ch02 analyzing transaction

CHAPTER 2 ANALYZING TRANSACTIONS

CLASS DISCUSSION QUESTIONS

1. An account is a form designed to record changes in a particular asset, liability, owner's equity, revenue, or expense. A ledger is a group of related accounts.

2. The sequence of accounts in the ledger cor-responds generally to the sequence of ac-counts as they appear in the balance sheet, followed by the accounts as they appear in the income statement.

3. The terms debit and credit may signify either an increase or decrease, depending upon the nature of the account. For example, deb-its signify an increase in asset and expense accounts but a decrease in liability, owner's capital, and revenue accounts.

4. Liabilities and owner's equity both have rights or claims to assets as indicated by the accounting equation, Assets = Liabilities + Owner's Equity. Therefore, the same rules of debit and credit apply to both liabilities and owner's equity.

5. a. Decrease in owner's equityb. Increase in expense

6. a. Increase in owner's equityb. Increase in revenue

7. a. Assuming no errors have occurred, the credit balance in the cash account re-sulted from drawing checks for $900 in excess of the amount of cash on de-posit.

b. The $900 credit balance in the cash ac-count as of July 31 is a liability owed to the bank. It is usually referred to as an "overdraft" and should be classified on the balance sheet as a liability.

8. e. Business transaction is authorized.b. Business transaction occurs.d. Business document is prepared.c. Entry is recorded in journal.a. Entry is posted to ledger.

9. a. The date, November 23, and the amount, $3,020, are recorded in the credit section of the fees earned ac-count.

b. The journal page number, 19, is recorded in the posting reference col-umn of the fees earned account.

c. The account number, 41, is recorded in the posting reference column of the jour-nal.

10. When an entry has been posted to the ac-counts, the account number is inserted in the journal in the posting reference column.

11. a. The revenue was earned in October. b. (1) Debit Accounts Receivable and

credit Fees Earned or another ap-propriately titled revenue account in October.

(2) Debit Cash and credit Accounts Re-ceivable in November.

12. The trial balance is a proof of the equality of the debits and the credits in the ledger.

13. No. Errors may have been made that had the same erroneous effect on both debits and credits, such as failure to record and/or post a transaction, recording the same transaction more than once, and posting a transaction correctly but to the wrong ac-count.

14. The listing of $21,570 is a transposition; the listing of $610 is a slide.

15. a. No. Because the same error occurred on both the debit side and the credit side of the trial balance, the trial balance would not be out of balance.

b. Yes. The trial balance would not bal-ance. The error would cause the credit total of the trial balance to exceed the debit total by $450.

16. The correction is made by drawing a line through the error and inserting the correct ti-tle or amount immediately above.

17. The preferred procedure is to journalize and post a correcting entry debiting Accounts Receivable and crediting Accounts Payable.

18. a. From the viewpoint of ABC Storage, the balance of the checking account repre-sents an asset.

b. From the viewpoint of American Savings Bank, the balance of the checking ac-count represents a liability.

3939

EXERCISES

Ex. 2–1

Balance Sheet Accounts Income Statement Accounts

Assets RevenueFlight Equipment Cargo and Mail RevenuePurchase Deposits Passenger Revenue

for Flight Equipment* ExpensesSpare Parts and Supplies Aircraft Fuel Expense

Liabilities Commissions***Accounts Payable Landing Fees****Air Traffic Liability**

Owner's EquityNone

* Advance payments on aircraft purchases** Passenger ticket sales not yet recognized as revenue

*** Commissions paid to travel agents**** Fees paid to airports for landing rights

Ex. 2–2

AccountAccount Number

Accounts Payable 21Accounts Receivable 12Cash 11Fees Earned 41Kim Walks, Capital 31Kim Walks, Drawing 32Land 13Miscellaneous Expense 53Supplies Expense 52Wages Expense 51

4040

Ex. 2–3Balance Sheet Accounts Income Statement Accounts

1. Assets 4. Revenue 11 Cash 41 Fees Earned12 Accounts Receivable 5. Expenses 13 Supplies 51 Wages Expense14 Prepaid Insurance 52 Rent Expense15 Equipment 53 Supplies Expense

2. Liabilities 59 Miscellaneous Expense21 Accounts Payable22 Unearned Rent

3. Owner's Equity 31 Gerald Emerson, Capital32 Gerald Emerson, Drawing

Note: The order of some of the accounts within the major classifications is some-what arbitrary, as in accounts 13–14 and accounts 51–53. In a new business, the order of magnitude of balances in such accounts is not determinable in advance. The magnitude may also vary from period to period.

Ex. 2–4

a. and b.

Account Debited Account Credited

Transaction Type Effect Type Effect

(1) asset + owner's equity +(2) asset + asset –(3) asset + asset –

liability +(4) expense + asset –(5) asset + revenue +(6) liability – asset –(7) asset + asset –(8) drawing + asset –(9) expense + asset –

4141

Ex. 2–5

(1) Cash...................................................................... 30,000Emmer Liu, Capital......................................... 30,000

(2) Supplies................................................................ 1,500Cash................................................................. 1,500

(3) Equipment............................................................ 30,000Accounts Payable.......................................... 20,000Cash................................................................. 10,000

(4) Operating Expenses............................................ 4,050Cash................................................................. 4,050

(5) Accounts Receivable.......................................... 13,000Service Revenue............................................. 13,000

(6) Accounts Payable................................................ 7,500Cash................................................................. 7,500

(7) Cash...................................................................... 9,500Accounts Receivable..................................... 9,500

(8) Emmer Liu, Drawing............................................ 3,000Cash................................................................. 3,000

(9) Operating Expenses............................................ 1,050Supplies.......................................................... 1,050

Ex. 2–6

WORLD CO.Trial BalanceApril 30, 20—

Cash..................................................................................... 13,450Accounts Receivable......................................................... 3,500Supplies.............................................................................. 450Equipment........................................................................... 30,000Accounts Payable.............................................................. 12,500Emmer Liu, Capital............................................................. 30,000Emmer Liu, Drawing........................................................... 3,000Service Revenue................................................................. 13,000Operating Expenses........................................................... 5,100

55,500 55,500

4242

Ex. 2–7

1. debit and credit (c)



4. credit only (b)

5. debit only (a)

6. debit only (a)

7. debit only (a)

Ex. 2–8

a. Liability—credit f. Asset—debit

b. Asset—debit g. Revenue—credit

c. Asset—debit h. Expense—debit

d. Owner's equity i. Expense—debit

(Craig Arant, Capital)—credit j. Asset—debit

e. Owner's equity

(Craig Arant, Drawing)—debit

Ex. 2–9

a. debit g. debit

b. credit h. debit

c. debit i. credit

d. credit j. credit

e. credit k. debit

f. debit l. debit

Ex. 2–10

a. Debit (negative) balance of $3,500 ($7,500 – $5,000 – $6,000). Such a nega-tive balance means that the liabilities of Kristi’s business exceed the assets.

b. Yes. The balance sheet prepared at December 31 will balance, with Kristi Toohey, Capital, being reported in the owner’s equity section as a negative $3,500.

4343

Ex. 2–11

a. The increase of $17,800 in the cash account does not indicate earnings of that amount. Earnings will represent the net change in all assets and liabil-ities from operating transactions.

b. $8,500 ($26,300 – $17,800)

Ex. 2–12

a. $11,550 ($3,850 + $11,850 – $4,150)

b. $30,000 ($21,000 + $27,500 – $18,500)

c. $13,800 ($60,500 – $77,700 + $31,000)

Ex. 2–13

20—Mar. 1 Rent Expense....................................................... 2,500

Cash................................................................. 2,500

2 Advertising Expense........................................... 600Cash................................................................. 600

4 Supplies................................................................ 1,050Cash................................................................. 1,050

6 Office Equipment................................................. 4,500Accounts Payable.......................................... 4,500

8 Cash...................................................................... 3,600Accounts Receivable..................................... 3,600

12 Accounts Payable................................................ 2,150Cash................................................................. 2,150

20 Bob Lyons, Drawing............................................ 1,000Cash................................................................. 1,000

25 Miscellaneous Expense...................................... 120Cash................................................................. 120

30 Utilities Expense.................................................. 195Cash................................................................. 195

31 Accounts Receivable.......................................... 11,150Fees Earned.................................................... 11,150

31 Utilities Expense.................................................. 280Cash................................................................. 280

4444

Ex. 2–14

a.

JOURNAL Page 29

Post.Date Description Ref. Debit Credit

2003Nov. 12 Supplies................................................... 15 1,720

Accounts Payable.............................. 21 1,720Purchased supplies on account.

b., c., d.

Supplies 15

Post. Balance Date Item Ref. Dr. Cr. Dr. Cr.

2003Nov. 1 Balance................................. ............ ............ 390 ............

12 ............................................... 29 1,720 ............ 2,110 ............

Accounts Payable 21

2003Nov. 1 Balance................................. ............ ............ ............ 9,681

12 ............................................... 29 ............ 1,720 ............ .11,401

4545

Ex. 2–15

a.

(1) Accounts Receivable.......................................... 8,210Fees Earned.................................................... 8,210

(2) Supplies................................................................ 1,070Accounts Payable.......................................... 1,070

(3) Cash...................................................................... 6,150Accounts Receivable..................................... 6,150

(4) Accounts Payable................................................ 750Cash................................................................. 750

b.

Cash Accounts Payable

(3) 6,150 (4) 750 (4) 750 (2) 1,070

Supplies Fees Earned

(2) 1,070 (1) 8,210

Accounts Receivable

(1) 8,210 (3) 6,150

4646

Ex. 2–16

BOGART PARK CO.Trial Balance

August 31, 20—

Cash..................................................................................... 23,450Accounts Receivable......................................................... 27,500Supplies.............................................................................. 4,100Prepaid Insurance.............................................................. 3,150Land..................................................................................... 125,000Accounts Payable.............................................................. 13,710Unearned Rent.................................................................... 6,000Notes Payable..................................................................... 40,000Don Cline, Capital............................................................... 110,290Don Cline, Drawing............................................................. 25,000Fees Earned........................................................................ 333,500Wages Expense.................................................................. 175,000Rent Expense...................................................................... 58,000Utilities Expense................................................................. 41,500Supplies Expense............................................................... 5,900Insurance Expense............................................................. 5,000Miscellaneous Expense..................................................... 9,900

503,500 503,500

Ex. 2–17

Inequality of trial balance totals would be caused by errors described in (a) and (e).

4747

Ex. 2–18

ENTRÉE CO.Trial Balance

December 31, 20—

Cash..................................................................................... 21,375Accounts Receivable......................................................... 24,600Prepaid Insurance.............................................................. 3,300Equipment........................................................................... 68,000Accounts Payable.............................................................. 7,950Unearned Rent.................................................................... 2,750Byron Reynolds, Capital.................................................... 91,615Byron Reynolds, Drawing.................................................. 10,000Service Revenue................................................................. 64,940Wages Expense.................................................................. 33,400Advertising Expense.......................................................... 5,200Miscellaneous Expense..................................................... 1,380

167,255 167,255

Ex. 2–19

(a) (b) (c)Error Out of Balance Difference Larger Total

1. yes $1,500 credit2. yes 180 credit3. no — —4. yes 1,050 debit5. yes 3,600 debit6. yes 3,175 debit7. no — —

4848

Ex. 2–20

1. The credit column total is added incorrectly. The sum is $147,650, rather than $94,150.

2. The trial balance should be dated January 31, 2003, not for the month of January.

3. The Accounts Receivable balance should be in the debit column.

4. The Accounts Payable balance should be in the credit column.

5. The Pug Myslik, Drawing, balance should be in the debit column.

6. The Advertising Expense balance should be in the debit column.

A corrected trial balance would be as follows:

GOULET CO.Trial Balance

January 31, 2003

Cash..................................................................................... 8,010Accounts Receivable......................................................... 16,400Prepaid Insurance.............................................................. 2,400Equipment........................................................................... 52,000Accounts Payable.............................................................. 1,850Salaries Payable................................................................. 750Pug Myslik, Capital............................................................. 39,600Pug Myslik, Drawing........................................................... 5,000Service Revenue................................................................. 78,700Salary Expense................................................................... 28,400Advertising Expense.......................................................... 7,200Miscellaneous Expense..................................................... 1,490

120,900 120,900

Ex. 2–21

a. Julie Snyder, Drawing......................................... 20,000Salary Expense............................................... 20,000

b. Accounts Payable................................................ 3,000Cash................................................................. 3,000

4949

Ex. 2–22

a. Supplies................................................................ 750Accounts Payable.......................................... 750

Cash...................................................................... 750Miscellaneous Expense................................. 750

b. Cash...................................................................... 5,400Accounts Payable.......................................... 2,700Accounts Receivable..................................... 2,700

Ex. 2–23

a. 1. Net sales: $6,755,000,000 increase

($18,928,000,000 – $12,173,000,000)

55.5% increase ($6,755,000,000 ÷ $12,173,000,000)

2. Sales and marketingexpenses: $1,481,000,000 increase

($3,946,000,000 – $2,465,000,000)

60.1% increase ($1,481,000,000 ÷ $2,465,000,000)

b. During 2000, the percent increase in sales and marketing expenses (60.1%) is more than the percent increase in net sales (55.5%), an unfavorable trend.

5050

PROBLEMS

Prob. 2–1A

1. and 2.

Cash Equipment

(a) 15,000 (b) 2,000 (d) 5,500(g) 3,100 (c) 2,5007,025 18,100 (e) 750 Notes Payable

(f) 1,050 (j) 400 (c) 9,000(h) 75 8,600(i) 2,950(j) 400 Accounts Payable

(m) 1,200 (i) 2,950 (d) 5,500

(n) 150 (k) 525

11,075 3,075 6,025

Accounts Receivable Sherry Lundin, Capital

(l) 4,150 (a) 15,000

Supplies Professional Fees

(e) 750 (g) 3,100(l) 4,150

7,250

Prepaid Insurance Rent Expense

(f) 1,050 (b) 2,000

Automobiles Salary Expense

(c) 11,500 (m) 1,200

Automobile Expense

(n) 150

Blueprint Expense

(k) 525

Miscellaneous Expense

(h) 75

5151

Prob. 2–1A Concluded

3.

SHERRY LUNDIN, ARCHITECTTrial Balance

March 31, 20—

Cash..................................................................................... 7,025Accounts Receivable......................................................... 4,150Supplies.............................................................................. 750Prepaid Insurance.............................................................. 1,050Automobiles........................................................................ 11,500Equipment........................................................................... 5,500Notes Payable..................................................................... 8,600Accounts Payable.............................................................. 3,075Sherry Lundin, Capital....................................................... 15,000Professional Fees............................................................... 7,250Rent Expense...................................................................... 2,000Salary Expense................................................................... 1,200Automobile Expense.......................................................... 150Blueprint Expense.............................................................. 525Miscellaneous Expense..................................................... 75

33,925 33,925

5252

Prob. 2–2A

1.

(a) Cash...................................................................... 7,500Jim Lindley, Capital........................................ 7,500

(b) Rent Expense....................................................... 2,500Cash................................................................. 2,500

(c) Supplies................................................................ 1,200Accounts Payable.......................................... 1,200

(d) Accounts Payable................................................ 900Cash................................................................. 900

(e) Cash...................................................................... 15,750Sales Commissions....................................... 15,750

(f) Automobile Expense........................................... 2,400Miscellaneous Expense...................................... 1,250

Cash................................................................. 3,650

(g) Office Salaries Expense...................................... 4,500Cash................................................................. 4,500

(h) Supplies Expense................................................ 875Supplies.......................................................... 875

(i) Jim Lindley, Drawing........................................... 2,500Cash................................................................. 2,500

5353


2.Cash Sales Commissions

(a) 7,500 (b) 2,500 (e) 15,750(e) 15,750 (d) 9009,200 23,250 (f) 3,650 Office Salaries Expense

(g) 4,500 (g) 4,500

(i) 2,50014,050

Supplies Rent Expense

(c) 1,200 (h) 875 (b) 2,500325

Accounts Payable Automobile Expense

(d) 900 (c) 1,200 (f) 2,400

300

Jim Lindley, Capital Supplies Expense

(a) 7,500 (h) 875

Jim Lindley, Drawing Miscellaneous Expense

(i) 2,500 (f) 1,250

3. HOMESTEAD REALTYTrial BalanceMay 31, 2003

Cash..................................................................................... 9,200Supplies.............................................................................. 325Accounts Payable.............................................................. 300Jim Lindley, Capital............................................................ 7,500Jim Lindley, Drawing.......................................................... 2,500Sales Commissions............................................................ 15,750Office Salaries Expense..................................................... 4,500Rent Expense...................................................................... 2,500Automobile Expense.......................................................... 2,400Supplies Expense............................................................... 875Miscellaneous Expense..................................................... 1,250

23,550 23,550 4. a. $15,750

b. $11,525

c. $4,225

5454

Prob. 2–3A

1.JOURNAL Pages 1 and 2


20—April 5 Cash......................................................... 11 18,000

John Bike, Capital.............................. 31 18,000

6 Rent Expense.......................................... 53 2,000Cash.................................................... 11 2,000

7 Equipment............................................... 16 10,500Accounts Payable.............................. 22 10,500

8 Truck........................................................ 18 18,000Cash.................................................... 11 10,000Notes Payable..................................... 21 8,000

10 Supplies................................................... 13 1,315Cash.................................................... 11 1,315

12 Cash......................................................... 11 7,300Fees Earned........................................ 41 7,300

20 Prepaid Insurance.................................. 14 1,200Cash.................................................... 11 1,200

23 Accounts Receivable............................. 12 4,950Fees Earned........................................ 41 4,950

24 Truck Expense........................................ 55 450Accounts Payable.............................. 22 450

29 Utilities Expense..................................... 54 750Cash.................................................... 11 750

29 Miscellaneous Expense......................... 59 210Cash.................................................... 11 210

30 Cash......................................................... 11 2,200Accounts Receivable......................... 12 2,200

5555

Prob. 2–3A Continued

JOURNAL Pages 1 and 2


20—April 30 Wages Expense...................................... 51 3,000

Cash.................................................... 11 3,000

30 Accounts Payable................................... 22 1,800Cash.................................................... 11 1,800

30 John Bike, Drawing................................ 32 3,500Cash.................................................... 11 3,500

2.

GENERAL LEDGERCash 11

Post. Balance Date Item Ref. Dr. Cr. Dr. Cr.

20—April 5 ............................................... 1 .18,000 ............ 18,000 ............

6 ............................................... 1 ............ 2,000 16,000 ............8 ............................................... 1 ............ 10,000 6,000 ............

10 ............................................... 1 ............ 1,315 4,685 ............12 ............................................... 1 7,300 ............ 11,985 ............20 ............................................... 1 ............ 1,200 10,785 ............29 ............................................... 2 ............ 750 10,035 ............29 ............................................... 2 ............ 210 9,825 ............30 ............................................... 2 2,200 ............ 12,025 ............30 ............................................... 2 ............ 3,000 9,025 ............30 ............................................... 2 ............ 1,800 7,225 ............30 ............................................... 2 ............ 3,500 3,725 ............

Accounts Receivable 1220—April 23 ............................................... 1 4,950 ............ 4,950 ............

30 ............................................... 2 ............ 2,200 2,750 ............

5656


Supplies 13Post. Balance

Date Item Ref. Dr. Cr. Dr. Cr.

20—April 10 ............................................... 1 1,315 ............ 1,315 ............

Prepaid Insurance 1420—April 20 ............................................... 1 1,200 ............ 1,200 ............

Equipment 1620—April 7 ............................................... 1 10,500 ............ 10,500 ............

Truck 1820—April 8 ............................................... 1 .18,000 ............ 18,000 ............

Notes Payable 2120—April 8 ............................................... 1 ............ 8,000 ............ 8,000

Accounts Payable 2220—April 7 ............................................... 1 ............ 10,500 ............ 10,500

24 ............................................... 1 ............ 450 ............ 10,95030 ............................................... 2 1,800 ............ ............ 9,150

John Bike, Capital 3120—April 5 ............................................... 1 ............ 18,000 ............ 18,000

John Bike, Drawing 3220—April 30 ............................................... 2 3,500 ............ 3,500 ............

5757


Fees Earned 41Post. Balance


20—April 12 ............................................... 1 ............ 7,300 ............ 7,300

23 ............................................... 1 ............ 4,950 ............ 12,250

Wages Expense 5120—April 30 ............................................... 2 3,000 ............ 3,000 ............

Rent Expense 5320—April 6 ............................................... 1 2,000 ............ 2,000 ............

Utilities Expense 5420—April 29 ............................................... 2 750 ............ 750 ............

Truck Expense 5520—April 24 ............................................... 1 450 ............ 450 ............

Miscellaneous Expense 5920—April 29 ............................................... 2 210 ............ 210 ............

5858


3.

TUCSON DESIGNSTrial BalanceApril 30, 20—

Cash..................................................................................... 3,725Accounts Receivable......................................................... 2,750Supplies.............................................................................. 1,315Prepaid Insurance.............................................................. 1,200Equipment........................................................................... 10,500Truck.................................................................................... 18,000Notes Payable..................................................................... 8,000Accounts Payable.............................................................. 9,150John Bike, Capital.............................................................. 18,000John Bike, Drawing............................................................ 3,500Fees Earned........................................................................ 12,250Wages Expense.................................................................. 3,000Rent Expense...................................................................... 2,000Utilities Expense................................................................. 750Truck Expense.................................................................... 450Miscellaneous Expense..................................................... 210

47,400 47,400

5959

Prob. 2–4A

2. and 3.



20—Apr. 1 Rent Expense.......................................... 52 5,000

Cash.................................................... 11 5,000

2 Office Supplies....................................... 14 1,375Accounts Payable.............................. 21 1,375



15 Land......................................................... 16 75,000Cash.................................................... 11 7,500Notes Payable..................................... 22 67,500


20 Accounts Payable................................... 21 275Office Supplies................................... 14 275

24 Advertising Expense.............................. 53 1,050Cash.................................................... 11 1,050

27 Cash......................................................... 11 350Salary and Commission Expense..... 51 350

28 Automobile Expense.............................. 54 715Cash.................................................... 11 715



30 Salary and Commission Expense......... 51 11,500Cash.................................................... 11 11,500

30 Reba Heflin, Drawing.............................. 32 2,000Cash.................................................... 11 2,000

6060


1. and 3.

Cash 11Post. Balance


20—Apr. 1 Balance................................. ............ ............ 18,150 ............

1 ............................................... 18 ............ 5,000 13,150 ............5 ............................................... 18 ............ 1,650 11,500 ............8 ............................................... 18 .20,200 ............ 31,700 ............

15 ............................................... 18 ............ 7,500 24,200 ............17 ............................................... 18 ............ 4,150 20,050 ............24 ............................................... 18 ............ 1,050 19,000 ............27 ............................................... 19 350 ............ 19,350 ............28 ............................................... 19 ............ 715 18,635 ............29 ............................................... 19 ............ 215 18,420 ............30 ............................................... 19 ............ 11,500 6,920 ............30 ............................................... 19 ............ 2,000 4,920 ............

Accounts Receivable 1220—Apr. 1 Balance................................. ............ ............ 48,750 ............

8 ............................................... 18 ............ 20,200 28,550 ............30 ............................................... 19 .28,400 ............ 56,950 ............

Prepaid Insurance 1320—Apr. 1 Balance................................. ............ ............ 1,100 ............

5 ............................................... 18 1,650 ............ 2,750 ............

Office Supplies 1420—Apr. 1 Balance................................. ............ ............ 1,050 ............

2 ............................................... 18 1,375 ............ 2,425 ............20 ............................................... 18 ............ 275 2,150 ............

Land 1620—Apr. 15 ............................................... 18 .75,000 ............ 75,000 ............

6161


Accounts Payable 21Post. Balance


20—Apr. 1 Balance................................. ............ ............ ............ .11,510

2 ............................................... 18 ............ 1,375 ............ .12,88517 ............................................... 18 4,150 ............ ............ 8,73520 ............................................... 18 275 ............ ............ 8,460

Notes Payable 2220—Apr. 15 ............................................... 18 ............ 67,500 ............ .67,500

Reba Heflin, Capital 3120—Apr. 1 Balance................................. ............ ............ ............ .34,340

Reba Heflin, Drawing 3220—Apr. 1 Balance................................. ............ ............ 1,000 ............

30 ............................................... 19 2,000 ............ 3,000 ............

Fees Earned 4120—Apr. 1 Balance................................. ............ ............ ............126,500

30 ............................................... 19 ............ 28,400 ............154,900

Salary and Commission Expense 5120—Apr. 1 Balance................................. ............ ............ 74,100 ............

27 ............................................... 19 ............ 350 .73,750 ............30 ............................................... 19 .11,500 ............ 85,250 ............

Rent Expense 5220—Apr. 1 Balance................................. ............ ............ 15,000 ............

1 ............................................... 18 5,000 ............ 20,000 ............

6262


Advertising Expense 53Post. Balance

Date Item Ref. Dr. Cr. Dr. Cr.20—Apr. 1 Balance................................. ............ ............ 8,900 ............

24 ............................................... 18 1,050 ............ 9,950 ............

Automobile Expense 5420—Apr. 1 Balance................................. ............ ............ 2,750 ............

28 ............................................... 19 715 ............ 3,465 ............

Miscellaneous Expense 5920—Apr. 1 Balance................................. ............ ............ 1,550 ............

29 ............................................... 19 215 ............ 1,765 ............

6363


4.

EASTSIDE REALTYTrial BalanceApril 30, 20—

Cash..................................................................................... 4,920Accounts Receivable......................................................... 56,950Prepaid Insurance.............................................................. 2,750Office Supplies................................................................... 2,150Land..................................................................................... 75,000Accounts Payable.............................................................. 8,460Notes Payable..................................................................... 67,500Reba Heflin, Capital............................................................ 34,340Reba Heflin, Drawing.......................................................... 3,000Fees Earned........................................................................ 154,900Salary and Commission Expense..................................... 85,250Rent Expense...................................................................... 20,000Advertising Expense.......................................................... 9,950Automobile Expense.......................................................... 3,465Miscellaneous Expense..................................................... 1,765

265,200 265,200

6464

Prob. 2–5A

1. Totals of preliminary trial balance: Debit $47,729.40

Credit $36,293.70

2. Difference between preliminary trial balance totals: $11,435.70

3. Errors in trial balance:

(a) Prepaid Insurance debit balance was listed as $359.50 instead of $395.50.

(b) Wages Expense debit balance of $3,018.60 was listed as credit balance.

(c) Miscellaneous Expense of $283.50 was omitted.

4. Errors in account balances:

(a) Erin Dunahoo, Drawing, balance of $1,350.00 was totaled as $1,200.00.

5. Errors in posting:

(a) Rent Expense entry of March 1 for $1,540.00 was posted as $15,400.00 (slide).

(b) Cash entry of March 15 for $1,785.50 was posted as $1,875.50(transposition).

(c) Service Revenue entry of March 25 for $1,681.30 was posted as $1,618.30 (transposition).

(d) Utilities Expense entry of March 30 for $436.60 was posted as $4,366.00(slide).

6. Mar. 31 Advertising Expense..................... 53 100.00Cash.......................................... 11 100.00

7.

RELIABLE TV REPAIRTrial Balance

March 31, 20—

Cash..................................................................................... 8,316.00Supplies.............................................................................. 997.90Prepaid Insurance.............................................................. 395.50Land..................................................................................... 16,625.00Notes Payable..................................................................... 6,500.00Accounts Payable.............................................................. 1,077.50Erin Dunahoo, Capital........................................................ 17,760.20Erin Dunahoo, Drawing...................................................... 1,350.00Service Revenue................................................................. 8,000.40Wages Expense.................................................................. 3,018.60Utilities Expense................................................................. 436.60Advertising Expense.......................................................... 375.00Rent Expense...................................................................... 1,540.00Miscellaneous Expense..................................................... 283 .50

33,338 .10 33,338 .10

6565

Prob. 2–6A

1.

PERSIAN CARPETTrial Balance

March 31, 20—

Cash..................................................................................... 2,815*Accounts Receivable......................................................... 6,125Supplies.............................................................................. 1,100Prepaid Insurance.............................................................. 550Equipment........................................................................... 25,000Notes Payable..................................................................... 15,000Accounts Payable.............................................................. 3,910Serena Nodvin, Capital...................................................... 16,300Serena Nodvin, Drawing.................................................... 8,000Fees Earned........................................................................ 54,790Wages Expense.................................................................. 31,100Rent Expense...................................................................... 7,455Advertising Expense.......................................................... 3,200Gas, Electricity, and Water Expense................................ 3,150Miscellaneous Expense..................................................... 1,505

90,000 90,000* $7,315 + $900 (a) – $5,400 (b)

2. No. The trial balance indicates only that the debits and credits are equal. Any errors that have the same effect on debits and credits will not affect the bal-ancing of the trial balance.

6666

Prob. 2–1B

1. and 2.

Cash Accounts Payable

(a) 25,000 (b) 6,000 (h) 2,100 (e) 6,200(g) 3,725 (c) 2,500 (j) 35013,955 28,725 (d) 300 4,450 6,550

(f) 1,200(h) 2,100 James Bitnar, Capital

(i) 120 (a) 25,000(l) 1,500(m) 105 Professional Fees

(n) 800 (g) 3,725(o) 145 (k) 3,500

14,770 7,225

Accounts Receivable Rent Expense

(k) 3,500 (c) 2,500

Supplies Salary Expense

(d) 300 (l) 1,500

Prepaid Insurance Blueprint Expense

(f) 1,200 (j) 350

Automobiles Automobile Expense

(b) 18,300 (o) 145

Equipment Miscellaneous Expense

(e) 6,200 (i) 120(m) 105

225

Notes Payable

(n) 800 (b) 12,30011,500

6767

Prob. 2–1B Concluded

3.

JAMES BITNAR, ARCHITECTTrial Balance

September 30, 20—

Cash..................................................................................... 13,955Accounts Receivable......................................................... 3,500Supplies.............................................................................. 300Prepaid Insurance.............................................................. 1,200Automobiles........................................................................ 18,300Equipment........................................................................... 6,200Notes Payable..................................................................... 11,500Accounts Payable.............................................................. 4,450James Bitnar, Capital......................................................... 25,000Professional Fees............................................................... 7,225Rent Expense...................................................................... 2,500Salary Expense................................................................... 1,500Blueprint Expense.............................................................. 350Automobile Expense.......................................................... 145Miscellaneous Expense..................................................... 225

48,175 48,175

6868

Prob. 2–2B

1.

(a) Cash...................................................................... 10,000Mary Jo Croy, Capital..................................... 10,000

(b) Supplies................................................................ 1,900Accounts Payable.......................................... 1,900

(c) Cash...................................................................... 22,600Sales Commissions....................................... 22,600

(d) Rent Expense....................................................... 4,500Cash................................................................. 4,500

(e) Accounts Payable................................................ 1,000Cash................................................................. 1,000

(f) Mary Jo Croy, Drawing........................................ 3,000Cash................................................................. 3,000

(g) Automobile Expense........................................... 1,900Miscellaneous Expense...................................... 1,050

Cash................................................................. 2,950

(h) Office Salaries Expense...................................... 4,000Cash................................................................. 4,000

(i) Supplies Expense................................................ 905Supplies.......................................................... 905

6969


2.

Cash Sales Commissions

(a) 10,000 (d) 4,500 (c) 22,600(c) 22,600 (e) 1,00017,150 32,600 (f) 3,000

(g) 2,950 Rent Expense

(h) 4,000 (d) 4,500

15,450

Supplies Office Salaries Expense

(b) 1,900 (i) 905 (h) 4,000995

Accounts Payable Automobile Expense

(e) 1,000 (b) 1,900 (g) 1,900

900

Mary Jo Croy, Capital Supplies Expense

(a) 10,000 (i) 905

Mary Jo Croy, Drawing Miscellaneous Expense

(f) 3,000 (g) 1,050

3. PREFERRED REALTYTrial Balance

December 31, 2003

Cash..................................................................................... 17,150Supplies.............................................................................. 995Accounts Payable.............................................................. 900Mary Jo Croy, Capital......................................................... 10,000Mary Jo Croy, Drawing....................................................... 3,000Sales Commissions............................................................ 22,600Rent Expense...................................................................... 4,500Office Salaries Expense..................................................... 4,000Automobile Expense.......................................................... 1,900Supplies Expense............................................................... 905Miscellaneous Expense..................................................... 1,050

33,500 33,500

4. a. $22,600

b. $12,355

c. $10,245

7070

Prob. 2–3B

1.



20—Oct. 10 Cash......................................................... 11 15,000

Kirk Hurwitz, Capital.......................... 31 15,000


11 Truck........................................................ 18 15,000Cash.................................................... 11 5,000Notes Payable..................................... 21 10,000

13 Equipment............................................... 16 3,500Accounts Payable.............................. 22 3,500

14 Supplies................................................... 13 1,050Cash.................................................... 11 1,050

14 Prepaid Insurance.................................. 14 750Cash.................................................... 11 750

15 Cash......................................................... 11 3,100Fees Earned........................................ 41 3,100



26 Truck Expense........................................ 55 280Accounts Payable.............................. 22 280

27 Utilities Expense..................................... 54 1,205Cash.................................................... 11 1,205


7171

Prob. 2–3B Continued



20—Oct. 29 Cash......................................................... 11 2,420

Accounts Receivable......................... 12 2,420

30 Wages Expense...................................... 51 2,500Cash.................................................... 11 2,500

31 Kirk Hurwitz, Drawing............................ 32 1,000Cash.................................................... 11 1,000

2.



20—Oct. 10 ............................................... 1 .15,000 ............ 15,000 ............

10 ............................................... 1 ............ 1,600 13,400 ............11 ............................................... 1 ............ 5,000 8,400 ............14 ............................................... 1 ............ 1,050 7,350 ............14 ............................................... 1 ............ 750 6,600 ............15 ............................................... 1 3,100 ............ 9,700 ............21 ............................................... 2 ............ 3,500 6,200 ............27 ............................................... 2 ............ 1,205 4,995 ............27 ............................................... 2 ............ 180 4,815 ............29 ............................................... 2 2,420 ............ 7,235 ............30 ............................................... 2 ............ 2,500 4,735 ............31 ............................................... 2 ............ 1,000 3,735 ............

Accounts Receivable 1220—Oct. 24 ............................................... 2 5,100 ............ 5,100 ............

29 ............................................... 2 ............ 2,420 2,680 ............

7272


Supplies 13Post. Balance


20—Oct. 14 ............................................... 1 1,050 ............ 1,050 ............

Prepaid Insurance 1420—Oct. 14 ............................................... 1 750 ............ 750 ............

Equipment 1620—Oct. 13 ............................................... 1 3,500 ............ 3,500 ............

Truck 1820—Oct. 11 ............................................... 1 .15,000 ............ 15,000 ............

Notes Payable 2120—Oct. 11 ............................................... 1 ............ 10,000 ............ .10,000

Accounts Payable 2220—Oct. 13 ............................................... 1 ............ 3,500 ............ 3,500

21 ............................................... 2 3,500 ............ ............ 026 ............................................... 2 ............ 280 ............ 280

Kirk Hurwitz, Capital 3120—Oct. 10 ............................................... 1 ............ 15,000 ............ 15,000

Kirk Hurwitz, Drawing 3220—Oct. 31 ............................................... 2 1,000 ............ 1,000 ............

7373


Fees Earned 41Post. Balance


20—Oct. 15 ............................................... 1 ............ 3,100 ............ 3,100

24 ............................................... 2 ............ 5,100 ............ 8,200

Wages Expense 5120—Oct. 30 ............................................... 2 2,500 ............ 2,500 ............

Rent Expense 5320—Oct. 10 ............................................... 1 1,600 ............ 1,600 ............

Utilities Expense 5420—Oct. 27 ............................................... 2 1,205 ............ 1,205 ............

Truck Expense 5520—Oct. 26 ............................................... 2 280 ............ 280 ............

Miscellaneous Expense 5920—Oct. 27 ............................................... 2 180 ............ 180 ............

7474


3.

MARQUIS DESIGNSTrial Balance

October 31, 20—

Cash..................................................................................... 3,735Accounts Receivable......................................................... 2,680Supplies.............................................................................. 1,050Prepaid Insurance.............................................................. 750Equipment........................................................................... 3,500Truck.................................................................................... 15,000Notes Payable..................................................................... 10,000Accounts Payable.............................................................. 280Kirk Hurwitz, Capital........................................................... 15,000Kirk Hurwitz, Drawing........................................................ 1,000Fees Earned........................................................................ 8,200Wages Expense.................................................................. 2,500Rent Expense...................................................................... 1,600Utilities Expense................................................................. 1,205Truck Expense.................................................................... 280Miscellaneous Expense..................................................... 180

33,480 33,480

7575

Prob. 2–4B

2. and 3.



20—Dec. 1 Office Supplies....................................... 14 1,100

Accounts Payable.............................. 21 1,100




10 Accounts Payable................................... 21 150Office Supplies................................... 14 150

14 Advertising Expense.............................. 53 2,150Cash.................................................... 11 2,150



30 Automobile Expense.............................. 54 850Cash.................................................... 11 850

31 Cash......................................................... 11 500Salary and Commission Expense..... 51 500

31 Salary and Commission Expense......... 51 10,850Cash.................................................... 11 10,850


31 Land......................................................... 16 50,000Cash.................................................... 11 10,000Notes Payable..................................... 22 40,000

31 Katie Chaney, Drawing........................... 32 2,500Cash.................................................... 11 2,500

7676


1. and 3.



20—Dec. 1 Balance................................. ............ ............ 19,500 ............

2 ............................................... 18 ............ 1,600 17,900 ............3 ............................................... 18 .24,200 ............ 42,100 ............8 ............................................... 18 ............ 1,925 40,175 ............

14 ............................................... 18 ............ 2,150 38,025 ............23 ............................................... 18 ............ 1,650 36,375 ............29 ............................................... 19 ............ 215 36,160 ............30 ............................................... 19 ............ 850 35,310 ............31 ............................................... 19 500 ............ .35,810 ............31 ............................................... 19 ............ 10,850 24,960 ............31 ............................................... 19 ............ 10,000 14,960 ............31 ............................................... 19 ............ 2,500 12,460 ............

Accounts Receivable 1220—Dec. 1 Balance................................. ............ ............ 28,600 ............

3 ............................................... 18 ............ 24,200 4,400 ............31 ............................................... 19 .26,200 ............ 30,600 ............

Prepaid Insurance 1320—Dec. 1 Balance................................. ............ ............ 1,750 ............

8 ............................................... 18 1,925 ............ 3,675 ............

Office Supplies 1420—Dec. 1 Balance................................. ............ ............ 625 ............

1 ............................................... 18 1,100 ............ 1,725 ............10 ............................................... 18 ............ 150 1,575 ............

Land 1620—Dec. 31 ............................................... 19 .50,000 ............ 50,000 ............

7777


Accounts Payable 21Post. Balance


20—Dec. 1 Balance................................. ............ ............ ............ 3,250

1 ............................................... 18 ............ 1,100 ............ 4,35010 ............................................... 18 150 ............ ............ 4,20023 ............................................... 18 1,650 ............ ............ 2,550

Notes Payable 2220—Dec. 31 ............................................... 19 ............ 40,000 ............ 40,000

Katie Chaney, Capital 3120—Dec. 1 Balance................................. ............ ............ ............ 12,625

Katie Chaney, Drawing 3220—Dec. 1 Balance................................. ............ ............ 10,000 ............

31 ............................................... 19 2,500 ............ .12,500 ............

Fees Earned 4120—Dec. 1 Balance................................. ............ ............ ............ 158,725

31 ............................................... 19 ............ 26,200 ............ 184,925

Salary and Commission Expense 5120—Dec. 1 Balance................................. ............ ............ 83,075 ............

31 ............................................... 19 ............ 500 82,575 ............31 ............................................... 19 .10,850 ............ 93,425 ............

Rent Expense 5220—Dec. 1 Balance................................. ............ ............ 16,000 ............

2 ............................................... 18 1,600 ............ 17,600 ............

7878


Advertising Expense 53Post. Balance


20—Dec. 1 Balance................................. ............ ............ 10,500 ............

14 ............................................... 18 2,150 ............ 12,650 ............

Automobile Expense 5420—Dec. 1 Balance................................. ............ 3,950 ............

30 ............................................... 19 850 ............ 4,800 ............

Miscellaneous Expense 5920—Dec. 1 Balance................................. ............ ............ 600 ............

29 ............................................... 19 215 ............ 815 ............

7979


4.

GALLATIN REALTYTrial Balance

December 31, 20—

Cash..................................................................................... 12,460Accounts Receivable......................................................... 30,600Prepaid Insurance.............................................................. 3,675Office Supplies................................................................... 1,575Land..................................................................................... 50,000Accounts Payable.............................................................. 2,550Notes Payable..................................................................... 40,000Katie Chaney, Capital......................................................... 12,625Katie Chaney, Drawing...................................................... 12,500Fees Earned........................................................................ 184,925Salary and Commission Expense..................................... 93,425Rent Expense...................................................................... 17,600Advertising Expense.......................................................... 12,650Automobile Expense.......................................................... 4,800Miscellaneous Expense..................................................... 815

240,100 240,100

8080

Prob. 2–5B

1. Totals of preliminary trial balance: Debit $47,729.40

Credit $36,293.70

2. Difference between preliminary trial balance totals: $11,435.70

3. Errors in trial balance:

(a) Prepaid Insurance debit balance was listed as $359.50 instead of $395.50

(b) Wages Expense debit balance of $3,018.60 was listed as credit balance.

(c) Miscellaneous Expense of $283.50 was omitted.

4. Errors in account balances:(a) Erin Dunahoo, Drawing, balance of $1,350.00 was totaled as $1,200.00.

5. Errors in posting:

(a) Rent Expense entry of March 1 for $1,540.00 was posted as $15,400.00(slide).

(b) Cash entry of March 15 for $1,785.50 was posted as $1,875.50 (transposition).

(c) Service Revenue entry of March 25 for $1,681.30 was posted as $1,618.30 (transposition).

(d) Utilities Expense entry of March 30 for $436.60 was posted as $4,366.00(slide).

6. Mar. 31 Utilities Expense.............................. 52 163.40Cash............................................ 11 163.40

7.RELIABLE TV REPAIR

Trial BalanceMarch 31, 20—

Cash..................................................................................... 8,252.60Supplies.............................................................................. 997.90Prepaid Insurance.............................................................. 395.50Land..................................................................................... 16,625.00Notes Payable..................................................................... 6,500.00Accounts Payable.............................................................. 1,077.50Erin Dunahoo, Capital........................................................ 17,760.20Erin Dunahoo, Drawing...................................................... 1,350.00Service Revenue................................................................. 8,000.40Wages Expense.................................................................. 3,018.60Utilities Expense................................................................. 600.00Advertising Expense.......................................................... 275.00Rent Expense...................................................................... 1,540.00Miscellaneous Expense..................................................... 283 .50

33,338 .10 33,338 .10

8181

Prob. 2–6B

1.

PATEL VIDEOGRAPHYTrial Balance

December 31, 20—

Cash..................................................................................... 3,765*Accounts Receivable......................................................... 8,500Supplies.............................................................................. 1,250Prepaid Insurance.............................................................. 950Equipment........................................................................... 30,000Notes Payable..................................................................... 10,000Accounts Payable.............................................................. 3,100Ramesh Patel, Capital........................................................ 18,000Ramesh Patel, Drawing...................................................... 7,500Fees Earned........................................................................ 98,900Wages Expense.................................................................. 56,730Rent Expense...................................................................... 11,585Advertising Expense.......................................................... 5,250Gas, Electricity, and Water Expense................................ 3,150Miscellaneous Expense..................................................... 1,320

130,000 130,000* $1,865 – $2,500 (a) + $4,400 (b)

2. No. The trial balance indicates only that the debits and credits are equal. Any errors that have the same effect on debits and credits will not affect the bal-ancing of the trial balance.

8282

CONTINUING PROBLEM

2. and 3.

JOURNAL Page 1


2002Dec. 1 Cash......................................................... 11 1,500

Lynn Kwan, Capital............................ 31 1,500

1 Office Rent Expense.............................. 51 800Cash.................................................... 11 800


2 Cash......................................................... 11 600Accounts Receivable......................... 12 600

3 Cash......................................................... 11 2,400Unearned Revenue............................. 23 2,400

3 Accounts Payable................................... 21 125Cash.................................................... 11 125


5 Office Equipment.................................... 17 2,500Accounts Payable.............................. 21 2,500

8 Advertising Expense.............................. 55 100Cash.................................................... 11 100

11 Cash......................................................... 11 300Fees Earned........................................ 41 300

13 Equipment Rent Expense...................... 52 250Cash.................................................... 11 250

14 Wages Expense...................................... 50 600Cash.................................................... 11 600

8383

CHAPTER 3 Continuing Problem Continued

2. and 3.

JOURNAL Page 2


2002Dec. 16 Cash......................................................... 11 550

Fees Earned........................................ 41 550

18 Supplies................................................... 14 375Accounts Payable.............................. 21 375

21 Music Expense........................................ 54 120Cash.................................................... 11 120

22 Advertising Expense.............................. 55 250Cash.................................................... 11 250

23 Cash......................................................... 11 200Accounts Receivable............................. 12 580

Fees Earned........................................ 41 780

27 Utilities Expense..................................... 53 280Cash.................................................... 11 280

28 Wages Expense...................................... 50 600Cash.................................................... 11 600


30 Cash......................................................... 11 300Accounts Receivable............................. 12 300

Fees Earned........................................ 41 600

31 Cash......................................................... 11 1,000Fees Earned........................................ 41 1,000

31 Music Expense........................................ 54 300Cash.................................................... 11 300

31 Lynn Kwan, Drawing.............................. 32 1,000Cash.................................................... 11 1,000

8484

Continuing Problem Continued

1. and 3.



2002Dec. 1 Balance................................. ............ ............ 3,080 ............

1 ............................................... 1 1,500 ............ 4,580 ............1 ............................................... 1 ............ 800 3,780 ............1 ............................................... 1 ............ 1,680 2,100 ............2 ............................................... 1 600 ............ 2,700 ............3 ............................................... 1 2,400 ............ 5,100 ............3 ............................................... 1 ............ 125 4,975 ............4 ............................................... 1 ............ 75 4,900 ............8 ............................................... 1 ............ 100 4,800 ............

11 ............................................... 1 300 ............ 5,100 ............13 ............................................... 1 ............ 250 4,850 ............14 ............................................... 1 ............ 600 4,250 ............16 ............................................... 2 550 ............ 4,800 ............21 ............................................... 2 ............ 120 4,680 ............22 ............................................... 2 ............ 250 4,430 ............23 ............................................... 2 200 ............ 4,630 ............27 ............................................... 2 ............ 280 4,350 ............28 ............................................... 2 ............ 600 3,750 ............29 ............................................... 2 ............ 85 3,665 ............30 ............................................... 2 300 ............ 3,965 ............31 ............................................... 2 1,000 ............ 4,965 ............31 ............................................... 2 ............ 300 4,665 ............31 ............................................... 2 ............ 1,000 3,665 ............

Accounts Receivable 122002Dec. 1 Balance................................. ............ ............ 600 ............

2 ............................................... 1 ............ 600 — —23 ............................................... 2 580 ............ 580 ............30 ............................................... 2 300 ............ 880 ............

Supplies 142002Dec. 1 Balance................................. ............ ............ 85 ............

18 ............................................... 2 375 ............ 460 ............

Prepaid Insurance 152002Dec. 1 ............................................... 1 1,680 ............ 1,680 ............

8585


Office Equipment 17Post. Balance


2002Dec. 5 ............................................... 1 2,500 ............ 2,500 ............

Accumulated Depreciation—Office Equipment 18This account is not used in Chapter 2.

Accounts Payable 212002Dec. 1 Balance................................. ............ ............ ............ 125

3 ............................................... 1 125 ............ — —5 ............................................... 1 ............ 2,500 ............ 2,500

18 ............................................... 2 ............ 375 ............ 2,875

Wages Payable 22This account is not used in Chapter 2.

Unearned Revenue 232002Dec. 3 ............................................... 1 ............ 2,400 ............ 2,400

Lynn Kwan, Capital 312002Dec. 1 Balance................................. ............ ............ ............ 3,500

1 ............................................... 1 ............ 1,500 ............ 5,000

Lynn Kwan, Drawing 322002Dec. 1 Balance................................. ............ ............ 125 ............

31 ............................................... 2 1,000 ............ 1,125 ............

Income Summary 33This account is not used in Chapter 2.

Fees Earned 412002Dec. 1 Balance................................. ............ ............ ............ 2,375

11 ............................................... 1 ............ 300 ............ 2,67516 ............................................... 2 ............ 550 ............ 3,22523 ............................................... 2 ............ 780 ............ 4,00530 ............................................... 2 ............ 600 ............ 4,60531 ............................................... 2 ............ 1,000 ............ 5,605

8686


Wages Expense 50Post. Balance


2002Dec. 1 Balance................................. ............ ............ 200 ............

14 ............................................... 1 600 ............ 800 ............28 ............................................... 2 600 ............ 1,400 ............

Office Rent Expense 512002Dec. 1 Balance................................. ............ ............ 500 ............

1 ............................................... 1 800 ............ 1,300 ............

Equipment Rent Expense 522002Dec. 1 Balance................................. ............ ............ 325 ............

13 ............................................... 1 250 ............ 575 ............

Utilities Expense 532002Dec. 1 Balance................................. ............ ............ 150 ............

27 ............................................... 2 280 ............ 430 ............

Music Expense 542002Dec. 1 Balance................................. ............ ............ 470 ............

21 ............................................... 2 120 ............ 590 ............31 ............................................... 2 300 ............ 890 ............

Advertising Expense 552002Dec. 1 Balance................................. ............ ............ 300 ............

8 ............................................... 1 100 ............ 400 ............22 ............................................... 2 250 ............ 650 ............

Supplies Expense 562002Dec. 1 Balance................................. ............ ............ 90 ............

Insurance Expense 57This account is not used in Chapter 2.

8787

Continuing Problem Concluded

Depreciation Expense 58Post. Balance


This account is not used in Chapter 2.

Miscellaneous Expense 592002Dec. 1 Balance................................. ............ ............ 75 ............

4 ............................................... 1 75 ............ 150 ............29 ............................................... 2 85 ............ 235 ............

4.

DANCIN MUSICTrial Balance

December 31, 2002

Cash..................................................................................... 3,665Accounts Receivable......................................................... 880Supplies.............................................................................. 460Prepaid Insurance.............................................................. 1,680Office Equipment................................................................ 2,500Accounts Payable.............................................................. 2,875Unearned Revenue............................................................. 2,400Lynn Kwan, Capital............................................................ 5,000Lynn Kwan, Drawing.......................................................... 1,125Fees Earned........................................................................ 5,605Wages Expense.................................................................. 1,400Office Rent Expense.......................................................... 1,300Equipment Rent Expense.................................................. 575Utilities Expense................................................................. 430Music Expense................................................................... 890Advertising Expense.......................................................... 650Supplies Expense............................................................... 90Miscellaneous Expense..................................................... 235

15,880 15,880

8888

SPECIAL ACTIVITIES

Activity 2–1

Acceptable ethical conduct requires that Dana look for the difference. If Dana cannot find the difference within a reasonable amount of time, she should confer with her supervisor as to what action should be taken so that the financial state-ments can be prepared by the 5 o'clock deadline. Dana's responsibility to her employer is to act with integrity, objectivity, and due care, so that users of the fi -nancial statements will not be misled.

Activity 2–2

The following general journal entry should be used to record the receipt of tu-ition payments received in advance of classes:

Cash...................................................................... XXXXUnearned Tuition Deposits........................... XXXX

Cash is an asset account, and Unearned Tuition Deposits is a liability account. As the classes are taught throughout the term, the unearned tuition deposits be-come earned revenue.

Activity 2–3

The journal is called the book of original entry. It provides a time-ordered history of the transactions that have occurred for the firm. This time-ordered history is very important because it allows one to trace ledger account balances back to the original transactions that created those balances. This is called an “audit trail.” If the firm recorded transactions by posting ledgers directly, it would be nearly impossible to reconstruct actual transactions. The debits and credits would all be separated and accumulated into the ledger balances. Once the transactions became part of the ledger balances, the original transactions would be lost. In other words, there would be no audit trail, and any errors that might occur in recording transactions would be almost impossible to trace. Thus, firms first record transaction debits and credits in a journal. These transactions are then posted to the ledger to update the account balances. The journal and ledger are linked using posting references. This allows an analyst to trace the transac-tion flow forward or backward, depending upon the need.

8989

Activity 2–4

1. The rules of debit and credit must be memorized. Sean is correct in that the rules of debit and credit could be reversed as long as everyone accepted and abided by the rules. However, the important point is that everyone accepts the rules as the way in which transactions should be recorded. This gener-ates uniformity across the accounting profession and reduces errors and confusion. Since the current rules of debit and credit have been used for centuries, Sean should adapt to the current rules of debit and credit, rather than devise his own.

The primary reason that all accounts do not have the same rules for in-creases and decreases is for control of the recording process. The double-entry accounting system, which includes both (1) the rules of debit and credit and (2) the accounting equation, guarantees that (1) debits always equals credits and (2) assets always equals liabilities plus owner’s equity. If all increases in the account were recorded by debits, then the control that debits always equals credits would be removed. In addition, the control that the normal balance of assets is a debit would also be removed. The account-ing equation would still hold, but the control over recording transactions would be weakened.

Sean is correct that we could call the left and right sides of an account differ-ent terms, such as “LE” or “RE.” Again, centuries of tradition dictate the cur-rent terminology used. One might note, however, that in Latin, debere (debit) means left and credere (credit) means right.

2. The accounting system may be designed to capture information about the buying habits of various customers or vendors, such as the quantity nor-mally ordered, average amount ordered, number of returns, etc. Thus, in a sense, there can be other “sides” of (information about) a transaction that are recorded by the accounting system. Such information would be viewed as supplemental to the basic double-entry accounting system.

9090

Activity 2–5

a. Although the titles and numbers of accounts may differ, depending on how expenses are classified, the following accounts would be adequate for recording transaction data for Fairway Caddy Service:

Balance Sheet Accounts Income Statement Accounts

1. Assets 4. Revenue 11 Cash 41 Service Revenue12 Accounts Receivable13 Supplies 5. Expenses

51 Rent Expense2. Liabilities 52 Supplies Expense

21 Accounts Payable 53 Salary Expense54 Utilities Expense

3. Owner's Equity 55 Miscellaneous Expense31 Shelley Dolvin, Capital32 Shelley Dolvin, Drawing

b.

FAIRWAY CADDY SERVICEIncome Statement

For Month Ended June 30, 20—

Service revenue.................................................................. $2,975Operating expenses:

Rent expense............................................................... $1,200Supplies expense........................................................ 402Salary expense............................................................ 260Utilities expense.......................................................... 105Miscellaneous expense.............................................. 125

Total operating expenses.................................... 2,092 Net income.......................................................................... $ 883

Note to Instructors: Students may have prepared slightly different income state-ments, depending upon the titles of the major expense classifications chosen. Regardless of the classification of expenses, however, the total sales, total oper-ating expenses, and net income should be as presented above.

T accounts are not required for the preparation of the income statement of Fair-way Caddy Service. The following presentation illustrates one solution using T accounts. Alternative solutions are possible if students used different accounts. In presenting the following T account solution, instructors may wish to empha-size the advantages of using T accounts (or a journal and four-column accounts) when a large number of transactions must be recorded.

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Activity 2–5 Continued

Cash 11 Service Revenue 41

20— 20— 20—June 1 1,500 June 1 200 June 15 1,120

15 1,120 2 150 25 38030 1,475 3 750 30 1,47530 175 17 180 2,975

2,250 4,270 20 25028 125 Rent Expense 51

30 105 20—

30 260 June 1 200

2,020 3 1,0001,200

Accounts Receivable 12 Supplies Expense 52

20— 20— 20—June 25 380 June 30 175 June 30 402

205

Supplies 13 Salary Expense 5320— 20— 20—June 2 150 June 30 402 June 30 260

7 18022 170 Utilities Expense 5498 500 20—

June 30 105Accounts Payable 21

20— 20— Miscellaneous Expense 55June 17 180 June 3 250 20—

20 250 7 180 June 28 125430 22 170

170 600

Shelley Dolvin, Capital 3120—June 1 1,500

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Activity 2–5 Concluded

c. $2,250, computed in the following manner:

Cash receipts:Initial investment................................................... $1,500Cash sales............................................................. 2,595Collections on accounts...................................... 175

Total cash receipts during June.................. $4,270

Cash disbursements:Rent expense......................................................... $1,200Supplies purchased for cash............................... 150Salary expense...................................................... 260Payment for supplies on account....................... 180Utilities expense.................................................... 105Miscellaneous expense........................................ 125

Total cash disbursements during June...... 2,020

Cash on hand according to records.......................... $2,250*

*If the student used T accounts in completing part (b), or this part, this amount ($2,250) should agree with the balance of the cash account.

d. The difference of $130 between the cash on hand according to records ($2,250) and the cash on hand according to the count ($2,120) could be due to many factors, including errors in the record keeping and withdrawals made by Shelley.

Activity 2–6

Note to Instructors: The purpose of this activity is to familiarize students with the job opportunities available in accounting or in fields that require (or prefer) the employee to have some knowledge of accounting.

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ch02 analyzing transaction

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