salaries expense............................................... $2,000 Rent expense..................................................... 3,000 Insurance expense............................................ 250 Utilities expense................................................ 00,400

Total expenses............................................................ 0 5,650 Net income ................................................................................. $24,350

BABLAD BROKERAGE SERVICES Statement of Owner's Equity For the Month Ended May 31, 2003

Capital, May 1, 2003................................................. $ 0 Add: Investment..................................................... 120,000 Net income..................................................... 24,350

Capital, May 31, 2003............................................... $144,350

2-47

PROBLEM 2-6A (Continued) (d) (Continued)

BABLAD BROKERAGE SERVICES Balance Sheet May 31, 2003

Assets

Cash............................................................................................ $ 72,200 Accounts receivable .................................................................. 15,000 Office supplies........................................................................... 3,000 Prepaid insurance...................................................................... 0442,750 Prepaid rent................................................................................ 0033,000 Furniture & equipment .............................................................. 0070,000

Total assets ........................................................................ $195,950 Liabilities and Owner's Equity Liabilities

Accounts payable............................................................... 0$ 51,600 Owner's Equity

Jacob Bablad, Capital ........................................................ 00144,350

Total liabilities and owner's equity............................ $195,950

2-48

PROBLEM 2-7A

(a) As indicated in item (9), $4,500 was paid for three months in advance

on December 1. One month has passed, so 1/3 X $4,500 = $1,500 of rent has expired and become an expense. Two months are still to come, so 2/3 x $4,500 = $3,000 remains in the prepaid rent account as an asset.

(b) & (d)

Cash 10,000

(4) 13,000

(7) 4,000

(1) 500 (3) 2,000

(5) 15,000

(8) 3,000 (10) 5,000

1,500

Accounts Receivable 15,000

(7) 9,000

(4) 13,000 11,000

2-50

Repair Parts Inventory 13,000

(2) 2,000

(6) 4,000 11,000

Prepaid Rent 3,000

(9) 1,500 1,500

2-51

PROBLEM 2-7A (Continued) (b) & (d) (Continued)

Shop Equipment 21,000

Accounts Payable

(5) 15,000

19,000 (2) 2,000

6,000

Leo Mataruka, Capital 43,000

Leo Mataruka, Drawings (10) 5,000

5,000

Repair Services Revenue (7) 13,000

Advertising Expense (1) 500

Miscellaneous Expense (3) 2,000

Repair Parts Expense (6) 4,000

Wages Expense (8) 3,000

Rent Expense (9) 1,500

2-52


GENERAL JOURNAL


Debit

Credit

1. Advertising Expense

Cash

500

500

2. Repair Parts Inventory

Accounts Payable

2,000

2,000

3. Miscellaneous Expense

Cash

0 2,000

0

2,000

4. Cash

Accounts Receivable

0 13,000

0

13,000

5.

Accounts Payable

Cash

0 15,000

0

15,000

6. Repair Parts Expense

Repair Parts Inventory

0 4,000

0

4,000

7. Cash Accounts Receivable

Repair Services Revenues

4,000 9,000

0 13,000

8.

Wages Expense

Cash

0 3,000

0

3,000

9. Rent Expense

Prepaid Rent

0 1,500

0

1,500

10. Leo Mataruka, Drawings

Cash

0 5,000

0

5,000

2-53

PROBLEM 2-7A (Continued) (e) CYBERDYNE REPAIR SERVICE Trial Balance January 31, 2003

Debit

Credit Cash...............................................................................Accounts Receivable....................................................Repair Parts Inventory..................................................Prepaid Rent .................................................................Shop Equipment ...........................................................Accounts Payable .........................................................Leo Mataruka, Capital...................................................Leo Mataruka, Drawings ..............................................Repair Services Revenue .............................................Advertising Expense ....................................................Miscellaneous Expense ...............................................Repair Parts Expense...................................................Rent Expense................................................................Wages Expense ............................................................

$01,500 011,000 011,000 001,500

0021,000

5,000

500 2,000 4,000 1,500

0 3,000 $62,000

$06,000 043,000

0 13,000

0000 00 $62,000

(f) Cash $ 1,500 Accounts Receivable 11,000 Repair Parts Inventory 11,000 Prepaid Rent 1,500 Shop Equipment 21,000 Total Assets $46,000 (g) Repairs Services Revenue $13,000 Advertising Expense (500) Miscellaneous Expense (2,000) Repair Parts Expense (4,000) Rent Expense (1,500) Wages Expense (3,000) Net Income $2,000

2-54

PROBLEM 2-8A

(a) CYBERDYNE REPAIR SERVICE

Income Statement For the Month Ended January 31, 2003

Revenues Repair services revenue.................................................... $13,000

Expenses

Wages expense ................................................. $3,000 Rent expense..................................................... 1,500 Repair parts expense........................................ 4,000 Miscellaneous expense .................................... 00,2,000 Advertising expense ......................................... 00, 500

Total expenses............................................................ 11,000 Net income ................................................................................. $ 2,000

(b)

CYBERDYNE REPAIR SERVICE Statement of Owner's Equity For the Month Ended January 31, 2003

Leo Mataruka, Capital, January 1, 2003 ................. $43,000 Add: Net income .................................................... 2,000 45,000 Less: Drawings ....................................................... 5,000

Leo Mataruka, Capital, January 31, 2003 ............... $40,000

2-55


CYBERDYNE REPAIR SERVICE Balance Sheet January 31, 2003

Assets Cash............................................................................................ $ 1,500 Accounts receivable .................................................................. 11,000 Repair parts inventory............................................................... 11,000 Prepaid rent................................................................................ 001,500 Shop equipment......................................................................... 04421,000

Total assets ........................................................................ $46,000

Liabilities and Owner's Equity Liabilities

Accounts payable............................................................... 0 $ 6,000 Owner's Equity

Leo Mataruka, Capital ........................................................ 040,000


2-56

PROBLEM 2-9A

(a)

KIA TAGGAR ENTERPRISES Trial Balance June 30, 2003

Debit Credit Cash $ 180 Accounts receivable 500 Supplies 510 Prepaid insurance 90 Long-term investment 495 Land 800 Equipment 1,200 Notes payable, current $1,000 Long-term debt 1,200 Taggar, Capital 800 Service revenue 2,000 Operating expense 870 Insurance expense 130 Interest expense 225 00000 $5,000 $5,000

2-57

PROBLEM 2-9A (Continued) (b) KIA TAGGAR ENTERPRISES

Income Statement For the Year Ended June 30, 2003

Revenue Service revenue...................................................... $2,000

Expenses

Insurance expense................................................. $130 Interest expense..................................................... 225 Operating expense................................................. 870

Total expenses................................................ 01,225 Net income ..................................................................... $ 775

KIA TAGGAR ENTERPRISES Statement of Owner's Equity For the Year Ended June 30, 2003

Taggar, Capital, July 1, 2002......................................... $ 800 Add: Net income .......................................................... 775 Taggar, Capital, June 30, 2003...................................... $1,575

2-58


KIA TAGGAR ENTERPRISES Balance Sheet June 30, 2003

Assets Cash............................................................................................ $ 180 Accounts receivable .................................................................. 500 Prepaid insurance...................................................................... 00990 Supplies...................................................................................... 510 Long-term investment ............................................................... 495 Land............................................................................................ 800 Equipment .................................................................................. 0441,200

Total assets ........................................................................ $3,775


Note payable....................................................................... $1,000 Long-term debt................................................................... 1,200

Total liabilities ............................................................ 2,200

Owner's Equity Taggar, Capital ................................................................... 01,575


2-59

PROBLEM 2-10A

(a)

1. Correctly stated 2. Understated 3. Correctly stated (the debit posting was to a credit balance

account, Accounts Payable) 4. Understated 5. $374,000 ($360,000 + $7,000 to reverse debit to Accounts Payable

account + $7,000 to record credit to Accounts Payable account) (b)

1. Invoice from supplier 3. Utility bill 4. Sales ticket

2-60

PROBLEM 2-11A

(a) Errors in the trial balance are:

1. The trial balance should be dated at a specific point in time, not for “the year ended”.

2. Machinery and equipment should be a debit. 3. Accounts Payable should be a credit. 4. Prepaid Rent should be a debit. 5. Capital should be a credit. 6. Advertising Expenses should be a debit. 7. Notes Payable should be a credit. 8. Accounts Receivable should be a debit. 9. They are not arranged in the proper sequence: 1) assets; 2)

liabilities; 3) owner’s equity (capital and drawings); and 4) income statement accounts (revenues and expenses).

10. The totals should be equal. (b) MEHTA AUTOMOTIVE SERVICES Trial Balance December 31, 2002

Debit

Credit

Cash .......................................................................Accounts Receivable.............................................Prepaid Rent ..........................................................Prepaid Insurance .................................................Machinery and Equipment ....................................Accounts Payable..................................................Note Payable ..........................................................Capital ....................................................................Drawings ................................................................Service Revenues..................................................Miscellaneous Expense ........................................Wages Expense .....................................................Advertising Expense .............................................

$ 24 31 5 3 89

20

49 76

30 $327

$ 38 45 42

202

0000 $327

2-61

PROBLEM 2-12A

WINAU CO. Trial Balance June 30, 2003

Debit

Credit

Cash ($2,840 + $180).....................................................Accounts Receivable ($3,231 – $180)..........................Supplies ($800 – $340) .................................................Equipment ($3,000 + $340)...........................................Accounts Payable ($2,666 – $206 – $260) ...................Unearned Fees..............................................................T. Winau, Capital...........................................................T. Winau, Drawings ($800 + $400) ...............................Fees Earned ($2,380 + $801) ........................................Salaries Expense ($3,400 + $600 – $400) ....................Office Expense..............................................................

$ 3,020 003,051 000,460 003,340

001,200

003,600 910 $15,581

$02,200 001,200 009,000

003,181

000000

$15,581

2-62

PROBLEM 2-1B

Account (1)

Type of Account

(2) Financial Statement

(3) Normal Balance

(4) Increase

(5) Decrease

1. Cash Asset Balance Sheet Debit Debit Credit 2. Accounts Payable

Liability Balance Sheet Credit Credit Debit

3. Kobiashi, Capital

Owner’s Equity—Capital

Balance Sheet and Statement of Owner’s Equity

Credit Credit Debit

4. Kobiashi, Drawings

Owner’s Equity—Drawings

Statement of Owner’s Equity

Debit Debit Credit

5. Office Equipment

Asset Balance Sheet Debit Debit Credit

6. Office Supplies

Asset Balance Sheet Debit Debit Credit

7. Rent Expense Expense Income Statement

Debit Debit Credit

8. Service Revenue

Revenue Income Statement

Credit Credit Debit

2-63

PROBLEM 2-2B

GENERAL JOURNAL

J1


Ref.

Debit

Credit

April 1 Cash................................................................

Al Rossy, Capital ..................................... Invested cash in business.

50,000

50,000

4 Land ................................................................ Cash ......................................................... Purchased land.

30,000

30,000

8 Advertising Expense...................................... Accounts Payable.................................... Purchased advertising on account.

01,800 01,800

11 Salaries Expense ........................................... Cash ......................................................... Paid employees salaries.

1,1,5005

1,500

12 No entry required

13 Prepaid Insurance.......................................... Cash .........................................................

Paid for one-year insurance policy.

01,500 01,500

17 Al Rossy, Drawings......................................... Cash ......................................................... Withdrew cash for personal use.

600600 00 600

20 Cash................................................................ Admissions Revenue ..............................

Received cash for admissions.

05,700 05,700

2-64

PROBLEM 2-2B (Continued)


Ref.

Debit

Credit

April 25

Cash ...............................................................

Unearned Admissions Revenue ........... Received cash for coupon books sold.

02,500

02,500

30 Cash .............................................................. Admissions Revenue............................. Received cash for fees earned.

00,5,900 5,900

30

Accounts Payable......................................... Cash........................................................ Made payment on account.

0700

0700

2-65

PROBLEM 2-3B

(a)

GENERAL JOURNAL

J1


Ref.

Debit

Credit

May 1 Cash.......................................................

Lisa Heins, Capital ......................... Invested cash in business.

101 301

32,000

32,000


3 Supplies................................................. Accounts Payable........................... Purchased supplies on account.

126 201

01,200 01,200

7 Rent Expense ........................................ Cash ................................................ Paid monthly office rent.

729 101

00,900 00,900

11 Accounts Receivable ............................ Service Revenue............................. Billed clients for tax services.

112 400

00,1,100 001,100

12 Cash....................................................... Unearned Revenue......................... Received cash advance for future service.

101 209

033,500 03,500

17 Cash....................................................... Service Revenue............................. Received cash for fees earned.

101 400

01,200 01,200

31 Salaries Expense .................................. Cash ................................................ Paid monthly salary.

726 101

01,000 01,000

31 Accounts Payable ................................. Cash ................................................

Paid Read Supply 40% of amount owing.

201 101

480 480

2-66

PROBLEM 2-3B (Continued) (b)

Cash

No. 101

Date

Explanation

Ref.

Debit

Credit

Balance May 1 7 12 17 31 31

J1 J1 J1 J1 J1 J1

32,000

03,500 01,200

0,9900

1,000 0,480

32,000 31,100 34,600 35,800 34,800 34,320

Accounts Receivable

No. 112

Date

Explanation

Ref.

Debit

Credit

Balance May 11

J1

00,1,100

00,1,100

Supplies

No. 126

Date

Explanation

Ref.

Debit

Credit

Balance May 3

J1

01,200

01,200

Accounts Payable

No. 201

Date

Explanation

Ref.

Debit

Credit

Balance May 3 31

J1 J1

00,480

1,200

01,200 00,720

Unearned Revenue

No. 209

Date

Explanation

Ref.

Debit

Credit

Balance May 12

J1

0,3,500

00,3,500

2-67

PROBLEM 2-3B (Continued) (b) (Continued)

Lisa Heins, Capital

No. 301

Date

Explanation

Ref.

Debit

Credit

Balance May 1

J1

32,000

32,000

Service Revenue

No. 400

Date

Explanation

Ref.

Debit

Credit

Balance May 11 17

J1 J1

0,1,100 01,200

01,100 02,300

Salaries Expense

No. 726

Date

Explanation

Ref.

Debit

Credit

Balance May 31

J1

01,000

01,000

Rent Expense

No. 729

Date

Explanation

Ref.

Debit

Credit

Balance May 7

J1

00,9900

00,900

2-68

PROBLEM 2-3B (Continued) (c) LISA HEINS, CGA

Trial Balance May 31, 2003

Debit

Credit

Cash .......................................................................Accounts Receivable ............................................Supplies .................................................................Accounts Payable .................................................Unearned Revenue................................................Lisa Heins, Capital ................................................Service Revenue ...................................................Salaries Expense...................................................Rent Expense ........................................................

$34,320 001,100 001,200

001,000 000,900 $38,520

$00,720 003,500 032,000 002,300

00 000

$38,520

2-69

PROBLEM 2-4B

(a) & (c)

Cash

No. 101

Date

Explanation

Ref.

Debit

Credit

Balance July 1 8 9 11 14 30 31

Balance

! J1 J1 J1 J1 J1 J1

0,5,936

4,325

2,100

10,750 , 5,190

0700

12,532 18,468 16,368 20,693 9,943 4,753 4,053

Accounts Receivable

No. 112

Date

Explanation

Ref.

Debit

Credit

Balance July 1 8 22

Balance

! J1 J1

5,700

0,5,936

10,536 4,600

10,300

Supplies

No. 126

Date

Explanation

Ref.

Debit

Credit

Balance July 1

17

Balance

! J1

554

4,844 5,398

Equipment

No. 157

Date

Explanation

Ref.

Debit

Credit

Balance July 1

Balance

!

25,950

2-70

PROBLEM 2-4B (Continued) (a) & (c) (Continued)

Accounts Payable

No. 201

Date

Explanation

Ref.

Debit

Credit

Balance July 1 14 17

Balance

! J1 J1

10,750

554

15,878 5,128 5,682

Unearned Revenue

No. 209

Date

Explanation

Ref.

Debit

Credit

Balance July 1

Balance

!

1,730

C. Steiner, Capital

No. 301

Date

Explanation

Ref.

Debit

Credit

Balance July 1

Balance

!

36,254

C. Steiner, Drawings

No. 306

Date

Explanation

Ref.

Debit

Credit

Balance July 31

J1

0,700

00,700

Dry Cleaning Revenue

No. 428

Date

Explanation

Ref.

Debit

Credit

Balance July 11 22

J1 J1

4,325 5,700

04,325

010,025

Repair Expense

No. 622

Date

Explanation

Ref.

Debit

Credit

Balance July 30

J1

0,692

00,692

2-71


Salaries Expense

No. 726

Date

Explanation

Ref.

Debit

Credit

Balance July 9 30

J1 J1

2,100 3,114

02,100 5,214

Utilities Expense

No. 732

Date

Explanation

Ref.

Debit

Credit

Balance July31

J1

0,1,384

00,1,384

2-72


GENERAL JOURNAL

J1


Ref.

Debit

Credit

July 8

Cash............................................................

Accounts Receivable .......................... Received collections from customers on account.

101 112

0

5,936

0 5,936

9 Salaries Expense ....................................... Cash ..................................................... Paid employee salaries.

726 101

2,100 2,100

11 Cash............................................................ Dry Cleaning Revenue ........................ Performed services for cash.

101 428

4,325 4,325

14

Accounts Payable ...................................... Cash ..................................................... Paid creditors on account.

201 101

10,750

10,750

17 Supplies...................................................... Accounts Payable................................

Purchased supplies on account.

126 201

0,554 0, 554

22 Accounts Receivable ................................. Dry Cleaning Revenue ........................ Billed customers for services

rendered.

112 428

5,700 5,700

2-73

PROBLEM 2-4B (Continued) (b) (Continued) Date


Ref.

Debit

Credit

July 30

Salaries Expense ........................................ Utilities Expense ........................................ Repair Expense..........................................

Cash ..................................................... Paid salaries, utilities and repairs in

cash.

726 732 622 101

0, 3,114 1,384

692

0,5,190

31 C. Steiner, Drawings.................................. Cash ..................................................... Withdrew cash for personal use.

306 101

0,7700 0,700

(d) STEINER DRY CLEANERS

Trial Balance July 31, 2003

Debit

Credit

Cash .......................................................................Accounts Receivable ............................................Supplies .................................................................Equipment .............................................................Accounts Payable .................................................Unearned Revenue................................................C. Steiner, Capital .................................................C. Steiner, Drawings .............................................Dry Cleaning Revenue ..........................................Repair Expense .....................................................Salaries Expense...................................................Utilities Expense ...................................................

$04,053

0010,300 005,398 025,950

000,700

692 5,214

1,384 $53,691

$ 5,682 1,730

36,254

10,025

000000 $53,691

2-74

PROBLEM 2-5B

(a) & (c)

Cash

No. 101

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 1 2 9 10 12 25 29 30 30

Balance

! J1 J1 J1 J1 J1 J1 J1 J1

1,800

5,200

8855

800

0,3,000 0 300

1,600

700,

6,000 5,200 7,000 4,000 3,700 8,900 7,300 7,385 6,685

Accounts Receivable

No. 112

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 30

J1

85

85,

Prepaid Rentals

No. 136

Date

Explanation

Ref.

Debit

Credit

Balance Apr.30

J1

03,700

00,700

Land

No. 140

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 1

Balance

!

10,000

2-75


Buildings

No. 145

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 1

Balance

!

0 8,000

Equipment

No. 157

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 1

Balance

!

0 6,000

Accounts Payable

No. 201

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 1 20

Balance

!

J1 J1

1,000

500

2,000 1,000 1,500

Mortgage Payable

No. 275

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 1 10

Balance

!

J1

2,000

8,000

6,000

Fran Holley, Capital

No. 301

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 1

Balance

!

20,000

Admissions Revenue

No. 405

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 9 25

J1 J1

1,800 5,200

01,800 7,000

2-76


Concession Revenue

No. 406

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 30

J1

0,170

00,170

Advertising Expense

No. 610

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 12

J1

0,300

0,300

Film Rental Expense

No. 632

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 2 20

J1 J1

0,800

, 500

800 1,300

Salaries Expense

No. 726

Date

Explanation

Ref.

Debit

Credit

Balance Apr. 29

J1

01,600

1,600

(b)

GENERAL JOURNAL

J1


Ref.

Debit

Credit

Apr. 2 Film Rental Expense .................................

Cash .................................................... Paid film rental.

632 101

0,800

0,800


9 Cash ........................................................... Admissions Revenue ......................... Received cash for admissions.

101 405

1,800 1,800

2-77

PROBLEM 2-5B (Continued) (b) (Continued) Date


Ref.

Debit

Credit

Apr. 10 Mortgage Payable ..................................... Accounts Payable .....................................

Cash Made payments on mortgage and

accounts payable.

275 201 101

0,2,000 1,000

0,3,000


12 Advertising Expense................................. Cash .................................................... Paid advertising expenses.

610 101

0,300 0,300

20 Film Rental Expense ................................. Accounts Payable............................... Received film and billed on account.

632 201

0,500 0,500

25 Cash ........................................................... Admissions Revenue ......................... Received cash for admissions.

101 405

5,200 5,200

29 Salaries Expense ...................................... Cash .................................................... Paid salaries expense.

726 101

1,600 1,600

30 Cash ........................................................... Accounts Receivable ................................

Concession Revenue ......................... Received cash and balance on account for concession revenue.

101 112 406

0,085 0,085

0,170

30 Prepaid Rentals......................................... Cash .................................................... Paid for film to be shown next

month.

136 101

700 700

2-78

PROBLEM 2-5B (Continued) (d)

GRAND THEATRE Trial Balance April 30, 2003

Debit

Credit

Cash .......................................................................Accounts Receivable ............................................Prepaid Rentals......................................................Land ........................................................................Buildings ................................................................Equipment ..............................................................Accounts Payable ..................................................Mortgage Payable ..................................................Fran Holley, Capital................................................Admissions Revenue.............................................Concession Revenue.............................................Advertising Expense..............................................Film Rental Expense..............................................Salaries Expense ...................................................

$ 6,685 0,085 0,700

01110,000 08,000 06,000

000 300

001,300 1,600 $34,670

$ 1,500 6,000

020,000 07,000 00170

000000 $34,670

2-79

PROBLEM 2-6B

(a)

GENERAL JOURNAL

J1


Debit

Credit

Sept. 1

Cash..........................................................

B. Rowland, Capital..........................

125,000

125,000

1 No entry.

5 Rent Expense..........................................Cash ..................................................

443,750

3,750 8 Furniture & Equipment...........................

Cash ..................................................Accounts Payable

00,75,000 25,000 50,000

10 Insurance Expense .................................Cash ..................................................

0320

320

12 Office Supplies .......................................Cash ..................................................

11,100 01,100

19 Office Supplies .......................................Accounts Payable ...........................

01,900 01,900

24 Cash......................................................... Accounts Receivable..............................

Brokerage Fees Earned ...................

015,000 25,000

040,000

26 Accounts Payable ...................................Cash ..................................................

00, 750 00,750

29 Cash.........................................................

Accounts Receivable .......................00, 6,500

00,6,500

2-80

PROBLEM 2-6B (Continued) (a) (Continued)


Debit

Credit

Sept. 30

Utility Expense ........................................

Accounts Payable............................

00, 450

0

0,450

30 Salaries Expense ..................................Cash .................................................

, 3,600 0,3,600

Note: Journal entry explanations have not been reproduced from the text in part (a). Students should recognize, however, that explanations are a critical part of the journal entry in real life.

2-81

(b) Ca

sh

Debit

Credit 125,000

15,000

6,500

3,750 25,000 320 1,100

750

3,600

111,980

Accounts Receivable

Debit

Credit 025,000

6,500 18,500

Office Supplies Debit

Credit

1,100 1,900

3,000

Furniture &

Equipment

Debit

Credit 0,75,000

Accounts

Payable

Debit Credit

00,750

50,000 1,900

450

51,600

2-82


B. Rowland, Capital Debit

Credit

125,000

Brokerage Fees Earned Debit

Credit

0,

40,000

Salaries Expense

Debit

Credit 3,600

Rent Expense Debit

Credit

3,750

Utilities

Expense

Debit

Credit 0,450

Insurance

Expense

Debit

Credit 0,320

2-83

PROBLEM 2-6B (Continued) (c)

ROWLAND BROKERAGE SERVICES Trial Balance September 30, 2003

Debit

Credit

Cash ......................................................................Accounts Receivable ...........................................Office Supplies......................................................Furniture and Equipment......................................Accounts Payable .................................................B. Rowland, Capital...............................................Brokerage Fees Earned ........................................Salaries Expense...................................................Rent Expense ........................................................Utilities Expense ...................................................Insurance Expense ...............................................

$111,980

18,500 3,000

75,000

3,600 3,750

450 320

0$216,600

$ 51,600 125,000 40,000

51

000,0600 $216,600

2-84

PROBLEM 2-6B (Continued) (d) ROWLAND BROKERAGE SERVICES

Income Statement For the Month Ended September 30, 2003

Revenues Brokerage fees earned....................................................... $40,000

Expenses Salaries expense............................................... $3,600 Rent expense..................................................... 3,750 Insurance expense............................................ 320 Utilities expense................................................ 00,450

Total expenses............................................................ 008,120 Net income ................................................................................. $31,880

ROWLAND BROKERAGE SERVICES Statement of Owner's Equity For the Month Ended September 30, 2003

Capital, September 1, 2003 ..................................... $ 0 Add: Investment..................................................... 125,000 Net income..................................................... 31,880

Capital, September 30, 2003 ................................... $156,880

2-85

PROBLEM 2-6B (Continued) (d) (Continued)

ROWLAND BROKERAGE SERVICES Balance Sheet September 30, 2003

Assets Cash............................................................................................ $111,980 Accounts receivable .................................................................. 18,500 Office supplies........................................................................... 3,000 Furniture and equipment........................................................... 0075,000

Total assets ........................................................................ $208,480 Liabilities and Owner's Equity Liabilities

Accounts payable............................................................... 0$ 51,600 Owner's Equity

B. Rowland, Capital............................................................ 0156,880


2-86

PROBLEM 2-7B

(a) As indicated in item (9), $4,800 was paid for three months in advance

on March 1. One month has passed, so 1/3 X $4,800 = $1,600 of rent has expired and become an expense. Two months are still to come, so 2/3 x $4,800 = $3,200 remains in the Prepaid Rent account as an asset.

(b) & (d)

Cash Accounts Receivable 7,000

(4) 9,000

(7) 3,000

(1) 900 (3) 2,100

(5) 8,000

(8) 4,000 (10) 1,000

12,000

(7) 9,000

(4) 9,000

3,000 12,000 Repair Parts Inventory Prepaid Rent

15,000 (2) 3,200

(6) 3,000

3,200 (9) 1,600

15,200 1,600

Shop Equipment Accounts Payable 21,000

(5) 8,000

21,000 (2) 3,200

16,200

Gary Hobson, Capital Gary Hobson, Drawings 37,200 (10) 1,000

2-87

PROBLEM 2-7B (Continued) (b) & (d) (Continued)

Repair Services Revenue Advertising Expense (7) 12,000 (1) 900

Miscellaneous Expense Repair Parts Expense (3) 2,100 (6) 3,000

Rent Expense Wages Expense (9) 1,600 (8) 4,000

2-88


GENERAL JOURNAL


Debit

Credit

1. Advertising Expense......................................

Cash.........................................................

900

900 2.

Repair Parts Inventory ...................................

Accounts Payable ...................................

3,200

3,200 3.

Miscellaneous Expense .................................

Cash.........................................................

0 2,100

0

2,100 4.

Cash ................................................................

Accounts Receivable..............................

0 9,000

0

9,000 5.

Accounts Payable...........................................

Cash.........................................................

0 8,000

0

8,000 6.

Repair Parts Expense ....................................

Repair Parts Inventory............................

0 3,000

0

3,000 7.

Cash ................................................................ Accounts Receivable .....................................

Repair Services Revenue.......................

3,000 9,000

0 12,000

8.

Wages Expense..............................................

Cash

0 4,000

0

4,000 9.

Rent Expense .................................................

Prepaid Rent ...........................................

0 1,600

0

1,600 10.

Gary Hobson, Drawings.................................

Cash.........................................................

0 1,000

0

1,000 Note: Journal entry explanations have not been reproduced from the text in this part of the problem. Students should recognize, however, that explanations are a critical part of the journal entry in real life.

2-89

PROBLEM 2-7B (Continued) (e) SOFT-Q REPAIR SERVICE Trial Balance April 30, 2003

Debit

Credit Cash ...............................................................................Accounts Receivable ....................................................Repair Parts Inventory ..................................................Prepaid Rent ..................................................................Shop Equipment............................................................Accounts Payable .........................................................Gary Hobson, Capital ....................................................Gary Hobson, Drawings................................................Repair Services Revenue .............................................Advertising Expense.....................................................Miscellaneous Expense................................................Repair Parts Expense ...................................................Rent Expense ................................................................Wages Expense.............................................................

$03,000 012,000 015,200 001,600

0021,000

1,000

900 2,100 3,000 1,600

004,000 $65,400

$16,200 037,200

0 12,000

000000 $65,400

(f) Cash $ 3,000 Accounts Receivable 12,000 Repair Parts Inventory 15,200 Prepaid Rent 1,600 Shop Equipment 21,000 Total Assets $52,800 (g) Repair Services Revenue $12,000 Advertising Expense (900) Miscellaneous Expense (2,100) Repair Parts Expense (3,000) Rent Expense (1,600) Wages Expense (4,000) Net Income $ 400

2-90

PROBLEM 2-8B

(a) SOFT-Q REPAIR SERVICE

Income Statement For the Month Ended April 30, 2003

Revenues Repair services revenue.................................................... $12,000

Expenses

Wages expense ................................................. $4,000 Rent expense..................................................... 1,600 Repair parts expense........................................ 3,000 Miscellaneous expense .................................... 00,2,100 Advertising expense ......................................... 00, 900

Total expenses............................................................ 011,600 Net income ................................................................................. $ 400

(b)

SOFT-Q REPAIR SERVICE Statement of Owner's Equity For the Month Ended April 30, 2003

Gary Hobson, Capital, April 1, 2003.......................................... $37,200 Add: Net income ...................................................................... 400 37,600 Less: Drawings ......................................................................... 1,000

Gary Hobson, Capital, April 30, 2003........................................ $36,600

2-91


SOFT-Q REPAIR SERVICE Balance Sheet April 30, 2003

Assets Cash............................................................................................ $ 3,000 Accounts receivable .................................................................. 12,000 Repair parts inventory............................................................... 15,200 Prepaid rent................................................................................ 001,600 Shop equipment......................................................................... 0421,000

Total assets ........................................................................ $52,800


Accounts payable............................................................... $16,200

Owner's Equity Gary Hobson, Capital......................................................... 0036,600


2-92

PROBLEM 2-9B

(a)

HUDSON’S BAY COMPANY Trial Balance

January 31, 2000 (thousands)

Debit

Credit

Cash in stores $ 8,480 Short-term deposits 41,792 Credit card receivables 483,940 Other accounts receivable 127,522 Merchandise inventories 1,598,695 Prepaid expenses 44,606 Income taxes recoverable 25,445 Investments 49,264 Long-term receivables 29,348 Capital assets 1,447,200 Other assets 378,970 Trade accounts payable $ 384,804 Short-term borrowings 29,597 Other accounts payable and accrued expenses

584,644

Long-term debt due within one year 151,695 Long-term debt 700,184 Future income taxes payable 54,368 Other long-term liabilities 64,445 Shareholders’ equity 2,169,490 Sales and revenue 7,295,751 Operating expenses 7,024,207 Interest expense 79,140 Income tax expense 96,369 0000000000 Totals $11,434,978 $11,434,978

2-93


HUDSON’S BAY COMPANY Income Statement

For the Year Ended January 31, 2000 (thousands)

Revenues Sales and revenue $7,295,751 Expenses Operating expenses $7,024,207 Interest expense 79,140 Income tax expense 96,369 7,199,716 Net income $ 96,035

2-94


HUDSON’S BAY COMPANY Balance Sheet

January 31, 2000 (thousands)

Assets Current assets Cash in stores $ 8,480 Short-term deposits 41,792 Credit card receivables 483,940 Other accounts receivable 127,522 Merchandise inventories 1,598,695 Prepaid expenses 44,606 Income taxes recoverable 25,445 Total current assets 2,330,480 Investments 49,264 Long-term receivables 29,348 Capital assets 1,447,200 Other assets 378,970 Total assets $4,235,262

Liabilities and Shareholders’ Equity

Current liabilities Short-term borrowings $ 29,597 Trade accounts payable 384,804 Other accounts payable and accrued expenses 584,644 Long-term debt due within one year 151,695 Total current liabilities 1,150,740 Long-term debt 700,184 Future income taxes payable 54,368 Other long-term liabilities 64,445 Total liabilities 1,969,737 Shareholders’ equity ($2,169,490 + $96,035) 2,265,525 Total liabilities and shareholders’ equity $4,235,262

2-95

PROBLEM 2-10B

(a)

1. Understated by $10,000 ($5,000 to reverse the incorrect entry and $5,000 for the correct entry)

2. Correctly stated 3. Understated 4. Correct 5. $360,000 ($350,000 debit column + $5,000 debit to reverse credit

to Accounts Receivable + $5,000 debit to record Accounts Receivable)

(b) 1. Cheque 3. Property tax bill 4. Sales slip 7. Cash register tape

2-96

PROBLEM 2-11B

(a) Errors in the trial balance are:

1. The trial balance should be dated at a specific point in time, not for “the year ended”.

2. Machinery and equipment should be a debit. 3. Accounts Payable should be a credit. 4. Capital should be a credit. 5. Note Payable should be a credit. 6. Accounts Receivable should be a debit. 7. They are not arranged in the proper sequence: 1) assets; 2)

liabilities; 3) owner’s equity (capital and drawings); and 4) income statement accounts (revenues and expenses).

8. The totals should be equal. (b) CHRISTOPHER’S SMALL ENGINE REPAIRS Trial Balance December 31, 2002

Debit

Credit

Cash......................................................................Accounts Receivable ...........................................Prepaid Rent.........................................................Prepaid Insurance................................................Machinery and Equipment ..................................Accounts Payable ................................................Note Payable ........................................................Capital...................................................................Drawings ..............................................................Service Revenue ..................................................Miscellaneous Expense.......................................Wages Expense....................................................

$ 29 40 5 25

91

30

47 71 $338

$ 41 50 45

202

0000 $338

2-97

PROBLEM 2-12B

SHAWNEE COMPANY Trial Balance May 31, 2003

Debit

Credit

Cash ($5,850 + $520 + $25 - $250) ...............................Accounts Receivable ($2,570 – $210)..........................Prepaid Insurance ($700 +$100) ..................................Equipment ($8,000 - $520)............................................Supplies ($520) .............................................................Accounts Payable ($4,600 + $100 + $520 - $210)........Property Taxes Payable ($560) ....................................M. Flynn, Capital ($11,700 + $700) ...............................M. Flynn, Drawings ($700)............................................Service Revenue ($6,960).............................................Salaries Expense ($4,200 + $200) ................................Advertising Expense ($1,100 - $25 + $250) .................Property Tax Expense ($1,100 + $100) ........................

$06,145 002,360 000,800 007,480 520

700

044,400 1,325

1,200 $24,930

$05,010 00 560 012,400

6, 6,960

000000 $24,930

2-98

BYP 2-1 FINANCIAL REPORTING PROBLEM

(a)

Account

(1)

Increase Side

(1)

Decrease Side

(2)

Normal Balance

Accounts Payable and

Accrued Liabilities Accounts Receivable Capital Assets Franchise Revenue Income Taxes Expense Interest and Other

Investment Expense Prepaid Expenses and

Sundry Assets

Credit Debit Debit Credit Debit Debit Debit

Debit Credit Credit Debit Credit Credit Credit

Credit Debit Debit Credit Debit Debit Debit

(b) 1. Cash is increased. 2. Cash is decreased and/or long-term debt is increased. 3. Cash is increased (or Accounts Receivable). 4. Income Tax Payable is increased or Cash is decreased. 5. Cash is decreased or Interest Payable increased. 6. Cash is decreased.

2-99

BYP 2-2 INTERPRETING FINANCIAL STATEMENTS

(a)

UNITED GRAIN GROWERS LIMITED Trial Balance July 31, 2000

(in thousands) Debit Credit Cash ...................................................................... $ 13,340 Accounts receivable and prepaid expenses ...... 128,126 Inventories ............................................................ 106,604 Capital assets ....................................................... 307,202 Other assets ......................................................... 44,159 Bank and other loans........................................... $ 66,352 Accounts payable and accrued expenses.......... 91,440 Dividends payable ................................................ 5,315 Long-term debt ..................................................... 210,051 Shareholders’ (owners’) equity ........................... 224,090 Sales and revenue from services........................ 1,779,789 Cost of goods sold expense................................ 1,576,718 Operating, general and administrative expense 154,250 Depreciation and amortization expense............. 26,380 Interest expense................................................... 17,350 Other expense ...................................................... 595 Income tax expense ............................................. 2,313 000000000 Totals............................................................. $2,377,037 $2,377,037

2-100

BYP 2-2 (Continued) (b)

Assets = Liabilities + Owners’ Equity Cash $13,340 + Accounts Receivable and Prepaid Expenses $128,126 + Inventories $106,604 + Capital Assets $307,202 + Other Assets $44,159

Bank and Other Loans $66,352 + Accounts Payable and Accrued Expenses $91,440 + Dividends Payable $5,315 + Long-term Debt $210,051

Shareholders’ (owners’) Equity $224,090 + Sales and Revenue from Services $1,779,789 - Cost of Goods Sold Expense $1,576,718 - Operating, General and Administrative Expense $154,250 - Depreciation and Amortization Expense $26,380 - Interest Expense $17,350 - Other Expenses $595 - Income Tax Expense $2,313

$599,431 = $373,158 + $226,273

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BYP 2-3 ACCOUNTING ON THE WEB Due to the frequency of change with regard to information available on the world wide web, the Accounting on the Web cases are updated as required. Their suggested solutions are also updated whenever necessary, and can be found on-line in the Instructor Resources section of our home page [www.wiley.com/canada/weygandt2].

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BYP 2-4 COLLABORATIVE LEARNING ACTIVITY

(a) May 1 Correct.

5 Cash ................................................................ 250 Lesson Fees Earned ............................... 250

7 Cash ................................................................ 1,500 Unearned Boarding Fees........................ 1,500

9 Hay and Feed Supplies .................................. 1,700 Accounts Payable ................................... 1,700

14 Office Equipment............................................ 800 Cash......................................................... 800

15 A. Boudreau, Drawings .................................. 400 Cash......................................................... 400

20 Cash ................................................................ 154 Riding Fees Earned ................................ 154

31 Correct.

31 Hay and Feed Expense................................... 1,000 Hay and Feed Supplies........................... 1,000

(b) The errors in the entries of May 14, 20, and May 31 second entry would

prevent the trial balance from balancing. (c) Net income as reported................................................. $4,500

Add: 5/9, Hay and feed expense ................................. $1,700 5/15, Salaries expense (A. Boudreau, Drawings) ......................................................... 00,400 02,100

6,600 Less: 5/7, Boarding fees unearned.............................. 00,131 1,500 Correct net income........................................................ $5,100

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BYP 2-4 (Continued) (d) Cash as reported ........................................................ $12,475

Add: 5/9, Purchase on account............................... $1,700 5/20, Transposition error................................. 9 5/31, Hay and feed used .................................. 00,0100 001,809

$14,284

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BYP 2-5 COMMUNICATION ACTIVITY

MEMORANDUM

To: Instructor From: Student Date: Subject: Steps in the Recording Process As requested, following is an explanation and illustration of the steps in the recording process as they relate to the March 15 transactions for Merry Maid Company: (1) In the first transaction, bills totaling $6,000 were sent to customers for

services rendered. Therefore, the asset Accounts Receivable is increased $6,000 and the revenue Cleaning Services Revenue is increased $6,000. Debits increase assets and credits increase revenues, so the journal entry is:

Accounts Receivable...................................................... 6,000

Cleaning Services Revenue ................................... 6,000 Billed customer for services rendered.

The $6,000 amount is then posted to the debit side of the general ledger account Accounts Receivable and to the credit side of the general ledger account Cleaning Services Revenue.

(2) In the second transaction, $2,000 was paid in salaries to employees.

Therefore, the expense Salaries Expense is increased $2,000 and the asset Cash is decreased $2,000. Debits increase expenses and credits decrease assets, so the journal entry is:

Salaries Expense ............................................................ 2,000

Cash......................................................................... 2,000 Paid salaries.

The $2,000 amount is then posted to the debit side of the general ledger account Salaries Expense and to the credit side of the general ledger account Cash.

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BYP 2-5 (Continued) I trust that the foregoing is satisfactory. Please let me know if anything further is required.

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BYP 2-6 ETHICS CASE

(a) The stakeholders in this situation are:

Vu Hung, assistant chief accountant. Users of the company's financial statements (internal and external). Her supervisor (the chief accountant, who evaluates her).

(b) By adding $1,000 to the Equipment account, that account total is

intentionally misstated. By not locating the error causing the imbalance, some other account(s) may also be misstated. If the amount of $1,000 is determined to be immaterial, and the intent is not to commit fraud (cover up an embezzlement or other misappropriation of assets), Vu’s action might not be considered unethical in the preparation of interim financial statements. However, she should disclose what she has done. Otherwise, if Vu is violating a company accounting policy by her action, then she is acting unethically.

(c) Vu's alternatives are:

1. Miss the deadline but find the error causing the imbalance.

2. Tell her supervisor of the imbalance and suffer the consequences.

3. Do as she did and locate the error later, making the adjustment (if any) in the next quarter.

Documents

CHAPTER 2mathiabat4m.weebly.com/uploads/2/3/0/5/23057532/ch0… · · 2014-02-10Problems Set A Problems Set B 1. Explain what an account is and how it helps in the recording process