Chapter 2

Analyzing and Recording Transactions

1.     a.  Common asset accounts: cash, accounts receivable, notes receivable, prepaid expenses (rent, insurance, etc.), office supplies, store supplies, equipment, building, and land.
        b. Common liability accounts: accounts payable, notes payable, and unearned revenue, wages payable, and taxes payable.
        c. Common equity accounts: owner, capital and owner, withdrawals.
2.     A note payable is formal promise, usually denoted by signing a promissory note to pay a future amount. A note payable can be short-term or long-term, depending on when it is due. An account payable also references an amount owed to an entity. An account payable can be oral or implied, and often arises from the purchase of inventory, supplies, or services.  An account payable is usually short-term.
3.     There are several steps in processing transactions: (1) Identify and analyze the transaction or event, including the source document(s), (2) apply double-entry accounting, (3) record the transaction or event in a journal, and (4) post the journal entry to the ledger.  These steps would be followed by preparation of a trial balance and then with the reporting of financial statements.
4.     A general journal can be used to record any business transaction or event.
5.     Debited accounts are commonly recorded first. The credited accounts are commonly indented.
6.     Expense accounts have debit balances because they are decreases to equity (and equity has a credit balance).
7.     A transaction is first recorded in a journal to create a complete record of the transaction in one place.  (The journal is often referred to as the book of original entry.)  This process reduces the likelihood of errors in ledger accounts.
8.     The recordkeeper prepares a trial balance to summarize the contents of the ledger and to verify the equality of total debits and total credits.  The trial balance also serves as a helpful internal document for preparing financial statements and other reports.

  9.   The error should be corrected with a separate (subsequent) correcting entry. The entry’s explanation should describe why the correction is necessary.
10.   The four financial statements are: income statement, balance sheet, statement of owner’s equity, and statement of cash flows.
11.   The income statement lists the types and amounts of revenues and expenses, and reports whether the business earned a net income (also called profit or earnings) or a net loss. 
12.   An income statement user must know what time period is covered to judge whether the company’s performance is satisfactory.  For example, a statement user would not be able to assess whether the amounts of revenue and net income are satisfactory without knowing whether they were earned over a week, a month, a quarter, or a year.
13.   The balance sheet provides information that helps users understand a company’s financial position at a point in time.  Accordingly, it is often called the statement of financial position.  The balance sheet lists the types and dollar amounts of assets, liabilities, and equity of the business. 
14.   (a) Assets are probable future economic benefits obtained or controlled by a specific entity as a result of past transactions or events. (b) Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.  (c) Equity is the residual interest in the assets of an entity that remains after deducting its liabilities.  (d) Net assets refer to equity.
15.   The balance sheet is sometimes referred to as the statement of financial position.
16.   Debit balance accounts on the Research In Motion balance sheet include: Cash and cash equivalents; Short-term investments; Accounts receivable; Other receivables; Inventories; Other current assets; Deferred income tax asset; Long-term investments; Property, plant and equipment; Intangible assets; Goodwil; Treasury stock
        Credit balance accounts on the Research In Motion balance sheet include: Accounts payable; Accrued liabilities; Income taxes payable; Deferred revenue; Deferred income tax liability; Common stock; Additional paid-in capital; Retained earnings; Accumulated other comprehensive income.
17.   The asset account with receivable in its account title is: Accounts receivable.  The liability with payable in its account title is: Accounts payable.
18.   Palm’s revenue account is titled “Revenues.”
19.  Nokia calls the asset referring to its merchandise available for sale: “Inventories.”

Quick Study 2-1 (5 minutes)

a.    B    Balance sheet
b.    B    Balance sheet
c.    I     Income statement
d.    B    Balance sheet
e.    B    Balance sheet
f.     I     Income statement
g.    B    Balance sheet
h.    E    Statement of owner’s equity
i.     B    Balance sheet

Quick Study 2-2 (10 minutes)

The likely source documents include:
a.   Bank statement
b.   Sales ticket
e.   Telephone bill
f.    Invoice from supplier

Quick Study 2-3 (10 minutes)

 

a.	Debit	e.	Credit	i.	Credit
b.	Debit	f.	Debit	j.	Credit
c.	Credit	g.	Credit
d.	Debit	h.	Credit

Quick Study 2-4 (10 minutes)

a.	Debit	d.	Debit	g.	Debit
b.	Debit	e.	Debit	h.	Credit
c.	Credit	f.	Debit	i.	Credit

Quick Study 2-5 (10 minutes)

a.	Credit	e.	Credit	i.	Debit
b.	Debit	f.	Debit	j.	Credit
c.	Debit	g.	Credit	k.	Debit
d.	Credit	h.	Credit	l.	Debit

Quick Study 2-6 (15 minutes)

Jan. 15  Cash.......................................................................           75,000
             Equipment .............................................................           30,000
                      K. Anderson, Capital.....................................                        105,000
                    Owner invests cash and equipment.

       21  Office Supplies......................................................         650
                      Accounts Payable.........................................                        650
                     Purchased office supplies on credit.

       25  Cash.......................................................................            8,700
                      Remodeling Services Revenue....................                            8,700
                    Received cash for remodeling services.

       30  Cash.......................................................................            4,000
                      Unearned Remodeling Services Revenue...                            4,000
                    Received cash in advance for remodeling services.

Quick Study 2-7 (10 minutes)

The correct answer is f.

Explanation: If a $2,250 debit to Utilities Expense is incorrectly posted as a credit, the effect is to understate the Utilities Expense debit balance by $4,500.  This causes the Debit column total on the trial balance to be $4,500 less than the Credit column total.      
Quick Study 2-8 (10 minutes)

a.	B	e.	I	i.	B
b.	I	f.	I	j.	I
c.	E	g.	I	k.	B
d.	B	h.	B	l.	B

Quick Study 2-9 (10 minutes)

a.  Accounting under IFRS follows the same debit and credit system as under US GAAP.
b.  The same four basic financial statements are prepared under IFRS and US GAAP: income statement, balance sheet, statement of changes in equity, and statement of cash flows. Although some variations from these titles exist within both systems, the four basic statements are present.
c.  Accounting reports under both IFRS and US GAAP are likely different depending on the extent of accounting controls and enforcement. For example, the absence of controls and enforcement increase the possibility of fraudulent transactions and misleading financial statements. Without controls and enforcement, all accounting systems run the risk of abuse and manipulation.

 

Exercise 2-1 (10 minutes)

   2      a.  Record relevant transactions in a journal.
   4      b.  Prepare and analyze the trial balance.
   1      c.  Analyze each transaction from source documents.
   3      d.  Post journal information to ledger accounts.

 

Exercise 2-2 (10 minutes)

a.	5	d.	2
b.	4	e.	1
c.	3

 

Exercise 2-3 (5 minutes)

a.

1

b.

2

Exercise 2-4 (15 minutes)

		Type of	Normal	Increase
	Account	Account	Balance	(Dr. or Cr.)
a.	Fees Earned........................................	revenue	credit	credit
b.	Equipment..................................	asset	debit	debit
c.	Notes Payable......................................	liability	credit	credit
d.	Owner Capital........................................	equity	credit	credit
e.	Cash...........................................	asset	debit	debit
f.	Legal Expense.....................................	expense	debit	debit
g.	Prepaid Insurance...................................	asset	debit	debit
h.	Land...........................................	asset	debit	debit
i.	Accounts Receivable..................................	asset	debit	debit
j.	Owner Withdrawals...............................	equity	debit	debit
k.	License Fee Revenue.....................................	revenue	credit	credit
l.	Unearned Revenue.....................................	liability	credit	credit

 

 

Exercise 2-5 (15 minutes)
Of the items listed, the following effects should be included:
a.    $34,500 increase in a liability account.
b.   $7,500 increase in the Cash account.
e.    $48,000 increase in a revenue account.

 

Explanation:  This transaction created a $48,000 revenue, which equals the value of the service provided. Payment is received in the form of a $7,500 increase in cash, a $75,000 increase in the computer equipment, and a $34,500 increase in the company’s liabilities.  The net value received by the company is $48,000.

Exercise 2-6 (15 minutes)

1.	Beginning cash balance (debit)...............................................	$           ?
	Cash received in October (debits)...........................................	97,500
	Cash disbursed in October (credits)......................................	(101,250)
	Ending cash balance (debit).....................................................	$  16,800
	Beginning cash balance (debit)...............................................	$  20,550
2.	Beginning accounts receivable (debit)..................................	$  97,500
	Sales on account in October (debits).....................................	?
	Collections on account in October (credits)........................	(88,950)
	Ending accounts receivable (debit)........................................	$100,500
	Sales on account in October (debits).....................................	$  91,950
3.	Beginning accounts payable (credit)......................................	$147,000
	Purchases on account in October (credits)..........................	270,000
	Payments on accounts in October (debits)..........................	(           ?)
	Ending accounts payable (credit)............................................	$136,500
	Payments on accounts in October (debits)..........................	$280,500

 

Exercise 2-7 (25 minutes)

Aug. 1Cash................................................................            7,500
          Photography Equipment................................           32,500
                  K. Madison, Capital..................................                               40,000
                   Owner investment in business.
        2Prepaid Insurance..........................................            3,000
                  Cash..........................................................                                 3,000
                Acquired 2 years of insurance coverage.
        5  Office Supplies...............................................            1,400
                  Cash..........................................................                                 1,400
                   Purchased office supplies.
      20Cash................................................................            2,650
                  Photography Fees Earned.......................                                 2,650
                   Collected photography fees.
      31  Utilities Expense............................................         875
                  Cash..........................................................                             875
                   Paid for August utilities.

Exercise 2-8 (30 minutes)

Cash						Photography Equipment
Aug.  1	7,500		Aug.   2	3,000		Aug.  1	32,500
20	2,650		5	1,400
			31	875		K. Madison, Capital
Balance	4,875							Aug.  1	40,000
Office Supplies						Photography Fees Earned
Aug. 5	1,400							Aug. 20	2,650
Prepaid Insurance						Utilities Expense
Aug. 2	3,000					Aug. 31	875

POSE FOR PICS
Trial Balance
August 31
	Debit		Credit
Cash..................................................	$  4,875
Office supplies...............................	1,400
Prepaid insurance.........................	3,000
Photography equipment..............	32,500
K. Madison, Capital....................................................			$40,000
Photography fees earned...........			2,650
Utilities expense............................	875		______
Totals................................................	$42,650		$42,650

Exercise 2-9 (30 minutes)

a.    Cash........................................................................            12,750
              M. Dexter, Capital............................................                           12,750
           Owner invested in the business.

b.    Office Supplies.......................................................          375
              Cash.................................................................                         375
           Purchased supplies with cash.

c.    Office Equipment....................................................              7,050
              Accounts Payable...........................................                             7,050
           Purchased office equipment on credit.

d.    Cash........................................................................              1,500
              Fees Earned.....................................................                             1,500
           Received cash from customer for services.

e.    Accounts Payable...................................................              7,050
              Cash.................................................................                             7,050
           Made payment toward account payable.

f.     Accounts Receivable..............................................              2,700
              Fees Earned.....................................................                             2,700
           Billed customer for services provided.

g.    Rent Expense..........................................................          525
              Cash.................................................................                         525
           Paid for this period’s rental charge.

h.    Cash........................................................................              1,125
              Accounts Receivable......................................                             1,125
           Received cash toward an account receivable.

i.     M. Dexter, Withdrawals...........................................              1,000
              Cash.................................................................                             1,000
           Owner withdrew cash for personal use.

Exercise 2-9 (concluded)

Cash								Accounts Payable
(a)	12,750		(b)		375			(e)		7,050		(c)		7,050
(d)	1,500		(e)		7,050							Balance		0
(h)	1,125		(g)		525
			(i)		1,000
Balance	6,425							M. Dexter, Capital
												(a)		12,750
												Balance		12,750
Accounts Receivable								M. Dexter, Withdrawals
(f)	2,700		(h)	1,125				(i)		1,000
Balance	1,575							Balance		1,000
Office Supplies								Fees Earned
(b)	375										(d)		1,500
Balance	375										(f)		2,700
											Balance		4,200
Office Equipment								Rent Expense
(c)	7,050							(g)	525
Balance	7,050							Balance	525

 

Exercise 2-10 (15 minutes)

DEXTER COMPANY
Trial Balance
May 31, 2011
	Debit	Credit
Cash.................................................	$  6,425
Accounts receivable....................	1,575
Office supplies..............................	375
Office equipment..........................	7,050
Accounts payable..........................		$         0
M. Dexter, Capital...........................		12,750
M. Dexter, Withdrawals...............	1,000
Fees earned.....................................		4,200
Rent expense.................................	525	_______
Totals...............................................	$16,950	$16,950

Exercise 2-11 (20 minutes)

Transactions that created revenues:
b.     Accounts Receivable................................                  1,350
                 Services Revenue................................                                       1,350
                  Provided services on credit.
c.      Cash...........................................................                  1,575
                 Services Revenue................................                                       1,575
                  Provided services for cash.

[Note: Revenues are inflows of assets (or decreases in liabilities) received in exchange for goods or services provided to customers.]

 

Transactions that did not create revenues along with the reasons are:
a.    This transaction brought in cash, but this is an owner investment.
d.   This transaction brought in cash, but it created a liability because the services have not yet been provided to the client.
e.    This transaction changed the form of the asset from accounts receivable to cash.  Total assets were not increased (revenue was recognized when the receivable was originally recorded).
f.    This transaction brought in cash and increased assets, but it also increased a liability by the same amount (no goods or services were provided to generate revenue).

Exercise 2-12  (20 minutes)

Transactions that created expenses:
b.     Salaries Expense.......................................                  1,125
                 Cash.....................................................                                       1,125
                 Paid salary of receptionist.
d.     Utilities Expense........................................               930
                 Cash.....................................................                                   930
                 Paid utilities for the office.

[Note: Expenses are outflows or using up of assets (or the creation of liabilities) that occur in the process of providing goods or services to customers.]

 

Transactions a, c, and e are not expenses for the following reasons:
a.    This transaction decreased assets in settlement of a previously existing liability, and equity did not change.  Cash payment does not mean the same as using up of assets (expense was recorded when the supplies were used).
c.    This transaction involves the purchase of an asset.  The form of the company’s assets changed, but total assets did not change, and the equity did not decrease.
e.    This transaction is a distribution of cash to the owner.  Even though equity decreased, the decrease did not occur in the process of providing goods or services to customers.

Exercise 2-13 (15 minutes)

Revenues:
     Consulting fees earned.......................                              $17,000
Expenses:
     Salaries expense.................................             $8,000
     Rent expense.......................................               4,550
     Telephone expense.............................           560
     Miscellaneous expenses.....................           280
     Total expenses....................................                               13,390

Exercise 2-14 (15 minutes)

D. Lopez, Capital, July 31.........................                              $  4,000
Add:   Owner investment.........................           $80,000
           Net income (from Exercise 2-13).....               3,610         83,610
                                                                                                  87,610
Less:  Owner withdrawals........................                                 (3,000)

Exercise 2-15 (15 minutes)

* Amount from Exercise 2-14.

Exercise 2-16 (20 minutes)

a.		Assets	-	Liabilities	=	Equity
	Beginning of the year......	$   70,000	-	$30,000	=	$40,000
	End of the year.................	115,000	-	46,000	=	69,000
	Net increase in equity......					$29,000
	Net income.......................					$29,000

Since there were no additional investments or withdrawals, the net income for the year equals the net increase in owner's equity.

b.       Net increase in equity.....................................	$29,000
Add withdrawals (12 months @ $1,250).........	15,000
Net income......................................................	$44,000

The withdrawals were added back because they reduced equity without reducing income.

c.       Net increase in equity.....................................	$ 29,000
Less additional investment.............................	(45,000)
Net loss............................................................	$(16,000)

The investment was deducted because it increased equity without creating income.

d.       Net increase in equity.....................................	$29,000
Add withdrawals (12 months @ $1,250).........	15,000
Gross increase in equity.................................	$44,000
Less additional investment.............................	(25,000)
Net income......................................................	$19,000

 

The withdrawals were added back because they reduced equity without reducing income and the investments were deducted because they increased equity without creating income.

Exercise 2-17 (15 minutes)

	(a)		(b)		(c)		(d)
Answers	$(49,500)		$72,000		$73,000		$(45,000)
Computations:
Equity, Dec. 31, 2010......................	$           0		$         0		$         0		$           0
Owner's investments..........	120,000		72,000		87,000		210,000
Owner's withdrawals..........	(49,500)		(54,000)		(10,000)		(55,000)
Net income (loss).	31,500		81,000		(4,000)		(45,000)
Equity, Dec. 31, 2011......................	$102,000		$99,000		$73,000		$110,000

 

 

Exercise 2-18 (25 minutes)

a.    D. Joy created a new business and invested $7,000 cash, $5,600 of equipment, and $11,000 in automobile(s).
b.   Paid $3,600 cash in advance for insurance coverage.
c.    Paid $600 cash for office supplies.
d.   Purchased $200 of office supplies and $9,400 of equipment on credit.
e.    Received $2,500 cash for delivery services provided.
f.    Paid $2,400 cash towards accounts payable.
g.   Paid $700 cash for gas and oil.

Exercise 2-19 (30 minutes)

a.    Cash........................................................................              7,000
       Equipment...............................................................              5,600
       Automobiles............................................................            11,000
              D. Joy, Capital.................................................                           23,600
           Owner invested in the business.

b.    Prepaid Insurance...................................................              3,600
              Cash.................................................................                             3,600
           Purchased insurance coverage.

 

c.    Office Supplies.......................................................          600
              Cash.................................................................                         600
           Purchased supplies with cash.

d.    Office Supplies.......................................................          200
       Equipment...............................................................              9,400
              Accounts Payable...........................................                             9,600
           Purchased supplies and equipment on credit.

e.    Cash........................................................................              2,500
              Delivery Services Revenue.............................                             2,500
           Received cash from customer.

f.     Accounts Payable...................................................              2,400
              Cash.................................................................                             2,400
           Made payment on payables.

g.    Gas and Oil Expense..............................................          700
              Cash.................................................................                         700
           Paid for gas and oil.

Exercise 2-20 (20 minutes)

	Description	(1) Difference between Debit and Credit Columns	(2) Column with the Larger Total	(3) Identify account(s) incorrectly stated	(4) Amount that account(s) is overstated or understated
a.	$2,400 debit to Rent Expense is posted as a $1,590 debit.	$810	credit	Rent Expense	Rent Expense is understated by $810
b.	$4,050 credit to Cash is posted twice as two credits to Cash.	$4,050	credit	Cash	Cash is understated by $4,050
c.	$9,900 debit to the Withdrawals account is debited to Owner's Capital.	$0	––	Owner’s, Capital Owner’s, Withdrawals	Owner’s Capital account is understated  by $9,900 Owner’s Withdrawals is understated by $9,900
d.	$2,250 debit to Prepaid Insurance is posted as a debit to Insurance Expense.	$0	––	Prepaid Insurance Insurance Expense	Prepaid Insurance is understated by $2,250 and Insurance Expense is overstated by $2,250
e.	$42,000 debit to Machinery is posted as a debit to Accounts Payable.	$0	––	Machinery Accounts Payable	Machinery is understated by $42,000 and Accounts Payable is understated by $42,000
f.	$4,950 credit to Services Revenue is posted as a $495 credit.	$4,455	debit	Services Revenue	Services Revenue is understated by $4,455
g.	$1,440 debit to Store Supplies is not posted.	$1,440	credit	Store Supplies	Store Supplies is understated by $1,440

Exercise 2-21 (15 minutes)
a.    The debit column is correctly stated because the erroneous debit (to Accounts Payable) is deducted from an account with a (larger assumed) credit balance.
b.   The credit column is understated by $33,900 because of the error in debiting the Accounts Payable account — it should have been credited.
c.    The Office Equipment account is correctly stated.
d.   The Accounts Payable account is understated by $33,900.  It should have been increased (credited) by $16,950 but the posting error decreased (debited) it by $16,950.
e.    The credit column is $33,900 less than the debit column, or $326,100 in total ($360,000 - $33,900).

 

Exercise 2-22  (15 minutes)

a.	Co.	Liabilities	/	Assets	=	Debt Ratio		Net Income	/	Average Assets	=	ROA
	1	$56,000		$147,000		0.38		$21,000		$200,000		0.105
	2	51,500		104,500		0.49		12,000		70,000		0.171
	3	12,000		90,500		0.13		20,000		100,000		0.200
	4	31,000		92,000		0.34		7,500		40,000		0.188
	5	47,000		64,000		0.73		3,800		40,000		0.095
	6	26,500		32,500		0.82		660		50,000		0.013

 

b.  Company 6 relies most heavily on creditor (non-owner) financing with 82% of its assets financed by liabilities.
c.  Company 3 relies least on creditor (non-owner) financing at only 13%.  This implies that 87% of the assets are financed by equity (owners).
d.  The companies with the highest debt ratios indicate the greatest risk.  The two companies with the highest debt ratios are 5 and 6.
e.  Company 3 yields the highest return on assets at 20%; followed by Company 4 at 18.8%.
f.   As an investor, one prefers high returns at low risk.  Company 3 is the preferred investment since it yields the lowest risk (debt ratio is 13%) and highest return on assets (20%).

Exercise 2-23 (10 minutes)

 

Assets                                                    Equity and liabilities
Noncurrent assets.......   €  6,984          Total equity.........................      €  5,354
Current assets.............     17,663         Noncurrent liabilities..........        10,943
                                                               Current liabilities................         8,350

 

Problem 2-1A (90 minutes)
Part 1
April 1    Cash........................................................ 101         100,000      
              Office Equipment.................................... 163           24,000      
                      G. Bauer, Capital.............................. 301                            124,000
                     Owner invested cash and equipment.

         2    Prepaid Rent........................................... 131             7,200      
                      Cash................................................. 101                                7,200
                     Prepaid twelve months’ rent.

         3    Office Equipment.................................... 163           12,000
              Office Supplies........................................ 124             2,400
                      Accounts Payable............................ 201                              14,400
                     Purchased equip. & supplies on credit.

         6    Cash........................................................ 101             2,000
                      Services Revenue............................ 403                                2,000
                     Received cash for services.

         9    Accounts Receivable.............................. 106             8,000
                      Services Revenue............................ 403                                8,000
                     Billed client for completed work.

       13    Accounts Payable................................... 201           14,400
                      Cash................................................. 101                              14,400
                     Paid balance due on account.

       19    Prepaid Insurance................................... 128             6,000      
                      Cash................................................. 101                                6,000
                     Paid premium for insurance.

       22    Cash........................................................ 101             6,400      
                      Accounts Receivable....................... 106                                6,400
                     Collected part of amount owed by client.

       25    Accounts Receivable.............................. 106             2,640
                      Services Revenue............................ 403                                2,640
                     Billed client for completed work.

       28    G. Bauer, Withdrawals............................ 302             6,200
                      Cash................................................. 101                                6,200
                     Owner withdrew cash.

       29    Office Supplies........................................ 124         800
                      Accounts Payable............................ 201                            800
                     Purchased supplies on account.

       30    Utilities Expense..................................... 690         700   
                      Cash................................................. 101                            700
                     Paid monthly utility bill.

Problem 2-1A (Continued)
Part 2

Cash						Acct. No. 101
Date		Explanation	PR	Debit	Credit		Balance
April	1		G1	100,000			100,000
	2		G1		7,200		92,800
	6		G1	2,000			94,800
	13		G1		14,400		80,400
	19		G1		6,000		74,400
	22		G1	6,400			80,800
	28		G1		6,200		74,600
	30		G1		700		73,900
Accounts Receivable					Acct. No. 106
Date		Explanation	PR	Debit	Credit		Balance
April	9		G1	8,000			8,000
	22		G1		6,400		1,600
	25		G1	2,640			4,240
Office Supplies					Acct. No. 124
Date		Explanation	PR	Debit	Credit		Balance
April	3		G1	2,400			2,400
	29		G1	800			3,200
Prepaid Insurance					Acct. No. 128
Date		Explanation	PR	Debit	Credit		Balance
April	19		G1	6,000			6,000
Prepaid Rent					Acct. No. 131
Date		Explanation	PR	Debit	Credit		Balance
April	2		G1	7,200			7,200
Office Equipment					Acct. No. 163
Date		Explanation	PR	Debit	Credit		Balance
April	1		G1	24,000			24,000
	3		G1	12,000			36,000

Problem 2-1A (Continued)

Accounts Payable					Acct. No. 201
Date		Explanation	PR	Debit	Credit	Balance
April	3		G1		14,400	14,400
	13		G1	14,400		0
	29		G1		800	800
G. Bauer, Capital					Acct. No. 301
Date		Explanation	PR	Debit	Credit	Balance
April	1		G1		124,000	124,000
G. Bauer, Withdrawals					Acct. No. 302
Date		Explanation	PR	Debit	Credit	Balance
April	28		G1	6,200		6,200
Services Revenue					Acct. No. 403
Date		Explanation	PR	Debit	Credit	Balance
April	6		G1		2,000	2,000
	9		G1		8,000	10,000
	25		G1		2,640	12,640
Utilities Expense					Acct. No. 690
Date		Explanation	PR	Debit	Credit	Balance
April	30		G1	700		700

Problem 2-1A (Continued)
Part 3

Problem 2-2A (90 minutes)

Part 1

a.           Cash........................................................ 101         105,000      
              Office Equipment.................................... 163             6,000
              Drafting Equipment................................. 164           45,000      
                      S. Shelton, Capital........................... 301                             156,000
                        Owner invested cash and equipment.

 

 b.           Land........................................................ 172           54,000      
                      Cash................................................. 101                                5,400
                      Note Payable.................................... 250                              48,600
                     Purchased land with cash and note payable.

 

c.            Building.................................................. 170           75,000
                       Cash.................................................... 101                          75,000
                     Purchased building with cash.

 

 

d.           Prepaid Insurance................................... 108             6,000
                      Cash................................................. 101                                6,000
                     Purchased 18-month insurance policy.

 

e.            Cash........................................................ 101             5,700
                      Engineering Fees Earned................. 402                                5,700
                     Collected cash for completed work.

 

f.            Drafting Equipment................................. 164           22,500
                      Cash................................................. 101                              10,500
                      Note Payable..................................... 250                              12,000
                     Purchased equipment with cash and note payable.

 

g.           Accounts Receivable.............................. 106           12,000      
                      Engineering Fees Earned................. 402                              12,000
                     Completed services for client.

 

h.           Office Equipment.................................... 163             2,250      
                      Accounts Payable............................ 201                                2,250
                     Purchased equipment on credit.

 

i.             Accounts Receivable.............................. 106           18,000
                      Engineering Fees Earned................. 402                              18,000
                     Billed client for completed work.

Problem 2-2A (Part 1 Continued)

 

j.             Equipment Rental Expense..................... 602             1,200
                      Accounts Payable............................ 201                                1,200
                     Incurred equipment rental expense.

 

k.            Cash........................................................ 101             7,200
                      Accounts Receivable....................... 106                                7,200
                     Collected cash on account.

 

l.             Wages Expense....................................... 601             1,500            
                      Cash................................................. 101                          1,500
                     Paid assistant’s wages.

m.           Accounts Payable................................... 201             2,250            
                           Cash................................................. 101                           2,250
                 Paid amount due on account.

n.           Repairs Expense..................................... 604         675                  
                           Cash................................................. 101                            675
                     Paid for repair of equipment.

o.           S. Shelton, Withdrawals.......................... 302             9,360            
                      Cash................................................. 101                                9,360
                     Cash withdrawn for personal use.

p.           Wages Expense....................................... 601             1,500            
                      Cash................................................. 101                                1,500
                     Paid assistant’s wages.

q.           Advertising Expense............................... 603             3,000            
                      Cash................................................. 101                          3,000
                     Paid for advertising expense.

Problem 2-2A (Continued)
Part 2

Cash                                                      No. 101						Accounts Payable                            No. 201
Date	PR	Debit	Credit	Balance		Date	PR	Debit	Credit	Balance
(a)		105,000		105,000		(h)			2,250	2,250
(b)			5,400	99,600		(j)			1,200	3,450
(c)			75,000	24,600		(m)		2,250		1,200
(d)			6,000	18,600
(e)		5,700		24,300		Notes Payable                                   No. 250
(f)			10,500	13,800		Date	PR	Debit	Credit	Balance
(k)		7,200		21,000		(b)			48,600	48,600
(l)			1,500	19,500		(f)			12,000	60,600
(m)			2,250	17,250
(n)			675	16,575
(o)			9,360	7,215		S. Shelton, Capital                           No. 301
(p)			1,500	5,715		Date	PR	Debit	Credit	Balance
(q)			3,000	2,715		(a)			156,000	156,000
Accounts Receivable                       No. 106						S. Shelton, Withdrawals                 No. 302
Date	PR	Debit	Credit	Balance		Date	PR	Debit	Credit	Balance
(g)		12,000		12,000		(o)		9,360		9,360
(i)		18,000		30,000
(k)			7,200	22,800		Engineering Fees Earned              No. 402
						Date	PR	Debit	Credit	Balance
Prepaid Insurance                             No. 108						(e)			5,700	5,700
Date	PR	Debit	Credit	Balance		(g)			12,000	17,700
(d)		6,000		6,000		(i)			18,000	35,700
Office Equipment                              No. 163						Wages Expense                                No. 601
Date	PR	Debit	Credit	Balance		Date	PR	Debit	Credit	Balance
(a)		6,000		6,000		(l)		1,500		1,500
(h)		2,250		8,250		(p)		1,500		3,000
Drafting Equipment                          No. 164						Equipment Rental Expense          No. 602
Date	PR	Debit	Credit	Balance		Date	PR	Debit	Credit	Balance
(a)		45,000		45,000		(j)		1,200		1,200
(f)		22,500		67,500
Building                                               No. 170						Advertising Expense                      No. 603
Date	PR	Debit	Credit	Balance		Date	PR	Debit	Credit	Balance
(c)		75,000		75,000		(q)		3,000		3,000
Land                                                      No. 172						Repairs Expense                              No. 604
Date	PR	Debit	Credit	Balance		Date	PR	Debit	Credit	Balance
(b)		54,000		54,000		(n)		675		675

Problem 2-2A (Concluded)
Part 3

Problem 2-3A (60 minutes)
Part 1