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Chapter 2
Accounting for Business Transactions
QUESTIONS
- a. Common asset accounts: cash, accounts receivable, notes receivable, prepaid expenses (rent, insurance, etc.), office supplies, store supplies, equipment, building, and land.
- Common liability accounts: accounts payable, notes payable, and unearned revenue, wages payable, and taxes payable.
- Common equity accounts: common stock and dividends.
- 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.
- 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.
- A general journal can be used to record any business transaction or event.
- Debited accounts are commonly recorded first. The credited accounts are commonly indented.
- 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.
- Expense accounts have debit balances because they are decreases to equity (and equity has a credit balance).
- 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.
- The error should be corrected with a separate (subsequent) correcting entry. The entry’s explanation should describe why the correction is necessary.
- The four financial statements are: income statement, balance sheet, statement of retained earnings, and statement of cash flows.
- 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.
- 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.
- 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.
- (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.
- The balance sheet is sometimes referred to as the statement of financial position.
- 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).
- 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.
- 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:
- Sales receipt
- Invoice from supplier
- Bank statement
- Telephone bill
Quick Study 2-2 (5 minutes)
- A Asset
- A Asset
- A Asset
- A Asset
- A Asset
- EQ Equity
- L Liability
- L Liability
- EQ Equity
Quick Study 2-3 (5 minutes)
- E Expense 655
- R Revenue 406
- A Asset 110
- A Asset 169
- L Liability 201
- A Asset 161
- L Liability 245
- EQ Equity 307
- 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)
- 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 | ||||||||||||
- 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)
- Analyze:
Assets | = | Liabilities | + | Equity |
Cash Equipment | Note Payable | Revenue | ||
10,000 + 80,000 | = | 28,000 | + | 62,000 |
- 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. |
- 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)
- Cash………………………………………………………………… 100,750
Common Stock ………………………………………………………………….. 100,750
Owner investment in exchange for stock.
- Office Supplies…………………………………………………. 1,250
Cash………………………………………………………….. 1,250
Purchased supplies with cash.
- Office Equipment……………………………………………… 10,050
Accounts Payable …………………………………………………. 10,050
Purchased office equipment on credit.
- Cash………………………………………………………………… 15,500
Fees Earned ………………………………………………………………….. 15,500
Received cash from customer for services.
- Accounts Payable…………………………………………….. 10,050
Cash………………………………………………………….. 10,050
Made payment toward account payable.
- Accounts Receivable………………………………………… 2,700
Fees Earned………………………………………………. 2,700
Billed customer for services provided.
- Rent Expense…………………………………………………… 1,225
Cash………………………………………………………….. 1,225
Paid for this period’s rental charge.
- Cash………………………………………………………………… 1,125
Accounts Receivable…………………………………. 1,125
Received cash toward an account receivable.
- 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.
- Account Payable………………………………….. 2,000
Cash………………………………………………. 2,000
Paid amount owed.
- Salaries Expense…………………………………. 1,200
Cash………………………………………………. 1,200
Paid salary of receptionist.
- Equipment……………………………………………. 39,000
Cash………………………………………………. 39,000
Paid for equipment purchase.
- Utilities Expense………………………………….. 800
Cash………………………………………………. 800
Paid utilities for the office.
- Dividends…………………………………………….. 4,500
Cash………………………………………………. 4,500
Paid cash dividends.
- 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.
- Cash…………………………………………………………… 20,000
Common Stock……………………………………… 20,000
Owner investment in exchange for stock.
- Cash…………………………………………………………… 900
Services Revenue………………………………….. 900
Provided services for cash.
- Cash…………………………………………………………… 10,000
Unearned Services Revenue………………….. 10,000
Cash received for future services.
- Cash…………………………………………………………… 3,500
Accounts Receivable…………………………….. 3,500
Cash received toward accounts receivable.
- Cash…………………………………………………………… 5,000
Note Payable…………………………………………. 5,000
Cash received for note payable to bank.
- 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)
- Cash………………………………………………………………… 6,000
Equipment……………………………………………………….. 7,600
Web Servers…………………………………………………….. 12,000
Common Stock ………………………………………………………………….. 25,600
Owner investment in exchange for stock.
- Prepaid Insurance…………………………………………….. 4,800
Cash………………………………………………………….. 4,800
Purchased insurance coverage.
- Supplies…………………………………………………………… 900
Accounts Payable………………………………………. 900
Purchased supplies on credit.
- Selling Expenses……………………………………………… 800
Cash………………………………………………………….. 800
Paid cash for selling expenses.
- Cash………………………………………………………………… 4,500
Services Revenue………………………………………. 4,500
Received cash for services provided.
- Accounts Payable…………………………………………….. 900
Cash………………………………………………………….. 900
Made payment on accounts payable.
- 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)
|
(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 |
- 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
- 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.
- Land…………………………………………………. 172 49,000
Cash………………………………………….. 101 6,300
Notes Payable…………………………….. 250 42,700
Purchased land with cash and note payable.
- Building……………………………………………. 170 55,000
Cash………………………………………….. 101 55,000
Purchased building.
- Prepaid Insurance……………………………… 108 3,000
Cash………………………………………….. 101 3,000
Purchased 18-month insurance policy.
- Cash…………………………………………………. 101 6,200
Engineering Fees Earned……………. 402 6,200
Collected cash for completed work.
- Drafting Equipment……………………………. 164 20,000
Cash………………………………………….. 101 9,500
Notes Payable…………………………….. 250 10,500
Purchased equipment with cash and note payable.
- Accounts Receivable…………………………. 106 14,000
Engineering Fees Earned……………. 402 14,000
Completed services for client.
- Office Equipment………………………………. 163 1,150
Accounts Payable……………………….. 201 1,150
Purchased equipment on credit.
Problem 2-2A (Part 1 Continued)
- Accounts Receivable…………………………. 106 22,000
Engineering Fees Earned……………. 402 22,000
Billed client for completed work.
- Equipment Rental Expense………………… 602 1,333
Accounts Payable……………………….. 201 1,333
Incurred equipment rental expense.
- Cash…………………………………………………. 101 7,000
Accounts Receivable………………….. 106 7,000
Collected cash on account.
- Wages Expense………………………………… 601 1,200
Cash………………………………………….. 101 1,200
Paid assistant’s wages.
- Accounts Payable……………………………… 201 1,150
Cash………………………………………….. 101 1,150
Paid amount due on account.
- Repairs Expense……………………………….. 604 925
Cash………………………………………….. 101 925
Paid for repair of equipment.
- Dividends………………………………………….. 319 9,480
Cash………………………………………….. 101 9,480
Paid cash dividends.
- Wages Expense………………………………… 601 1,200
Cash………………………………………….. 101 1,200
Paid assistant’s wages.
- 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
- Cash…………………………………………………. 101 60,000
Office Equipment………………………………. 163 25,000
Common Stock…………………………… 307 85,000
Owner investment in exchange for stock.
- 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.
- Office Supplies…………………………………. 108 2,000
Accounts Payable………………………. 201 2,000
Purchased office supplies on account.
- Automobiles……………………………………… 164 16,500
Common Stock………………………….. 307 16,500
Owner investment in exchange for stock.
- Office Equipment………………………………. 163 5,600
Accounts Payable………………………. 201 5,600
Purchased office equipment on account.
- Salaries Expense………………………………. 601 1,800
Cash………………………………………….. 101 1,800
Paid assistant’s salary.
- Cash…………………………………………………. 101 8,000
Fees Earned……………………………….. 402 8,000
Provided services for cash.
- Utilities Expense……………………………….. 602 635
Cash………………………………………….. 101 635
Paid cash for utilities.
Problem 2-4A (Part 1 Continued)
- Accounts Payable……………………………… 201 2,000
Cash………………………………………….. 101 2,000
Paid cash on account.
- Office Equipment………………………………. 163 20,300
Cash………………………………………….. 101 20,300
Purchased new equipment with cash.
- Accounts Receivable………………………… 106 6,250
Fees Earned……………………………….. 402 6,250
Provided services on account.
- Salaries Expense………………………………. 601 1,800
Cash………………………………………….. 101 1,800
Paid assistant’s salary.
- Cash…………………………………………………. 101 4,000
Accounts Receivable………………….. 106 4,000
Received cash due on account.
- 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….