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Chapter 2

 

Accounting for Business Transactions

 

QUESTIONS

 

1. a. Common asset accounts: cash, accounts receivable, notes receivable, prepaid expenses (rent, insurance, etc.), office supplies, store supplies, equipment, building, and land.
2. Common liability accounts: accounts payable, notes payable, and unearned revenue, wages payable, and taxes payable.
3. Common equity accounts: common stock and dividends.
4. 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.
5. 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.
6. A general journal can be used to record any business transaction or event.
7. Debited accounts are commonly recorded first. The credited accounts are commonly indented.
8. 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.
9. Expense accounts have debit balances because they are decreases to equity (and equity has a credit balance).
10. 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.
11. 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 retained earnings, and statement of cash flows.
11. 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. 
12. 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.
13. 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.
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.
15. The balance sheet is sometimes referred to as the statement of financial position.
16. Debit balance accounts on the Apple balance sheet include: Cash and cash equivalents; Short-term marketable securities; Accounts receivable; Inventories; Vendor non-trade receivables; Other current assets; Long-term marketable securities; Property, plant and equipment, net; Goodwill; Acquired intangible assets, net; Other non-current assets.

        Credit balance accounts on the Apple balance sheet include: Accounts payable; Accrued expenses; Deferred revenue; Commercial paper; Current portion of long-term debt; Deferred revenue, non-current; Long-term debt; Other non-current liabilities; Common stock; Retained earnings; Accumulated other comprehensive income (current year abnormal debit balance).

17. The asset accounts with receivable in its account title are: Accounts receivable, net; Income taxes receivable, net. The liabilities with payable in the account title are: Accounts payable; Income taxes payable, net; Income taxes payable, non-current.
18. Samsung’s balance sheet lists the following current liabilities: Trade payables; Short-term borrowings; Other payables; Advances received; Withholdings; Accrued expenses; Income tax payable; Current portion of long-term liabilities; Provisions; Other current liabilities; Liabilities held-for-sale.

       Samsung’s balance sheet lists the following noncurrent liabilities: Debentures; Long-term borrowings; Long-term other payables; Net defined benefit liabilities; Deferred income tax liabilities; Provisions; Other non-current liabilities.

 

 

 

Quick Studies

 

Quick Study 2-1 (10 minutes)

 

The likely source documents include:

1. Sales receipt
2. Invoice from supplier
3. Bank statement
4. Telephone bill

 

 

Quick Study 2-2 (5 minutes)

 

1. A Asset
2. A Asset
3. A Asset
4. A Asset
5. A Asset
6. EQ Equity
7. L Liability
8. L Liability
9. EQ Equity

 

 

Quick Study 2-3 (5 minutes)

 

1. E Expense        655
2. R Revenue        406
3. A Asset             110
4. A Asset             169
5. L Liability         201
6. A Asset             161
7. L Liability         245
8. EQ Equity            307   
9. E Expense        690

 

 

Quick Study 2-4 (10 minutes)

 

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

 

 

 

Quick Study 2-5 (10 minutes)

 

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

 

 

 

Quick Study 2-6 (15 minutes)

 

a.

    1) Analyze:

Assets	=	Liabilities	+	Equity
Cash        Equipment				Common Stock
7,000   +     3,000	=	0	+	10,000

 

     2) Record:

Date	Account Titles and Explanation	PR	Debit	Credit
May 15	Cash……………………………………………………….	101	7,000
	Equipment………………………………………………	167	3,000
	Common Stock………………………………	307		10,000
	Owner investment in exchange for stock.

 

     3) Post

Cash       101
7,000

 

Common Stock  307
	10,000

 

Equipment   167
3,000

 

 

Quick Study 2-6 (Continued)

 

b.

    1) Analyze:

Assets	=	Liabilities	+	Equity
Office Supplies		Accounts Payable
500	=	500	+	0

 

     2) Record:

Date	Account Titles and Explanation	PR	Debit	Credit
May 21	Office Supplies……………………………..	124	500
	Accounts Payable………………..	201		500
	Purchased office supplies on credit.

 

     3) Post

Office Supplies   124
500

Accounts Payable  201
	500

 

 

 

 

 

c.

    1) Analyze:

Assets	=	Liabilities	+	Equity
Cash				Landscaping Revenue
4,000	=	0	+	4,000

 

     2) Record:

Date	Account Titles and Explanation	PR	Debit	Credit
May 25	Cash……………………………………………………….	101	4,000
	Landscaping Revenue…………………….	403		4,000
	Received cash for landscaping services.

 

     3) Post

Landscaping Revenue        403
	4,000

Cash             101
4,000

 

 

 

 

Quick Study 2-6 (Continued)

 

d.

    1) Analyze:

Assets	=	Liabilities	+	Equity
Cash		Unearned Landscaping Revenue
1,000	=	1,000	+	0

 

     2) Record:

Date	Account Titles and Explanation	PR	Debit	Credit
May 30	Cash……………………………………………………….	101	1,000
	Unearned Landscaping Revenue…….	236		1,000
	Received cash in advance for landscaping services.

 

Cash      101
1,000

     3) Post

Unearned Landscaping Revenue           236
	1,000

 

 

 

 

Quick Study 2-7 (10 minutes)

 

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

 

 

 

 

Quick Study 2-8 (10 minutes)

 

The correct answer is a.

 

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 2-9 (10 minutes)

 

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

 

 

 

 

 

 

Quick Study 2-10 (10 minutes)

1. b. c.

Cash						Accounts Payable						Supplies
	100			50			2,000			8,000				10,000			3,800
	300			60			2,700							1,100
	20
Bal.	310								Bal.	3,300			Bal.	7,300

1. e. f.

Accounts Receivable						Wages Payable						Cash
	600			150						700				11,000			4,500
				150			700							800			6,000
				150										100			1,300
				100
Bal.	50								Bal.	0			Bal.	100

 

 

 

Quick Study 2-11 (15 minutes)

 

May 1   Accounts Receivable…………………………………      2,000

                   Consulting Revenue…………………………….                        2,000

                    Billed customer for services provided.

        3   Supplies……………………………………………………         300

                   Accounts Payable………………………………..                        300

                    Purchased supplies on credit.

        9   Cash………………………………………………………….         500

                   Accounts Receivable……………………………                        500

                Received cash toward an account receivable.

      20   Accounts Payable……………………………………..         300

                   Cash……………………………………………………                        300

                    Made payment toward account payable.

      31   Utilities Expense………………………………………..         100

                   Cash……………………………………………………                        100

                    Paid for May utilities.

 

 

 

 

Quick Study 2-12 (15 minutes)

 

LAWSON CONSULTING

Income Statement

For Month Ended June 30

Revenues

     Service revenue………………………………                       $ 12,000

Expenses

     Wages expense……………………………….     $ 6,000

     Rent expense…………………………………..        2,000

     Total expenses………………………………..                           8,000

          Net income…………………………………………..                       $   4,000

 

 

 

 

Quick Study 2-13 (15 minutes)

 

LAWSON CONSULTING

Statement of Retained Earnings

For Month Ended June 30

Retained earnings, June 1…………………….                        $         0

Add:   Net income (from QS 2-12)……………..                           4,000

                                                                                                 4,000

Less:  Cash dividends………………………….                            1,500

          Retained earnings, June 30…………………..                        $  2,500

 

 

Quick Study 2-14 (15 minutes)

 

LAWSON CONSULTING

Balance Sheet

June 30

 

                Assets                                       Liabilities

Cash…………………………     $  5,000        Accounts payable…………….     $  3,000

Accounts receivable….         4,500                Equity

Equipment………………..         6,500        Common stock…………………………       10,500

                                                                 Retained earnings^*……………           2,500

                                            ______        Total equity……………………..         13,000

Total assets………………    $16,000        Total liabilities & equity………………………..     $16,000

^* Amount from Quick Study 2-13.

 

 

Quick Study 2-15 (10 minutes)

 

Debt ratio = Total liabilities / Total assets = $38,633 mil / $42,966 mil = 89.9%                           

 

Interpretation: Its debt ratio of 89.9% exceeds the 60% of its competitors.  Home Depot’s financial leverage, and accordingly its riskiness, can be judged as above average based on the debt ratio.

 

 

 

 

 

 

Exercises

 

Exercise 2-1 (10 minutes)

 

   4      a.  Prepare and analyze the trial balance.

   1      b.  Analyze each transaction from source documents.

   2      c.  Record relevant transactions in a journal.

   3      d.  Post journal information to ledger accounts.

 

 

 

Exercise 2-2 (10 minutes)

 

a.	5   “Three”	d.	1   “Asset”
b.	2   “Equity”	e.	3   “Account”
c.	4   “Liability”

 

 

 

Exercise 2-3 (5 minutes)

 

a.	1   “Chart”
b.	2   “General ledger”
c.	5   “Source document”
d.	4   “Account”
e.	3   “Journal”

 

 

Exercise 2-4 (15 minutes)

 

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

 

 

Exercise 2-5 (15 minutes)

 

1. Analyze:

Assets	=	Liabilities	+	Equity
Cash       Equipment		Note Payable		Revenue
10,000   +    80,000	=	28,000	+	62,000

 

1. Record:

Account Titles and Explanation	PR	Debit	Credit
Cash…………………………………………………………..	101	10,000
Equipment………………………………………………….	167	80,000
Note Payable……………………………………….	245		28,000
Revenue…………………………………………….	404		62,000
Services given in return for assets and a liability.

 

1. Post

 

 

Cash        101
10,000

Note Payable   245
	28,000

Revenue      404
	62,000

Equipment    167
80,000

 

 

Exercise 2-6 (15 minutes)

 

a.	Beginning accounts payable (credit)……………………	$152,000
	Purchases on account in October (credits)…………..	281,000
	Payments on accounts in October (debits)…………..	(           ?)
	Ending accounts payable (credit)………………………..	$132,500
	Payments on accounts in October (debits)…………..	$300,500
b.	Beginning accounts receivable (debit)…………………	$102,500
	Sales on account in October (debits)…………………..	?
	Collections on account in October (credits)………….	(102,890)
	Ending accounts receivable (debit)……………………..	$  89,000
	Sales on account in October (debits)…………………..	$  89,390
c.	Beginning cash balance (debit)…………………………..	$           ?
	Cash received in October (debits)……………………….	102,500
	Cash disbursed in October (credits)……………………	(103,150)
	Ending cash balance (debit)……………………………….	$  18,600
	Beginning cash balance (debit)…………………………..	$  19,250

 

 

Exercise 2-7 (25 minutes)

 

Aug. 1  Cash………………………………………………………….      6,500

             Photography Equipment…………………………….    33,500

                   Common Stock……………………………………                      40,000

                Owner investment in exchange for stock.

        2   Prepaid Insurance……………………………………..      2,100

                   Cash……………………………………………………                     2,100

                Acquired 2 years of insurance coverage.

        5   Office Supplies………………………………………….         880

                   Cash……………………………………………………                        880

                Purchased office supplies.

      20   Cash………………………………………………………….      3,331

                   Photography Fees Earned……………………                     3,331

                Collected photography fees.

      31   Utilities Expense………………………………………..         675

                   Cash……………………………………………………                        675

                Paid for August utilities.

 

Exercise 2-8 (30 minutes)

 

Part 1

 

Cash						Photography Equipment
Aug.  1	6,500		Aug.   2	2,100		Aug.  1	33,500
20	3,331		5	880
			31	675		Common Stock
Balance	6,176							Aug.  1		40,000
Office Supplies						Photography Fees Earned
Aug. 5	880							Aug. 20		3,331
Prepaid Insurance						Utilities Expense
Aug. 2	2,100					Aug. 31	675

 

 

Part 2

 

Pose-for-pics
Trial Balance
August 31
	Debit	Credit
Cash………………………………………	$  6,176
Office supplies……………………….	880
Prepaid insurance………………….	2,100
Photography equipment…………	33,500
Common stock………………………		$40,000
Photography fees earned……….		3,331
Utilities expense…………………….	675	______
Totals…………………………………….	$43,331	$43,331

 

Exercise 2-9 (30 minutes)

 

1. Cash………………………………………………………………… 100,750

               Common Stock     …………………………………………………………………..   100,750

           Owner investment in exchange for stock.

 

1. Office Supplies…………………………………………………. 1,250

               Cash…………………………………………………………..                  1,250

            Purchased supplies with cash.

 

1. Office Equipment……………………………………………… 10,050

               Accounts Payable         …………………………………………………. 10,050

            Purchased office equipment on credit.

 

1. Cash………………………………………………………………… 15,500

               Fees Earned   …………………………………………………………………..     15,500

            Received cash from customer for services.

 

1. Accounts Payable…………………………………………….. 10,050

               Cash…………………………………………………………..                10,050

            Made payment toward account payable.

 

1. Accounts Receivable………………………………………… 2,700

               Fees Earned……………………………………………….                  2,700

            Billed customer for services provided.

 

1. Rent Expense…………………………………………………… 1,225

               Cash…………………………………………………………..                  1,225

            Paid for this period’s rental charge.

 

1. Cash………………………………………………………………… 1,125

               Accounts Receivable………………………………….                  1,125

            Received cash toward an account receivable.

 

1. Dividends…………………………………………………………. 10,000

               Cash…………………………………………………………..                10,000

            Paid cash dividends.

 

Exercise 2-9 (concluded)

 

Cash								Accounts Payable
(a)	100,750		(b)	1,250				(e)		10,050		(c)		10,050
(d)	15,500		(e)	10,050								Balance		0
(h)	1,125		(g)	1,225
			(i)	10,000
Balance	94,850							Common Stock
												(a)		100,750
												Balance		100,750
Accounts Receivable								Dividends
(f)	2,700		(h)		1,125			(i)		10,000
Balance	1,575							Balance		10,000
Office Supplies								Fees Earned
(b)	1,250										(d)		15,500
Balance	1,250										(f)		2,700
											Balance		18,200
Office Equipment								Rent Expense
(c)	10,050							(g)	1,225
Balance	10,050							Balance	1,225

 

 

Exercise 2-10 (15 minutes)

 

SPADE COMPANY
Trial Balance
May 31
	Debit	Credit
Cash……………………………………	$  94,850
Accounts receivable………………	1,575
Office supplies……………………..	1,250
Office equipment…………………..	10,050
Accounts payable………………….		$          0
Common stock……………………..		100,750
Dividends……………………………….	10,000
Fees earned………………………….		18,200
Rent expense…………………………	1,225	________
Totals…………………………………..	$118,950	$118,950

 

 

Exercise 2-11  (20 minutes)

 

1.

1. Account Payable…………………………………..            2,000

               Cash……………………………………………….                            2,000

                 Paid amount owed.

1. Salaries Expense………………………………….            1,200

               Cash……………………………………………….                            1,200

Paid salary of receptionist.

1. Equipment……………………………………………. 39,000

               Cash……………………………………………….                          39,000

Paid for equipment purchase.

1. Utilities Expense…………………………………..               800

               Cash……………………………………………….                               800

Paid utilities for the office.

1. Dividends……………………………………………..            4,500

               Cash……………………………………………….                            4,500

Paid cash dividends.

 

2. Transactions a, c, and e did not yield an expense for the following reasons:

 

e    This transaction is a distribution of cash to the owner (shareholder). Even though equity decreased, that decrease did not occur in the process of providing goods or services to customers.

a    This transaction decreased cash in settlement of a previously existing liability (equity did not change). Supplies expense is recorded when assets are used, not necessarily when cash is paid.

c    This transaction involves the purchase of an asset. The form of the company’s assets changed, but total assets did not (and equity did not change).

 

 

 

Exercise 2-12 (20 minutes)

1.

1. Cash…………………………………………………………… 20,000

               Common Stock………………………………………                  20,000

               Owner investment in exchange for stock.

1. Cash……………………………………………………………        900

               Services Revenue…………………………………..                       900

               Provided services for cash.

1. Cash……………………………………………………………   10,000

               Unearned Services Revenue…………………..                  10,000

               Cash received for future services.

1. Cash……………………………………………………………     3,500

               Accounts Receivable……………………………..                    3,500

               Cash received toward accounts receivable.

1. Cash……………………………………………………………     5,000

               Note Payable………………………………………….                    5,000

               Cash received for note payable to bank.

 

2. Transactions a, c, d, and e did not yield revenue for the following reasons:

d    This transaction changed the form of an asset from receivable to cash.  Total assets were not increased (revenue was recognized when the services were originally provided).

e    This transaction brought in cash (increased assets), and it also increased a liability by the same amount (represented by the signing of a note to repay the amount).

a    This transaction brought in cash, but this is an owner investment in exchange for stock.

c    This transaction brought in cash, but it created a liability to provide services to the client in the next year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise 2-13 (25 minutes)

 

 

Cash						Supplies						Prepaid Insurance
(1)	6,000		(2)	4,800		(3)	900						(2)	4,800
(5)	4,500		(4)	800
			(6)	900
			(7)	3,400

 

Equipment						Web Servers						Accounts Payable
(1)	7,600					(1)	12,000						(6)	900		(3)	900
(7)	3,400

 

Common Stock						Services Revenue						Selling Expenses
			(1)	25,600					(5)	4,500			(4)	800

 

 

Exercise 2-14 (30 minutes)

 

1. Cash………………………………………………………………… 6,000

        Equipment………………………………………………………..       7,600

        Web Servers……………………………………………………..     12,000

               Common Stock     …………………………………………………………………..     25,600

           Owner investment in exchange for stock.

 

2. Prepaid Insurance…………………………………………….. 4,800

               Cash…………………………………………………………..                  4,800

            Purchased insurance coverage.

 

3. Supplies…………………………………………………………… 900

               Accounts Payable……………………………………….                     900

            Purchased supplies on credit.

 

4. Selling Expenses……………………………………………… 800

               Cash…………………………………………………………..                     800

            Paid cash for selling expenses.

 

5. Cash………………………………………………………………… 4,500

               Services Revenue……………………………………….                  4,500

            Received cash for services provided.

 

6. Accounts Payable…………………………………………….. 900

               Cash…………………………………………………………..                     900

            Made payment on accounts payable.

 

7. Equipment……………………………………………………….. 3,400

               Cash…………………………………………………………..                  3,400

           Paid cash for equipment.

 

Exercise 2-15 (20 minutes)

 

Calculation of change in equity for part a through part d
		Assets	–	Liabilities	=	Equity
	Beginning of the year..	$  60,000	–	$20,000	=	$40,000
	End of the year………….	105,000	–	36,000	=	69,000
	Net increase in equity.					$29,000

 

a.       Net income………………………………………………….		$         ?
Plus owner investments………………………………		0
Less dividends …………………………………………..		(0)
Change in equity…………………………………………		$29,000
	Net Income = $29,000

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

 

b.       Net income………………………………………………….		$         ?
Plus owner investments………………………………		0
Less dividends ($1,250/mo. x 12 mo.)…………..		(15,000)
Change in equity…………………………………………		$29,000
	Net Income = $44,000

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

 

c.       Net income…………………………………………………		$         ?
Plus owner investment……………………………….		55,000
Less dividends……………………………………………		(0)
Change in equity…………………………………………		$29,000
	Net Loss = $26,000

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

 

d.       Net income………………………………………………….		$         ?
Plus owner investment………………………………..		35,000
Less dividends ($1,250/mo. X 12 mo.)………….		(15,000)
Change in equity…………………………………………		$29,000
	Net Income = $9,000

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

 

Exercise 2-16 (15 minutes)

 

HELP TODAY

Income Statement

For Month Ended August 31

Revenues

     Consulting fees earned……………………                       $ 27,000

Expenses

     Rent expense…………………………………..     $ 9,550

     Salaries expense……………………………..        5,600

     Telephone expense………………………….           860

     Miscellaneous expenses………………….           520

     Total expenses………………………………..                         16,530

          Net income…………………………………………..                       $ 10,470

 

 

Exercise 2-17 (15 minutes)

 

 

HELP TODAY

Statement of Retained Earnings

For Month Ended August 31

Retained earnings, August 1…………………                      $           0

Add:   Net income (from Exercise 2-16)……..                          10,470

                                                                                               10,470

Less:  Dividends…………………………………..                           6,000

          Retained earnings, August 31……………….                      $    4,470

 

Exercise 2-18 (15 minutes)

 

HELP TODAY

Balance Sheet

August 31

 

                Assets                                       Liabilities

Cash…………………………   $  25,360        Accounts payable…………….     $  10,500

Accounts receivable….       22,360                       Equity

Office supplies………….         5,250        Common stock…………………………     102,000

Office equipment……….      20,000        Retained earnings^*……………             4,470

Land………………………….       44,000        Total equity……………………..         106,470

Total assets……………… $116,970        Total liabilities & equity………………………..   $116,970

 

^* Amount from Exercise 2-17.

 

 

 

 

Exercise 2-19 (15 minutes)

 

	CBS		ABC		CNN		NBC
Answers	$(28,000)		$42,000		$73,000		$(45,000)
Computations:
Equity, beginning of year………………………….	$          0		$         0		$         0		$           0
Owner’s investments..	110,000		42,000		87,000		210,000
Dividends…………………	(28,000)		(47,000)		(10,000)		(55,000)
Net income (loss)……..	22,000		90,000		(4,000)		(45,000)
Equity, end of year……	$104,000		$85,000		$73,000		$110,000

 

 

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.	$3,600 debit to Rent Expense is posted as a $1,340 debit.	$2,260	Credit	Rent Expense	Rent Expense is understated by $2,260
b.	$6,500 credit to Cash is posted twice as two credits to Cash.	$6,500	Credit	Cash	Cash is understated by $6,500
c.	$10,900 debit to the Dividends account is debited to Common Stock.	$0	––	Common Stock Dividends	Common Stock is understated by $10,900 Dividends is understated by $10,900
d.	$2,050 debit to Prepaid Insurance is posted as a debit to Insurance Expense.	$0	––	Prepaid Insurance Insurance Expense	Prepaid Insurance is understated by $2,050  Insurance Expense is overstated by $2,050
e.	$38,000 debit to Machinery is posted as a debit to Accounts Payable.	$0	––	Machinery Accounts Payable	Machinery is understated by $38,000 Accounts Payable is understated by $38,000
f.	$5,850 credit to Services Revenue is posted as a $585 credit.	$5,265	Debit	Services Revenue	Services Revenue is understated by $5,265
g.	$1,390 debit to Store Supplies is not posted.	$1,390	Credit	Store Supplies	Store Supplies is understated by $1,390

 

Exercise 2-21 (15 minutes)

	Overstated, Understated, or Correctly-Stated	Amount
a.	Correctly-stated. The debit column is correctly stated because the erroneous debit (to Accounts Payable) is deducted from an account with a (larger assumed) credit balance.	$0
b.	Understated. The credit column is understated by $37,900 because Accounts Payable was debited — it should have been credited.	$37,900
c.	Correctly-stated. The Automobiles account balance is correctly stated.	$0
d.	Understated. The Accounts Payable account balance is understated by $37,900.  It should have been increased (credited) by $18,950 but the posting error decreased (debited) it by $18,950.	$37,900
e.	The credit column is $37,900 less than the debit column, or $162,100 in total ($200,000 – $37,900).

 

 

 

 

Exercise 2-22  (15 minutes)

a.

Company	Liabilities	/	Assets	=	Debt Ratio
Dreamworks	$ 30,000		$ 40,000		0.75
Pixar	147,000		150,000		0.98
Universal	17,000		68,000		0.25

 

1. Pixar has the largest financial leverage because it has the larger debt ratio in comparison to both Dreamworks and Universal.

 

 

 

Exercise 2-23 (25 minutes)

 

June 1  Cash………………………………………………………….    11,000

                   Common Stock……………………………………                      11,000

                    Owner investment in exchange for stock.

        2   Furniture……………………………………………………      4,000

                   Accounts Payable………………………………..                     4,000

                    Purchased furniture on credit.

        3   Prepaid Insurance……………………………………..         600

                   Cash……………………………………………………                        600

                    Paid premium in advance for insurance.

        4   Accounts Receivable…………………………………      3,000

                   Fees Earned…………………………………………                     3,000

                    Billed customer for services provided.

      12   Accounts Payable……………………………………..      4,000

                   Cash……………………………………………………                     4,000

                    Made payment toward account payable.

      20   Cash………………………………………………………….      3,000

                   Accounts Receivable……………………………                     3,000

                    Received cash toward account receivable.

      21   Cash………………………………………………………….    10,000

                   Common Stock……………………………………                   10,000

                    Owner investment in exchange for stock.

      30   Cash………………………………………………………….      5,000

                   Unearned Revenue………………………………                     5,000

                    Cash received in advance for future services.

 

 

 

Problem  sET  A

 

Problem 2-1A (90 minutes)

Part 1

April 1    Cash…………………………………………………. 101    80,000     

               Office Equipment………………………………. 163    26,000     

                       Common Stock…………………………… 307                 106,000

                     Owner investment in exchange for stock.

 

         2    Prepaid Rent……………………………………… 131      9,000     

                       Cash………………………………………….. 101                     9,000

                     Prepaid twelve months’ rent.

 

         3    Office Equipment………………………………. 163      8,000

               Office Supplies………………………………….. 124      3,600

                       Accounts Payable……………………….. 201                   11,600

                     Purchased equip. & supplies on credit.

 

         6    Cash…………………………………………………. 101      4,000

                       Services Revenue……………………….. 403                     4,000

                     Received cash for services.

 

         9    Accounts Receivable…………………………. 106      6,000

                       Services Revenue……………………….. 403                     6,000

                     Billed client for completed work.

 

       13    Accounts Payable……………………………… 201    11,600

                       Cash………………………………………….. 101                   11,600

                     Paid balance due on account.

 

       19    Prepaid Insurance……………………………… 128      2,400     

                       Cash………………………………………….. 101                     2,400

                     Paid premium for insurance.

 

       22    Cash…………………………………………………. 101      4,400     

                       Accounts Receivable………………….. 106                     4,400

                     Collected part of amount owed by client.

 

       25    Accounts Receivable…………………………. 106      2,890

                       Services Revenue……………………….. 403                     2,890

                     Billed client for completed work.

 

       28    Dividends………………………………………….. 319      5,500

                       Cash………………………………………….. 101                     5,500

                     Paid cash dividends.

 

       29    Office Supplies………………………………….. 124         600

                       Accounts Payable……………………….. 201                       600

                     Purchased supplies on account.

 

       30    Utilities Expense……………………………….. 690         435     

                       Cash………………………………………….. 101                        435

                     Paid monthly utility bill.

 

Problem 2-1A (Continued)

Part 2

Cash						Acct. No. 101
Date		Explanation	PR	Debit	Credit		Balance
April	1		G1	80,000			80,000
	2		G1		9,000		71,000
	6		G1	4,000			75,000
	13		G1		11,600		63,400
	19		G1		2,400		61,000
	22		G1	4,400			65,400
	28		G1		5,500		59,900
	30		G1		435		59,465
Accounts Receivable					Acct. No. 106
Date		Explanation	PR	Debit	Credit		Balance
April	9		G1	6,000			6,000
	22		G1		4,400		1,600
	25		G1	2,890			4,490
Office Supplies					Acct. No. 124
Date		Explanation	PR	Debit	Credit		Balance
April	3		G1	3,600			3,600
	29		G1	600			4,200
Prepaid Insurance					Acct. No. 128
Date		Explanation	PR	Debit	Credit		Balance
April	19		G1	2,400			2,400
Prepaid Rent					Acct. No. 131
Date		Explanation	PR	Debit	Credit		Balance
April	2		G1	9,000			9,000
Office Equipment					Acct. No. 163
Date		Explanation	PR	Debit	Credit		Balance
April	1		G1	26,000			26,000
	3		G1	8,000			34,000

 

 

 

Problem 2-1A (Continued)

 

Accounts Payable					Acct. No. 201
Date		Explanation	PR	Debit	Credit	Balance
April	3		G1		11,600	11,600
	13		G1	11,600		0
	29		G1		600	600
Common Stock					Acct. No. 307
Date		Explanation	PR	Debit	Credit	Balance
April	1		G1		106,000	106,000
Dividends					Acct. No. 319
Date		Explanation	PR	Debit	Credit	Balance
April	28		G1	5,500		5,500
Services Revenue					Acct. No. 403
Date		Explanation	PR	Debit	Credit	Balance
April	6		G1		4,000	4,000
	9		G1		6,000	10,000
	25		G1		2,890	12,890
Utilities Expense					Acct. No. 690
Date		Explanation	PR	Debit	Credit	Balance
April	30		G1	435		435

 

Problem 2-1A (Continued)

Part 3

 

LINKWORKS

Trial Balance

April 30

                                                                                     Debit             Credit

 

Cash……………………………………………………………. $  59,465                   

Accounts receivable……………………………………..        4,490                   

Office supplies……………………………………………..        4,200                   

Prepaid insurance…………………………………………        2,400                   

Prepaid rent………………………………………………….        9,000                   

Office equipment…………………………………………..      34,000                   

Accounts payable…………………………………………                        $       600

Common stock……………………………………………..                         106,000

Dividends……………………………………………………..        5,500                     

Services revenue………………………………………….                            12,890

Utilities expense……………………………………………          435                        ……………………………………………………………

Total……………………………………………………………. $119,490       $119,490

 

Problem 2-2A (90 minutes)

Part 1

          

1. Cash…………………………………………………. 101  100,000     

               Office Equipment………………………………. 163      5,000

               Drafting Equipment……………………………. 164    60,000     

                       Common Stock…………………………… 307                 165,000

                     Owner investment in exchange for stock.

 

 

1. Land…………………………………………………. 172 49,000     

                       Cash………………………………………….. 101                     6,300

                       Notes Payable…………………………….. 250                   42,700

                     Purchased land with cash and note payable.

 

 

1. Building……………………………………………. 170 55,000

                           Cash………………………………………….. 101                          55,000

                     Purchased building.

 

 

1. Prepaid Insurance……………………………… 108 3,000

                       Cash………………………………………….. 101                     3,000

                     Purchased 18-month insurance policy.

 

 

1. Cash…………………………………………………. 101 6,200

                       Engineering Fees Earned……………. 402                     6,200

                     Collected cash for completed work.

 

 

1. Drafting Equipment……………………………. 164 20,000

                       Cash………………………………………….. 101                     9,500

                       Notes Payable…………………………….. 250                   10,500

                     Purchased equipment with cash and note payable.

 

 

1. Accounts Receivable…………………………. 106 14,000     

                       Engineering Fees Earned……………. 402                   14,000

                     Completed services for client.

 

 

1. Office Equipment………………………………. 163 1,150     

                       Accounts Payable……………………….. 201                     1,150

                     Purchased equipment on credit.

 

 

Problem 2-2A (Part 1 Continued)

 

 

 

1. Accounts Receivable…………………………. 106 22,000

                       Engineering Fees Earned……………. 402                  22,000

                     Billed client for completed work.

 

1. Equipment Rental Expense………………… 602 1,333

                       Accounts Payable……………………….. 201                     1,333

                     Incurred equipment rental expense.

 

 

1. Cash…………………………………………………. 101 7,000

                       Accounts Receivable………………….. 106                     7,000

                     Collected cash on account.

 

 

1. Wages Expense………………………………… 601 1,200             

                       Cash………………………………………….. 101  1,200

                     Paid assistant’s wages.

 

1. Accounts Payable……………………………… 201 1,150             

                           Cash………………………………………….. 101                           1,150

                  Paid amount due on account.

 

1. Repairs Expense……………………………….. 604 925             

                           Cash………………………………………….. 101                             925

                     Paid for repair of equipment.

 

1. Dividends………………………………………….. 319 9,480             

                       Cash………………………………………….. 101                  9,480

                     Paid cash dividends.

 

1. Wages Expense………………………………… 601 1,200             

                       Cash………………………………………….. 101                         1,200

                     Paid assistant’s wages.

 

1. Advertising Expense………………………….. 603 2,500             

                       Cash………………………………………….. 101         2,500

                     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)		100,000		100,000		(h)			1,150	1,150
(b)			6,300	93,700		(j)			1,333	2,483
(c)			55,000	38,700		(m)		1,150		1,333
(d)			3,000	35,700
(e)		6,200		41,900		Notes Payable                           No. 250
(f)			9,500	32,400		Date	PR	Debit	Credit	Balance
(k)		7,000		39,400		(b)			42,700	42,700
(l)			1,200	38,200		(f)			10,500	53,200
(m)			1,150	37,050
(n)			925	36,125
(o)			9,480	26,645		Common Stock                         No. 307
(p)			1,200	25,445		Date	PR	Debit	Credit	Balance
(q)			2,500	22,945		(a)			165,000	165,000
Accounts Receivable                 No. 106						Dividends                                   No. 319
Date	PR	Debit	Credit	Balance		Date	PR	Debit	Credit	Balance
(g)		14,000		14,000		(o)		9,480		9,480
(i)		22,000		36,000
(k)			7,000	29,000		Engineering Fees Earned         No. 402
						Date	PR	Debit	Credit	Balance
Prepaid Insurance                      No. 108						(e)			6,200	6,200
Date	PR	Debit	Credit	Balance		(g)			14,000	20,200
(d)		3,000		3,000		(i)			22,000	42,200
Office Equipment                       No. 163						Wages Expense                           No. 601
Date	PR	Debit	Credit	Balance		Date	PR	Debit	Credit	Balance
(a)		5,000		5,000		(l)		1,200		1,200
(h)		1,150		6,150		(p)		1,200		2,400
Drafting Equipment                    No. 164						Equipment Rental Expense     No. 602
Date	PR	Debit	Credit	Balance		Date	PR	Debit	Credit	Balance
(a)		60,000		60,000		(j)		1,333		1,333
(f)		20,000		80,000
Building                                       No. 170						Advertising Expense                   No. 603
Date	PR	Debit	Credit	Balance		Date	PR	Debit	Credit	Balance
(c)		55,000		55,000		(q)		2,500		2,500
Land                                             No. 172						Repairs Expense                       No. 604
Date	PR	Debit	Credit	Balance		Date	PR	Debit	Credit	Balance
(b)		49,000		49,000		(n)		925		925

 

Problem 2-2A (Concluded)

Part 3

 

Aracel Engineering

Trial Balance

June 30

                                                                                     Debit         Credit

 

Cash…………………………………………………… $  22,945                   

Accounts receivable…………………………….      29,000                   

Prepaid insurance………………………………..        3,000                   

Office equipment………………………………….        6,150                   

Drafting equipment………………………………      80,000                   

Building……………………………………………….      55,000                   

Land…………………………………………………….      49,000                   

Accounts payable………………………………..                     $    1,333

Notes payable………………………………………                         53,200

Common stock…………………………………….                       165,000

Dividends…………………………………………….        9,480                  

Engineering fees earned………………………                         42,200

Wages expense……………………………………        2,400                   

Equipment rental expense……………………        1,333                   

Advertising expense…………………………….        2,500                   

Repairs expense………………………………….          925                   

Totals…………………………………………………. $261,733    $261,733

 

Problem 2-3A (90 minutes)

 

Part 1

Mar.  1    Cash…………………………………………………. 101  150,000     

               Office Equipment………………………………. 163    22,000     

                       Common Stock…………………………… 307              172,000

                     Owner investment in exchange for stock.

 

         2    Prepaid Rent……………………………………… 131      6,000     

                       Cash………………………………………….. 101                     6,000

                     Prepaid six months’ rent.

 

         3    Office Equipment………………………………. 163      3,000

               Office Supplies………………………………….. 124      1,200

                       Accounts Payable……………………….. 201                     4,200

                     Purchased equipment and supplies on credit.

 

         6    Cash…………………………………………………. 101      4,000

                       Services Revenue……………………….. 403                     4,000

                     Received cash for services.

 

         9    Accounts Receivable…………………………. 106      7,500

                       Services Revenue……………………….. 403                     7,500

                     Billed client for completed work.

 

       12    Accounts Payable……………………………… 201      4,200

                       Cash………………………………………….. 101                     4,200

                     Paid balance due on account.

 

       19    Prepaid Insurance……………………………… 128      5,000     

                       Cash………………………………………….. 101                     5,000

                     Paid premium for insurance.

 

       22    Cash…………………………………………………. 101      3,500     

                       Accounts Receivable………………….. 106                     3,500

                     Collected part of amount owed by client.

 

       25    Accounts Receivable…………………………. 106      3,820

                       Services Revenue……………………….. 403                     3,820

                     Billed client for completed work.

 

       29    Dividends………………………………………….. 319      5,100

                       Cash………………………………………….. 101                     5,100

                     Paid cash dividends.

 

       30    Office Supplies………………………………….. 124         600

                       Accounts Payable……………………….. 201                        600

                     Purchased supplies on account.

 

       31    Utilities Expense……………………………….. 690         500     

                       Cash………………………………………….. 101                        500

                     Paid monthly utility bill.

 

Problem 2-3A (Continued)

Part 2

 

Cash						Acct. No. 101
Date		Explanation	PR	Debit	Credit		Balance
Mar.	1		G1	150,000			150,000
	2		G1		6,000		144,000
	6		G1	4,000			148,000
	12		G1		4,200		143,800
	19		G1		5,000		138,800
	22		G1	3,500			142,300
	29		G1		5,100		137,200
	31		G1		500		136,700
Accounts Receivable					Acct. No. 106
Date		Explanation	PR	Debit	Credit		Balance
Mar.	9		G1	7,500			7,500
	22		G1		3,500		4,000
	25		G1	3,820			7,820
Office Supplies					Acct. No. 124
Date		Explanation	PR	Debit	Credit		Balance
Mar.	3		G1	1,200			1,200
	30		G1	600			1,800
Prepaid Insurance					Acct. No. 128
Date		Explanation	PR	Debit	Credit		Balance
Mar.	19		G1	5,000			5,000
Prepaid Rent					Acct. No. 131
Date		Explanation	PR	Debit	Credit		Balance
Mar.	2		G1	6,000			6,000
Office Equipment					Acct. No. 163
Date		Explanation	PR	Debit	Credit		Balance
Mar.	1		G1	22,000			22,000
	3		G1	3,000			25,000

 

Problem 2-3A (Continued)

 

Part 2 (Continued)

 

Accounts Payable					Acct. No. 201
Date		Explanation	PR	Debit	Credit	Balance
Mar.	3		G1		4,200	4,200
	12		G1	4,200		0
	30		G1		600	600
Common Stock					Acct. No. 307
Date		Explanation	PR	Debit	Credit	Balance
Mar.	1		G1		172,000	172,000
Dividends					Acct. No. 319
Date		Explanation	PR	Debit	Credit	Balance
Mar.	29		G1	5,100		5,100
Services Revenue					Acct. No. 403
Date		Explanation	PR	Debit	Credit	Balance
Mar.	6		G1		4,000	4,000
	9		G1		7,500	11,500
	25		G1		3,820	15,320
Utilities Expense					Acct. No. 690
Date		Explanation	PR	Debit	Credit	Balance
Mar.	31		G1	500		500

 

Problem 2-3A (Concluded)

Part 3

 

Venture Consultants

Trial Balance

March 31

                                                                                     Debit            Credit

 

Cash……………………………………………………………. $136,700                   

Accounts receivable……………………………………..        7,820                   

Office supplies……………………………………………..        1,800                   

Prepaid insurance…………………………………………        5,000                   

Prepaid rent………………………………………………….        6,000                   

Office equipment…………………………………………..      25,000                   

Accounts payable…………………………………………                        $       600

Common stock……………………………………………..                          172,000

Dividends……………………………………………………..        5,100                     

Services revenue………………………………………….                            15,320

Utilities expense……………………………………………          500                        ……………………………………………………………

Totals………………………………………………………….. $187,920       $187,920

 

Problem 2-4A (90 minutes)

Part 1

1. Cash…………………………………………………. 101    60,000     

               Office Equipment………………………………. 163    25,000

                      Common Stock…………………………… 307                   85,000

                     Owner investment in exchange for stock.

 

 

1. Land…………………………………………………. 172 40,000

               Building……………………………………………. 170  160,000

                       Cash………………………………………….. 101                   30,000

                       Notes Payable……………………………. 250                 170,000

                     Purchased land and building with cash and note payable.

 

 

1. Office Supplies…………………………………. 108 2,000

                       Accounts Payable………………………. 201                          2,000

                     Purchased office supplies on account.

 

 

1. Automobiles……………………………………… 164 16,500

                       Common Stock………………………….. 307                   16,500

                     Owner investment in exchange for stock.

 

 

1. Office Equipment………………………………. 163 5,600

                       Accounts Payable………………………. 201                     5,600

                     Purchased office equipment on account.

 

 

1. Salaries Expense………………………………. 601 1,800

                       Cash………………………………………….. 101                     1,800

Paid assistant’s salary.

 

 

1. Cash…………………………………………………. 101 8,000     

                       Fees Earned……………………………….. 402                     8,000

                     Provided services for cash.

 

 

1. Utilities Expense……………………………….. 602 635     

                       Cash………………………………………….. 101                        635

                     Paid cash for utilities.

 

Problem 2-4A (Part 1 Continued)

 

 

1. Accounts Payable……………………………… 201 2,000

                       Cash………………………………………….. 101                     2,000

                     Paid cash on account.

 

1. Office Equipment………………………………. 163 20,300

                       Cash………………………………………….. 101                   20,300

                     Purchased new equipment with cash.

 

 

1. Accounts Receivable………………………… 106 6,250

                       Fees Earned……………………………….. 402                     6,250

                     Provided services on account.

 

 

1. Salaries Expense………………………………. 601 1,800             

                       Cash………………………………………….. 101                   1,800

                     Paid assistant’s salary.

 

1. Cash…………………………………………………. 101 4,000             

                       Accounts Receivable………………….. 106                           4,000

                          Received cash due on account.

 

1. Dividends…………………………………………. 319 2,800             

                       Cash………………………………………….. 101                          2,800

                     Paid cash dividends.

 

Problem 2-4A (Continued)

Part 2

Cash                                             No. 101						Land                                           No. 172
Date	PR	Debit	Credit	Balance		Date	PR		Debit	Credit	Balance
(a)		60,000		60,000		(b)			40,000		40,000
(b)			30,000	30,000
(f)			1,800	28,200		Accounts Payable                     No. 201
(g)		8,000		36,200		Date		PR	Debit	Credit	Balance
(h)			635	35,565		(c)				2,000	2,000
(i)			2,000	33,565		(e)				5,600	7,600
(j)			20,300	13,265		(i)			2,000		5,600
(l)			1,800	11,465
(m)		4,000		15,465		Notes Payable                           No. 250
(n)			2,800	12,665		Date	PR		Debit	Credit	Balance
						(b)				170,000	170,000
Accounts Receivable                    No. 106
Date	PR	Debit	Credit	Balance
(k)		6,250		6,250		Common Stock                         No. 307
(m)			4,000	2,250		Date	PR		Debit	Credit	Balance
						(a)				85,000	85,000
Office Supplies                           No. 108						(d)				16,500	101,500
Date	PR	Debit	Credit	Balance
(c)		2,000		2,000
						Dividends                                   No. 319
Office Equipment                       No. 163						Date	PR		Debit	Credit	Balance
Date	PR	Debit	Credit	Balance		(n)			2,800		2,800
(a)		25,000		25,000
(e)		5,600		30,600		Fees Earned                               No. 402
(j)		20,300		50,900		Date	PR		Debit	Credit	Balance
						(g)				8,000	8,000
						(k)				6,250	14,250
Automobiles                               No. 164						Salaries Expense                      No. 601
Date	PR	Debit	Credit	Balance		Date	PR		Debit	Credit	Balance
(d)		16,500		16,500		(f)			1,800		1,800
						(l)			1,800		3,600
Building                                       No. 170
Date	PR	Debit	Credit	Balance		Utilities Expense                       No. 602
(b)		160,000		160,000		Date	PR		Debit	Credit	Balance
						(h)			635		635

 

 

Problem 2-4A (Concluded)

Part 3

 

 

HV Consulting

Trial Balance

September 30

                                                                                     Debit            Credit

 

Cash ………………………………………………….. $  12,665

Accounts receivable…………………………….        2,250

Office supplies…………………………………….        2,000

Office equipment………………………………….      50,900

Automobiles………………………………………..      16,500

Building……………………………………………….    160,000

Land…………………………………………………….      40,000

Accounts payable………………………………..                        $    5,600

Notes payable………………………………………                          170,000

Common stock…………………………………….                          101,500

Dividends…………………………………………….        2,800                     

Fees earned…………………………………………                            14,250

Salaries expense………………………………….        3,600                     

Utilities expense…………………………………..          635 ……………………………………………………….                               

Total…………………………………………………… $291,350       $291,350

 

Problem 2-5A (90 minutes)

Part 1

NETTLE DISTRIBUTION

Balance Sheet

December 31, 2018

                Assets                                         Liabilities

Cash…………………………    $  64,300      Accounts payable…………….      $     3,500

Accounts receivable….        26,240

Office supplies………….          3,160

Trucks………………………      148,000                       Equity

Office equipment……….        44,000      Total equity……………………..          282,200

Total assets………………    $285,700      Total liabilities and equity………………………..    $285,700

NETTLE DISTRIBUTION

Balance Sheet

December 31, 2019

                Assets                                         Liabilities

Cash…………………………    $  15,640     Accounts payable……………..      $  33,500

Accounts receivable….        19,100     Note payable……………………..          40,000

Office supplies………….          1,960     Total liabilities……………………        73,500

Trucks………………………      157,000

Office equipment……….        44,000             

Building…………………….        80,000                        Equity

Land………………………….        60,000     Total equity……………………….          304,200

Total assets………………    $377,700     Total liabilities and equity………………………..    $377,700

 

Part 2

 

Computation of 2019 net income:

Owner investment……………………………………………………	35,000
Add net income………………………………………………………..	?
Deduct dividends……………………………………………………..	(19,000)
Increase in equity during the year…………………………….	$  22,000*

    Thus, net income = ($22,000 + $19,000 – $35,000) = $ 6,000

 

* Computation of 2019 equity increase:

Equity, December 31, 2018………………………………………………………………………………	$282,200
Equity, December 31, 2019………………………………………………………………………………	(304,200)
Increase in equity during 2019…………………………………………………………………………	$  22,000

 

Part 3

Debt Ratio =  $73,500 / $377,700  = 19.5%

 

Purchase for Continue….