Warren Sm Ch.02 Final

CHAPTER 2 ANALYZING TRANSACTIONS EYE OPENERS 1. An account is a form designed to record changes in a particular asset, liability, owner’s equity, revenue, or expense. A ledger is a group of related accounts. 2. The terms debit and credit may signify either an increase or decrease, depending upon the nature of the account. For example, debits signify an increase in asset and expense accounts but a decrease in liability, owner’s capital, and revenue accounts. 3. Liabilities and owner’s equity both have rights or claims to assets as indicated by the accounting equation, Assets = Liabilities + Owner’s Equity. Therefore, the same rules of debit and credit apply to both liabilities and owner’s equity. 4. a. Decrease in owner’s equity b. Increase in expense 5. a. Increase in owner’s equity b. Increase in revenue 6. a. Assuming no errors have occurred, the credit balance in the cash account re- sulted from drawing checks for $1,250 in excess of the amount of cash on depo- sit. b. The $1,250 credit balance in the cash account as of March 31 is a liability owed to the bank. It is usually referred to as an “overdraft” and should be classi- fied on the balance sheet as a liability. 7. a. The revenue was earned in July. b. (1) Debit Accounts Receivable and credit Fees Earned or another ap- propriately titled revenue account in July. (2) Debit Cash and credit Accounts Receivable in August. 8. The trial balance is a proof of the equality of the debits and the credits in the ledger. 9. No. Errors may have been made that had the same erroneous effect on both debits and credits, such as failure to record and/or post a transaction, recording the same transaction more than once, and posting a transaction correctly but to the wrong account.

10. The listing of $1,850 is a slide; the listing of $3,860 is a transposition. 11. a. No. Because the same error occurred on both the debit side and the credit side of the trial balance, the trial balance would not be out of balance. b. Yes. The trial balance would not balance. The error would cause the debit total of the trial balance to exceed the credit total by $90. 12. a. The equality of the trial balance would not be affected. b. On the income statement, total operating expenses (salary expense) would be overstated by $10,000, and net income would be understated by $10,000. On the statement of owner’s equity, the be- ginning and ending capital would be cor- rect. However, net income and with- drawals would be understated by $10,000. These understatements offset one another, and, thus, ending owner’s equity is correct. The balance sheet is not affected by the error. 13. a. The equality of the trial balance would not be affected. b. On the income statement, revenues (fees earned) would be overstated by $120,000, and net income would be overstated by $120,000. On the statement of owner’s equity, the beginning capital would be correct. However, net income and ending capital would be overstated by $120,000. The balance sheet total assets is correct. However, liabilities (notes payable) is understated by $120,000, and owner’s equity is overstated by $120,000. The understatement of liabilities is offset by the overstate- ment of owner’s equity, and, thus, total liabilities and owner’s equity is correct. 14. The preferred procedure is to journalize and post a correcting entry debiting Accounts Payable and crediting Cash.

1

15. a. From the viewpoint of Yellowstone Sto- rage, the balance of the checking ac- count represents an asset.

b. From the viewpoint of Livingston Savings Bank, the balance of the checking account represents a liability.

2

PRACTICE EXERCISES PE 2–1A 1. Debit and credit entries, Normal credit balance 2. Debit and credit entries, Normal debit balance 3. Debit entries only, Normal debit balance 4. Debit entries only, Normal debit balance 5. Debit and credit entries, Normal debit balance 6. Credit entries only, Normal credit balance

PE 2–1B 1. Debit and credit entries, Normal debit balance 2. Credit entries only, Normal credit balance 3. Debit and credit entries, Normal credit balance 4. Credit entries only, Normal credit balance 5. Debit and credit entries, Normal credit balance 6. Debit entries only, Normal debit balance

PE 2–2A Oct. 14

Office Supplies.................................................... Cash................................................................ Accounts Payable..........................................

9,000

Office Equipment ................................................ Cash................................................................ Accounts Payable .........................................

18,250

1,800 7,200

PE 2–2B Feb. 3

3,650 14,600

PE 2–3A Apr. 2

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

3,600

Accounts Receivable .......................................... Fees Earned ...................................................

11,375

Carla Hammond, Drawing .................................. Cash................................................................

8,500

Matt Nehls, Drawing ........................................... Cash................................................................

6,000

3,600

PE 2–3B Nov. 29

11,375

PE 2–4A Jan. 19

8,500

PE 2–4B Dec. 23

6,000

PE 2–5A Using the following T account, solve for the amount of supplies expense (indi- cated by ? below). Supplies July 1 Bal. Cash receipts July 31 Bal.

1,950 6,750 1,851

?

Supplies expense

$1,851 = $1,950 + $6,750 – Supplies expense Supplies expense = $1,950 + $6,750 – $1,851 = $6,849

PE 2–5B Using the following T account, solve for the amount of cash receipts (indicated by ? below). Cash Oct. 1 Bal. Cash receipts Oct. 31 Bal.

23,600 ? 36,900

315,700

Cash payments

$36,900 = $23,600 + Cash receipts – $315,700 Cash receipts = $36,900 + $315,700 – $23,600 = $329,000

PE 2–6A a. The totals are equal since both the debit and credit entries were journalized and posted for $8,000. b. The totals are unequal. The credit total is higher by $6,075 ($6,750 – $675). c.

The totals are unequal. The debit total is higher by $360 ($4,510 – $4,150).

PE 2–6B a. The totals are unequal. The debit total is higher by $2,700 ($6,300 – $3,600). b. The totals are equal since both the debit and credit entries were journalized and posted for $752. c.

The totals are unequal. The debit total is higher by $1,800 ($900 + $900).

PE 2–7A a.

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

6,480

b. Supplies ......................................................................... Office Equipment ....................................................

1,960

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

1,960

6,480 1,960 1,960

Note: The first entry in (b) reverses the incorrect entry, and the second entry records the correct entry. These two entries could also be combined into one en- try as shown below; however, preparing two entries would make it easier for someone to understand later what happened and why the entries were neces- sary. Supplies ......................................................................... Office Equipment .................................................... Accounts Payable ...................................................

3,920 1,960 1,960

PE 2–7B a.

Advertising Expense ..................................................... Miscellaneous Expense .........................................

950

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

950

950 950

Note: The first entry in (a) reverses the incorrect entry, and the second entry records the correct entry. These two entries could also be combined into one en- try as shown below; however, preparing two entries would make it easier for someone to understand later what happened and why the entries were neces- sary. Advertising Expense ..................................................... Miscellaneous Expense ......................................... Cash .........................................................................

1,900

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

1,500

950 950

1,500

EXERCISES Ex. 2–1 Balance Sheet Accounts Assets Flight Equipment Purchase Deposits a for Flight Equipment Spare Parts and Supplies Liabilities Accounts Payable b Air Traffic Liability

Income Statement Accounts Revenue Cargo and Mail Revenue Passenger Revenue Expenses Aircraft Fuel Expense c Commissionsd Landing Fees

Owner’ s Equity None a

Advance payments on aircraft purchases b

Passenger ticket sales not yet recognized as revenue Commissions paid to travel agents d Fees paid to airports for landing rights c

Ex. 2–2 Account Accounts Payable Accounts Receivable Cash Fees Earned Land Miscellaneous Expense Supplies Expense Tony Newbaurer, Capital Tony Newbaurer, Drawing Wages Expense

Account Number 21 12 11 41 13 53 52 31 32 51

Ex. 2–3

Balance Sheet Accounts

Income Statement Accounts 4.Revenue 41 Fees Earned

1.Assets 11 12 13 14 15

Cash Accounts Receivable Supplies Prepaid Insurance Equipment

21 22

2.Liabilities Accounts Payable Unearned Rent

31 32

3.Owner’ s Equity Jamie Bjork, Capital Jamie Bjork, Drawing

5.Expenses Wages Expense Rent Expense Supplies Expense Miscellaneous Expense

51 52 53 59

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

Ex. 2– 4 a. and b. Account Debited Transaction

Type

Effect

(1) (2) (3)

asset asset asset

+ + +

(4) (5) (6) (7) (8) (9)

expense asset liability asset expense drawing

+ + – + + +

Account Credited Type owner’s equity asset asset liability asset revenue asset asset asset asset

Effect + – – + – + – – – –

Ex. 2–5 (1) (2) (3)

(4) (5) (6) (7) (8) (9)

Cash ..................................................................... Anita Rayle, Capital .......................................

25,000

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

1,750

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

18,000

Operating Expenses ........................................... Cash................................................................

2,700

Accounts Receivable.......................................... Service Revenue............................................

13,500

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

7,500

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

10,000

Operating Expenses ........................................... Supplies .........................................................

1,050

Anita Rayle, Drawing .......................................... Cash................................................................

2,500

25,000 1,750 14,400 3,600 2,700 13,500 7,500 10,000 1,050 2,500

Ex. 2–6 CYCLE TOURS CO. Unadjusted Trial Balance February 28, 2010 Debit Credit Balances Balances Cash .................................................................................... Accounts Receivable ......................................................... Supplies .............................................................................. Equipment........................................................................... Accounts Payable .............................................................. Anita Rayle, Capital ............................................................ Anita Rayle, Drawing.......................................................... Service Revenue................................................................. Operating Expenses ..........................................................

16,950 3,500 700 18,000 6,900 25,000 2,500 13,500 3,750 45,400

45,400

Ex. 2–7 1. debit and credit (c) 2. debit and credit (c) 3. debit and credit (c) 4. credit only (b) 5. debit only (a) 6. debit only (a) 7. debit only (a)

Ex. 2–8 a. Liability—credit

e. Asset—debit

b. Asset—debit

f. Revenue—credit

c. Owner’s equity (Billy Eldrod, Capital)—credit

g. Asset—debit h. Expense—debit

d. Owner’s equity (Billy Eldrod, Drawing)—debit

i. Asset—debit j. Expense—debit

Ex. 2–9 a. credit

g. debit

b. debit

h. credit

c. debit

i. credit

d. credit

j. debit

e. credit

k. credit

f. credit

l. debit

Ex. 2–10 a. Debit (negative) balance of $16,200 ($37,100 – $1,000 – $52,300). Such a neg- ative balance means that the liabilities of Oh’s business exceed the assets. b. Yes. The balance sheet prepared at December 31 will balance, with Oh Kwon, Capital, being reported in the owner’s equity section as a negative

Ex. 2–7

$16,200.

Ex. 2–11 a.

The increase of $49,850 ($319,750 – $269,900) in the cash account does not indicate earnings of that amount. Earnings will represent the net change in all assets and liabilities from operating transactions. b. $22,500 ($72,350 – $49,850)

Ex. 2–12 a. Accounts Payable July 1 90,300 July 31

X 115,150 39,000

X + $115,150 – $90,300 = $39,000 X = $39,000 + $90,300 – $115,150 X = $14,150 b. Accounts Receivable May 1

36,200

315,000

X May 31

41,600

$36,200 + X – $315,000 = $41,600 X = $41,600 + $315,000 – $36,200 X = $320,400 c. Cash Apr. 1 Apr. 30

18,275 279,100 13,200

X

Ex. 2–11

$18,275 + $279,100 – X = $13,200 X = $18,275 + $279,100 – $13,200 X = $284,175

Ex. 2–13 2009 Mar. 1 2 5 6 10 15 27 30 31 31 31

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

3,000

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

1,800

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

900

Office Equipment ................................................ Accounts Payable..........................................

12,300

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

4,100

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

1,200

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

500

Utilities Expense ................................................. Cash................................................................

180

Accounts Receivable .......................................... Fees Earned ...................................................

26,800

Utilities Expense ................................................. Cash................................................................

315

Terri Burell, Drawing .......................................... Cash................................................................

2,000

3,000 1,800 900 12,300 4,100 1,200 500 180 26,800 315 2,000

Ex. 2–14 a. JOURNAL Date

2010 Aug. 7

Page 19 Post. Ref.

Description

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

Debit

15 21

Credit

2,190 2,190

b., c., d. Supplies

15

Date

2010 Aug. 1 7

Item

Balance ................................ ..............................................

Post. Ref.

 19

Dr.

Cr.

............ ........... 2,190 ...........

Balance Dr. Cr.

1,050 ........... 3,240 ...........

Accounts Payable 2010 Aug. 1 7

Balance ................................ ..............................................

21  19

............ ........... ........... ............ 2,190 ...........

15,600 17,790

Ex. 2–15 a. (1) (2) (3) (4)

Accounts Receivable .......................................... Fees Earned ...................................................

41,730

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

1,800

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

39,150

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

1,100

41,730 1,800 39,150 1,100

b.

(3)

(2)

Cash 39,150 (4)

1,100

Supplies 1,800 Accounts Receivable

(1)

41,730 (3)

39,150

(4)

Accounts Payable 1,100 (2)

1,800

Fees Earned (1)

41,730

Ex. 2–16 AZNAR CO. Unadjusted Trial Balance October 31, 2010 Debit Balances Cash .................................................................................... Accounts Receivable ......................................................... Supplies .............................................................................. Prepaid Insurance .............................................................. Land..................................................................................... Accounts Payable .............................................................. Unearned Rent.................................................................... Notes Payable..................................................................... Ellen Kubota, Capital ......................................................... Ellen Kubota, Drawing ....................................................... Fees Earned........................................................................ Wages Expense.................................................................. Rent Expense ..................................................................... Utilities Expense ................................................................ Supplies Expense .............................................................. Insurance Expense ............................................................ Miscellaneous Expense .....................................................

Credit Balances

26,000 56,250 3,150 4,500 127,500 28,000 13,500 60,000 129,850 30,000 465,000 262,500 90,000 62,250 11,850 9,000 13,350 696,350

696,350

Ex. 2–17 Inequality of trial balance totals would be caused by errors described in (a) and (e). For (a), the debit total would exceed the credit total by $4,300 ($2,150 + $2,150). For (e), the debit total would exceed the credit total by $10,000 ($15,000 – $5,000).

Ex. 2–18 NEVADA-FOR-YOU CO. Unadjusted Trial Balance December 31, 2010 Debit Credit Balances Balances Cash .................................................................................... Accounts Receivable ......................................................... Prepaid Insurance .............................................................. Equipment........................................................................... Accounts Payable .............................................................. Unearned Rent.................................................................... Tammy Gazboda, Capital................................................... Tammy Gazboda, Drawing ................................................ Service Revenue................................................................. Wages Expense.................................................................. Advertising Expense .......................................................... Miscellaneous Expense .....................................................

13,375 24,600 8,000 75,000 11,180 4,250 82,420 10,000 83,750 42,000 7,200 1,425 181,600

181,600

Ex. 2–19 Error

(a) Out of Balance

(b) Difference

(c) Larger Total

1. 2. 3. 4. 5. 6. 7.

yes no yes yes no yes yes

$6,150 — 450 270 — 1,800 1,150

debit — credit credit — credit debit

Ex. 2–20 1. The debit column total is added incorrectly. The sum is $1,167,000, rather than $1,833,000. 2. The trial balance should be dated ―March 31, 2010,‖ not ―For the month ending March 31, 2010.‖ 3. The Accounts Receivable balance should be in the debit column. 4. The Accounts Payable balance should be in the credit column. 5. The Estelle Chatman, Drawing, balance should be in the debit column. 6. The Advertising Expense balance should be in the debit column. A corrected trial balance would be as follows: BURGOO CO. Unadjusted Trial Balance March 31, 2010 Debit Credit Balances Balances Cash .................................................................................... Accounts Receivable ......................................................... Prepaid Insurance .............................................................. Equipment........................................................................... Accounts Payable .............................................................. Salaries Payable ................................................................. Estelle Chatman, Capital ................................................... Estelle Chatman, Drawing ................................................. Service Revenue................................................................. Salary Expense................................................................... Advertising Expense .......................................................... Miscellaneous Expense .....................................................

90,000 196,800 43,200 600,000 22,200 15,000 518,400 72,000 944,400 393,720 86,400 17,880 1,500,000 1,500,000

Ex. 2–21 a. b.

Prepaid Rent........................................................ Cash................................................................

6,000

Juanita Jacobsen, Drawing ............................... Wages Expense .............................................

18,000

6,000 18,000

Ex. 2–22 a.

b.

Cash ..................................................................... Fees Earned ................................................... Accounts Receivable ....................................

7,500

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

1,500

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

1,500

3,750 3,750 1,500 1,500

Ex. 2–23 a. 1. Net sales: $189 million increase ($3,728 – $3,539) 5.3% increase ($189 ÷ $3,539) 2. Total operating expenses:

$206 million increase ($3,400 – $3,194) 6.4% increase ($206 ÷ $3,194)

b. During 2007, the percentage increase in total operating expenses (6.4%) is more than the percentage increase in net sales (5.3%), an unfavorable trend.

Ex. 2–24 a. KMART CORPORATION Income Statement For the Years Ended January 31, 2000 and 1999 (in millions) 2000 1. Sales ...................................... 2. Cost of sales ......................... 3. Selling, general, and administrative expenses ... 4. Operating income (loss) before taxes ........................

1999

$ 37,028 $ 35,925 (29,658) (28,111) (7,415) $

(45)

(6,514) $

1,300

Increase (Decrease) Amount Percent $ 1,103 1,547

3.1% 5.5%

901

13.8%

$(1,345)

(103.5)%

b. The horizontal analysis of Kmart Corporation reveals deteriorating operating results from 1999 to 2000. While sales increased by $1,103 million, a 3.1% increase, cost of sales increased by $1,547 million, a 5.5% increase. Selling, general, and administrative expenses also increased by $901 million, a 13.8% increase. The end result was that operating income decreased by $1,345 million, over a 100% decrease, and created a $45 million loss in 2000. Little over a year later, Kmart filed for bankruptcy protection. It has now emerged from bankruptcy and was merged into Sears to form the company Sears Holding Corporation.

PROBLEMS Prob. 2–1A 1. and 2.

(a) (g)

Bal.

(k)

(d)

Cash 30,000 (b) 7,500 (c) (d) (f) (h)

4,500 3,000 1,450 2,000 1,750

(i) (l) (m)

500 1,600 325

(n) (o)

250 400

Accounts Receivable 5,200 Supplies 1,450

(f)

(b)

Automobiles 19,500

(e)

Equipment 6,000

Notes Payable 250 (b) Bal.

15,000 14,750

6,000 1,000 5,250

Travis Fortney, Capital (a)

30,000

Professional Fees (g) (k) Bal.

21,725

Prepaid Insurance 2,000

(n)

(h)

Accounts Payable 1,750 (e) (j) Bal.

7,500 5,200 12,700

(c)

Rent Expense 3,000

(l)

Salary Expense 1,600

(j)

Blueprint Expense 1,000

(o)

Automobile Expense 400

(i) (m) Bal.

Miscellaneous Expense 500 325 825

Prob. 2–1A

Concluded

3. TRAVIS FORTNEY, ARCHITECT Unadjusted Trial Balance April 30, 2010 Debit Credit Balances Balances Cash .................................................................................... Accounts Receivable ......................................................... Supplies .............................................................................. Prepaid Insurance .............................................................. Automobiles........................................................................ Equipment........................................................................... Notes Payable..................................................................... Accounts Payable .............................................................. Travis Fortney, Capital....................................................... Professional Fees .............................................................. Rent Expense ..................................................................... Salary Expense................................................................... Blueprint Expense.............................................................. Automobile Expense .......................................................... Miscellaneous Expense .....................................................

21,725 5,200 1,450 2,000 19,500 6,000 14,750 5,250 30,000 12,700 3,000 1,600 1,000 400 825 62,700

62,700

Prob. 2–2A 1. (a) (b) (c) (d) (e) (f) (g)

(h) (i)

Cash ..................................................................... Cody Doerr, Capital .......................................

17,500

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

1,000

Cash ..................................................................... Sales Commissions ......................................

12,250

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

3,800

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

600

Cody Doerr, Drawing .......................................... Cash................................................................

3,000

Automobile Expense .......................................... Miscellaneous Expense ..................................... Cash................................................................

1,500 400

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

3,100

Supplies Expense ............................................... Supplies .........................................................

725

17,500 1,000 12,250 3,800 600 3,000

1,900 3,100 725

Prob. 2–2A

Continued

2.

(a) (c)

Bal.

(b) Bal.

(e)

Cash 17,500 (d) 12,250 (e) (f) (g)

3,800 600 3,000 1,900

(h)

3,100

(d)

Rent Expense 3,800

(h)

Office Salaries Expense 3,100

(g)

Automobile Expense 1,500

(i)

Supplies Expense 725

17,350 Supplies 1,000 (i) 275 Accounts Payable 600 (b) Bal. Cody Doerr, Capital (a)

(f)

Sales Commissions (c) 12,250

725

1,000 400

17,500

Cody Doerr, Drawing Miscellaneous Expense 3,000 (g) 400 Unadjusted Trial Balance October 31, 2010 Debit Credit Balances Balances

Cash .................................................................................... Supplies .............................................................................. Accounts Payable .............................................................. Cody Doerr, Capital............................................................ Cody Doerr, Drawing.......................................................... Sales Commissions ........................................................... Rent Expense ..................................................................... Office Salaries Expense .................................................... Automobile Expense .......................................................... Supplies Expense .............................................................. Miscellaneous Expense ..................................................... 4. a. $12,250

17,350 275 400 17,500 3,000 12,250 3,800 3,100 1,500 725 400 30,150

30,150

Prob. 2–2A

Continued

2. b. $9,525 ($3,800 + $3,100 + $1,500 + $725 + $400) c. $2,725 ($12,250 – $9,525)

Prob. 2–3A 1. JOURNAL Date

2010 July 1 4 10

13 14 15 15 21 24 26 27 27

Pages 1 and 2

Description

Post. Ref.

Cash ........................................................ Jessie Halverson, Capital .................

11 31

18,000

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

53 11

1,750

Truck ....................................................... Cash .................................................... Notes Payable ....................................

18 11 21

15,000

Equipment .............................................. Accounts Payable ..............................

16 22

7,000

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

13 11

1,200

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

14 11

2,700

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

11 41

7,500

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

22 11

2,500

Accounts Receivable ............................. Fees Earned .......................................

12 41

8,600

Truck Expense ....................................... Accounts Payable ..............................

55 22

800

Utilities Expense .................................... Cash ....................................................

54 11

900

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

59 11

315

Debit

Credit

18,000 1,750 1,000 14,000 7,000 1,200 2,700 7,500 2,500 8,600 800 900 315

Prob. 2–3A

Continued JOURNAL Description

Post. Ref.

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

11 12

3,600

Wages Expense...................................... Cash ....................................................

51 11

2,400

Jessie Halverson, Drawing.................... Cash ....................................................

32 11

2,000

Date

2010 July 29 30 31

Pages 1 and 2 Debit

Credit

3,600 2,400 2,000

2. Cash

11 Item

Post. Ref.

.............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. ..............................................

1 1 1 1 1 1 2 2 2 2 2 2

Date

2010 July 1 4 10 14 15 15 21 27 27 29 30 31

Dr.

Cr.

18,000 ........... ............ 1,750 ............ 1,000 ............ 1,200 ............ 2,700 7,500 ........... ............ 2,500 ............ 900 ............ 315 3,600 ........... ............ 2,400 ............ 2,000

Accounts Receivable 2010 July 24 29

.............................................. ..............................................

Balance Dr. Cr.

18,000 16,250 15,250 14,050 11,350 18,850 16,350 15,450 15,135 18,735 16,335 14,335

........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... 12

2 2

8,600 ........... ............ 3,600

8,600 ........... 5,000 ...........

Supplies

13 Item

Post. Ref.

..............................................

1

Date

2010 July 14

Dr.

Cr.

1,200 ...........

Balance Dr. Cr.

1,200 ...........

Prepaid Insurance 2010 July 15

..............................................

14 1

2,700 ...........

2,700 ...........

Equipment 2010 July 13

..............................................

16 1

7,000 ...........

7,000 ...........

Truck 2010 July 10

18 ..............................................

1

15,000 ...........

15,000 ...........

Notes Payable 2010 July 10

..............................................

21 1

............

14,000 ...........

Accounts Payable 2010 July 13 21 26

.............................................. .............................................. ..............................................

22 1 2 2

............ 7,000 ........... 2,500 ........... ........... ............ 800 ...........

Jessie Halverson, Capital 2010 July 1

..............................................

..............................................

7,000 4,500 5,300 31

1

............

18,000 ...........

Jessie Halverson, Drawing 2010 July 31

14,000

18,000 32

2

2,000 ...........

2,000 ...........

Fees Earned Item

Post. Ref.

Dr.

.............................................. ..............................................

1 2

............ ............

Date

2010 July 15 24

41 Cr.

7,500 ........... 8,600 ...........

Wages Expense 2010 July 30

..............................................

..............................................

2

2,400 ...........

..............................................

1

1,750 ...........

..............................................

2

900 ...........

..............................................

900 ........... 55

2

800 ...........

Miscellaneous Expense 2010 July 27

1,750 ........... 54

Truck Expense 2010 July 26

2,400 ........... 53

Utilities Expense 2010 July 27

7,500 16,100 51

Rent Expense 2010 July 4

Balance Dr. Cr.

800 ........... 59

2

315 ...........

315 ...........

Prob. 2–3A

Concluded

3. PHOTOGENIC DESIGNS Unadjusted Trial Balance July 31, 2010 Debit Credit Balances Balances Cash .................................................................................... Accounts Receivable ......................................................... Supplies .............................................................................. Prepaid Insurance .............................................................. Equipment........................................................................... Truck ................................................................................... Notes Payable..................................................................... Accounts Payable .............................................................. Jessie Halverson, Capital .................................................. Jessie Halverson, Drawing................................................ Fees Earned........................................................................ Wages Expense.................................................................. Rent Expense ..................................................................... Utilities Expense ................................................................ Truck Expense.................................................................... Miscellaneous Expense .....................................................

8 3

14,335 5,000 1,200 2,700 7,000 15,000 14,000 5,300 18,000 2,000 16,100 2,400 1,750 900 800 315 53,400

53,400

Prob. 2–4A 2. and 3. JOURNAL Date

2010 Aug. 1 2 3 5 9 17 23 29 30 31 31 31 31

31 31

Pages 18 and 19

Description

Post. Ref.

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

14 21

2,100

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

52 11

4,000

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

11 12

44,600

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

13 11

5,700

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

21 14

400

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

53 11

5,500

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

21 11

4,950

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

59 11

500

Automobile Expense.............................. Cash ....................................................

54 11

1,500

Cash ........................................................ Salary and Commission Expense ....

11 51

1,000

Salary and Commission Expense......... Cash ....................................................

51 11

27,800

Accounts Receivable ............................. Fees Earned .......................................

12 41

83,000

Land ........................................................ Cash .................................................... Notes Payable ....................................

16 11 23

75,000

Drew Harris, Drawing............................ Cash ....................................................

32 11

5,000

Cash ........................................................ Unearned Rent ...................................

11 22

3,600

Debit

Credit

2,100 4,000 44,600 5,700 400 5,500 4,950 500 1,500 1,000 27,800 83,000 10,000 65,000 5,000 3,600

Prob. 2–4A

Continued

1. and 3. Cash

11 Item

Post. Ref.

Dr.

Cr.

Balance ................................ .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. ..............................................

 18 18 18 18 18 19 19 19 19 19 19 19

............ ............ 44,600 ............ ............ ............ ............ ............ 1,000 ............ ............ ............ 3,600

........... 4,000 ........... 5,700 5,500 4,950 500 1,500 ........... 27,800 10,000 5,000 ...........

Date

2010 Aug. 1 2 3 5 17 23 29 30 31 31 31 31 31

Accounts Receivable 2010 Aug. 1 3 31

Balance ................................ .............................................. ..............................................

Balance ................................ ..............................................

 18 19

............ ........... ............ 44,600 83,000 ...........

Balance ................................ .............................................. ..............................................

 18

............ ........... 5,700 ...........

57,200 ........... 12,600 ........... 95,600 ...........

7,200 ........... 12,900 ........... 14

 18 18

............ ........... 2,100 ........... ............ 400

Land 2010 Aug. 31

........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ...........

13

Office Supplies 2010 Aug. 1 1 9

33,920 29,920 74,520 68,820 63,320 58,370 57,870 56,370 57,370 29,570 19,570 14,570 18,170

12

Prepaid Insurance 2010 Aug. 1 5

Balance Dr. Cr.

1,600 ........... 3,700 ........... 3,300 ........... 16

..............................................

19

75,000 ...........

75,000 ...........

Prob. 2–4A

Continued

Accounts Payable Item

Post. Ref.

Balance ................................ .............................................. .............................................. ..............................................

 18 18 18

Date

2010 Aug. 1 1 9 23

21 Dr.

Cr.

............ ........... ............ 2,100 400 ........... 4,950 ...........

Balance Dr. Cr.

........... ........... ........... ...........

Unearned Rent 2010 Aug. 31

..............................................

22 19

............

3,600 ...........

Notes Payable 2010 Aug. 31

..............................................

Balance ................................

19

............

65,000 ...........

Balance ................................ ..............................................



............ ...........

Balance ................................ ..............................................

 19

Balance ................................ .............................................. ..............................................

50,480

............ ........... 5,000 ...........

25,600 ........... 30,600 ........... 41

 19

Salary and Commission Expense 2010 Aug. 1 31 31

...........

32

Fees Earned 2010 Aug. 1 31

65,000 31

Drew Harris, Drawing 2010 Aug. 1 31

3,600 23

Drew Harris, Capital 2010 Aug. 1

9,920 12,020 11,620 6,670

............ ........... ........... 352,000 ............ 83,000 ........... 435,000 51

 19 19

............ ........... 224,000 ........... ............ 1,000 223,000 ........... 27,800 ........... 250,800 ...........

Rent Expense Item

Post. Ref.

Balance ................................ ..............................................

 18

Date

2010 Aug. 1 2

52 Dr.

Cr.

............ ........... 4,000 ...........

Advertising Expense 2010 Aug. 1 17

Balance ................................ ..............................................

Balance ................................ ..............................................

 18

............ ........... 5,500 ...........

Balance ................................ ..............................................

22,880 ........... 28,380 ........... 54

 19

............ ........... 1,500 ...........

Miscellaneous Expense 2010 Aug. 1 29

28,000 ........... 32,000 ........... 53

Automobile Expense 2010 Aug. 1 30

Balance Dr. Cr.

10,240 ........... 11,740 ........... 59

 19

............ ........... 500 ...........

1,760 ........... 2,260 ...........

Prob. 2–4A

Concluded

4. DODGE CITY REALTY Unadjusted Trial Balance August 31, 2010 Debit Credit Balances Balances Cash .................................................................................... Accounts Receivable ......................................................... Prepaid Insurance .............................................................. Office Supplies ................................................................... Land..................................................................................... Accounts Payable .............................................................. Unearned Rent.................................................................... Notes Payable..................................................................... Drew Harris, Capital ........................................................... Drew Harris, Drawing......................................................... Fees Earned........................................................................ Salary and Commission Expense ..................................... Rent Expense ..................................................................... Advertising Expense .......................................................... Automobile Expense .......................................................... Miscellaneous Expense .....................................................

8 8

18,170 95,600 12,900 3,300 75,000 6,670 3,600 65,000 50,480 30,600 435,000 250,800 32,000 28,380 11,740 2,260 560,750

560,750

Prob. 2–5A 1. Totals of preliminary trial balance: Debit Credit 2. Difference between preliminary trial balance totals:

$30,515.39 $43,862.30 $13,346.91

3. Errors in trial balance: (a) Supplies debit balance was listed as $99.79 instead of $997.90 (slide). (b) Notes Payable credit balance was listed as $5,600.00 instead of $6,500.00 (transposition). (c) Tina Reid, Drawing debit balance of $1,350.00 was listed as credit balance. (d) Advertising Expense of $275.00 was omitted. 4. Errors in account balances: (a) Accounts Payable balance of $1,077.50 was totaled as $1,151.70. 5. Errors in posting: (a) Prepaid Insurance entry of May 9 for $144.00 was posted as $14.40 (slide). (b) Land entry of May 10 for $12,000.00 was posted as $1,200.00 (slide). (c) Cash entry of May 30 for $436.60 was posted as $346.60 (transposition). (d) Wages Expense entry of May 31 for $1,390.00 was posted as $1,930.00 (transposition). 6. May

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

8 9

53 11

120.00 120.00

Prob. 2–5A

Concluded

7. HALLMARK ELECTRONIC REPAIR Unadjusted Trial Balance May 31, 20— Debit Credit Balances Balances Cash .................................................................................... Supplies .............................................................................. Prepaid Insurance .............................................................. Land..................................................................................... Notes Payable..................................................................... Accounts Payable .............................................................. Tina Reid, Capital ............................................................... Tina Reid, Drawing............................................................. Service Revenue................................................................. Wages Expense.................................................................. Rent Expense ..................................................................... Utilities Expense ................................................................ Advertising Expense .......................................................... Miscellaneous Expense .....................................................

9 0

8,796.00 997.90 395.50 26,625.00 6,500.00 1,077.50 27,760.20 1,350.00 8,000.40 2,518.60 1,540.00 556.60 275.00 283.50 43,338.10

43,338.10

Prob. 2–6A 1. YIN & YANG VIDEO Unadjusted Trial Balance January 31, 2010 Debit Credit Balances Balances Cash .................................................................................... Accounts Receivable ......................................................... Supplies .............................................................................. Prepaid Insurance .............................................................. Equipment........................................................................... Notes Payable..................................................................... Accounts Payable .............................................................. Chea Wynn, Capital............................................................ Chea Wynn, Drawing.......................................................... Fees Earned........................................................................ Wages Expense.................................................................. Rent Expense ..................................................................... Advertising Expense .......................................................... Gas, Electricity, and Water Expense ................................ Miscellaneous Expense .....................................................

13,500* 37,600 4,500 6,400 108,000 36,000 11,100 71,900 26,000 356,000 204,000 41,700 18,900 11,340 3,060 475,000

475,000

*$19,000 – $10,000 (a) + $4,500 (b) 2. No. The trial balance indicates only that the debits and credits are equal. Any errors that have the same effect on debits and credits will not affect the balancing of the trial balance.

9 1

Prob. 2–1B 1. and 2. (a) (g)

Bal.

(l) (e)

Cash 20,000 (b) 4,175 (c) (e)

2,500 5,000 1,200

(d)

(f) (h) (i) (j)

2,400 240 2,500 300

(j)

(m) (n)

1,500 410

(i)

8,125 Accounts Receivable 3,150

(f)

(c)

Automobiles 22,300

Notes Payable 300 (c) Bal.

17,300 17,000

Accounts Payable 2,500 (d) (k) Bal.

7,000 800 5,300

Brandy Corbin, Capital (a)

Supplies 1,200

Prepaid Insurance 2,400

Equipment 7,000

20,000

Professional Fees (g) (l) Bal.

(b)

Rent Expense 2,500

(m)

Salary Expense 1,500 Blueprint Expense

(k)

800 Automobile Expense

(n)

410 Miscellaneous Expense

(h)

9 2

240

4,175 3,150 7,325

Prob. 2–1B

Concluded

3. BRANDY CORBIN, ARCHITECT Unadjusted Trial Balance July 31, 2010 Debit Credit Balances Balances Cash .................................................................................... Accounts Receivable ......................................................... Supplies .............................................................................. Prepaid Insurance .............................................................. Automobiles........................................................................ Equipment........................................................................... Notes Payable..................................................................... Accounts Payable .............................................................. Brandy Corbin, Capital ...................................................... Professional Fees .............................................................. Rent Expense ..................................................................... Salary Expense................................................................... Blueprint Expense.............................................................. Automobile Expense .......................................................... Miscellaneous Expense .....................................................

8,125 3,150 1,200 2,400 22,300 7,000 17,000 5,300 20,000 7,325 2,500 1,500 800 410 240 49,625

49,625

Prob. 2–2B 1. (a) (b) (c) (d) (e) (f)

(g) (h) (i)

(a) (e)

Bal.

Cash ..................................................................... Cheryl Newsome, Capital..............................

25,000

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

2,750

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

950

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

400

Cash ..................................................................... Sales Commissions ......................................

18,100

Automobile Expense .......................................... Miscellaneous Expense ..................................... Cash................................................................

1,000 600

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

2,150

Supplies Expense ............................................... Supplies .........................................................

575

Cheryl Newsome, Drawing................................. Cash................................................................

2,000

Cash 25,000 (b) 18,100 (d) (f)

2,750 400 1,600

(g) (i)

2,150 2,000

(b)

950 400 18,100

1,600 2,150 575 2,000

Rent Expense 2,750

34,200 Office Salaries Expense

950 (h) 375

575

(g)

Accounts Payable (d)

2,750

Sales Commissions (e) 18,100

Supplies (c) Bal.

25,000

400

Automobile Expense

(c) Bal.

950 550

(f)

Cheryl Newsome, Capital (a)

2,150

25,000

1,000 Supplies Expense

(h)

575

Prob. 2–2B 1. Cheryl Newsome, Drawing (i) 3.

2,000

Miscellaneous Expense (f)

600

TITUS REALTY Unadjusted Trial Balance August 31, 2010 Debit Credit Balances Balances

Cash .................................................................................... Supplies .............................................................................. Accounts Payable .............................................................. Cheryl Newsome, Capital .................................................. Cheryl Newsome, Drawing ................................................ Sales Commissions ........................................................... Rent Expense ..................................................................... Office Salaries Expense .................................................... Automobile Expense .......................................................... Supplies Expense .............................................................. Miscellaneous Expense .....................................................

34,200 375 550 25,000 2,000 18,100 2,750 2,150 1,000 575 600 43,650

43,650

Prob. 2–2B

Concluded

4. a. $18,100 b. $7,075 ($2,150 + $2,750 + $1,000 + $575 + $600) c. $11,025 ($18,100 – $7,075)

Prob. 2–3B 1. JOURNAL Date

2010 Apr. 1 2 6 8

10 12 15 23 24 29 29 30

Pages 1 and 2

Description

Post. Ref.

Cash ........................................................ Jose Guadalupe, Capital ...................

11 31

15,000

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

53 11

2,350

Equipment .............................................. Accounts Payable ..............................

16 22

10,000

Truck ....................................................... Cash .................................................... Notes Payable ....................................

18 11 21

21,000

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

13 11

1,200

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

11 41

8,500

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

14 11

1,800

Accounts Receivable ............................. Fees Earned .......................................

12 41

6,000

Truck Expense ....................................... Accounts Payable ..............................

55 22

1,000

Utilities Expense .................................... Cash ....................................................

54 11

1,100

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

59 11

500

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

11 12

3,500

9 7

Debit

Credit

15,000 2,350 10,000 2,000 19,000 1,200 8,500 1,800 6,000 1,000 1,100 500 3,500

Prob. 2–3B Continued JOURNAL Description

Post. Ref.

Wages Expense...................................... Cash ....................................................

51 11

3,000

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

22 11

2,500

Jose Guadalupe, Drawing ..................... Cash ....................................................

32 11

1,750

Date

2010 Apr. 30 30 30

Pages 1 and 2 Debit

Credit

3,000 2,500 1,750

2. GENERAL LEDGER Cash

11 Item

Post. Ref.

.............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. ..............................................

1 1 1 1 1 1 2 2 2 2 2 2

Date

2010 Apr. 1 2 8 10 12 15 29 29 30 30 30 30

Dr.

Cr.

15,000 ........... ............ 2,350 ............ 2,000 ............ 1,200 8,500 ........... ............ 1,800 ............ 1,100 ............ 500 3,500 ........... ............ 3,000 ............ 2,500 ............ 1,750

Accounts Receivable 2010 Apr. 23 30

.............................................. ..............................................

Balance Dr. Cr.

15,000 12,650 10,650 9,450 17,950 16,150 15,050 14,550 18,050 15,050 12,550 10,800

........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... 12

1 2

6,000 ........... ............ 3,500

6,000 ........... 2,500 ...........

Supplies

13 Item

Post. Ref.

..............................................

1

Date

2010 Apr. 10

Dr.

Cr.

1,200 ...........

Balance Dr. Cr.

1,200 ...........

Prepaid Insurance 2010 Apr. 15

..............................................

14 1

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

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

Equipment 2010 Apr. 6

..............................................

16 1

10,000 ...........

10,000 ...........

Truck 2010 Apr. 8

18 ..............................................

1

21,000 ...........

21,000 ...........

Notes Payable 2010 Apr. 8

..............................................

21 1

............

19,000 ...........

Accounts Payable 2010 Apr. 6 24 30

.............................................. .............................................. ..............................................

22 1 1 2

............ 10,000 ........... ............ 1,000 ........... 2,500 ........... ...........

Jose Guadalupe, Capital 2010 Apr. 1

..............................................

..............................................

10,000 11,000 8,500 31

1

............

15,000 ...........

Jose Guadalupe, Drawing 2010 Apr. 30

19,000

15,000 32

2

1,750 ...........

1,750 ...........

Fees Earned Item

Post. Ref.

Dr.

.............................................. ..............................................

1 1

............ ............

Date

2010 Apr. 12 23

41 Cr.

8,500 ........... 6,000 ...........

Wages Expense 2010 Apr. 30

..............................................

2

3,000 ...........

..............................................

1

2,350 ...........

..............................................

2

1,100 ...........

1,100 ........... 55

..............................................

1

1,000 ...........

Miscellaneous Expense 2010 Apr. 29

2,350 ........... 54

Truck Expense 2010 Apr. 24

3,000 ........... 53

Utilities Expense 2010 Apr. 29

8,500 14,500 51

Rent Expense 2010 Apr. 2

Balance Dr. Cr.

1,000 ........... 59

..............................................

2

10 0

500 ...........

500 ...........

Prob. 2–3B

Concluded

3. LODGE DESIGNS Unadjusted Trial Balance April 30, 2010 Debit Credit Balances Balances Cash .................................................................................... Accounts Receivable ......................................................... Supplies .............................................................................. Prepaid Insurance .............................................................. Equipment........................................................................... Truck ................................................................................... Notes Payable..................................................................... Accounts Payable .............................................................. Jose Guadalupe, Capital ................................................... Jose Guadalupe, Drawing ................................................. Fees Earned........................................................................ Wages Expense.................................................................. Rent Expense ..................................................................... Utilities Expense ................................................................ Truck Expense.................................................................... Miscellaneous Expense .....................................................

10 1

10,800 2,500 1,200 1,800 10,000 21,000 19,000 8,500 15,000 1,750 14,500 3,000 2,350 1,100 1,000 500 57,000

57,000

Prob. 2–4B 2. and 3. JOURNAL Date

2010 Nov. 1 2 5 10 15

17 20 23 27 28 29 30 30 30 30

Pages 18 and 19

Description

Post. Ref.

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

52 11

3,000

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

14 21

1,000

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

13 11

2,400

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

11 12

25,000

Land ........................................................ Cash .................................................... Notes Payable ....................................

11 23

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

21 11

2,910

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

21 14

200

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

53 11

1,250

Cash ........................................................ Salary and Commission Expense ....

11 51

400

Automobile Expense.............................. Cash ....................................................

54 11

900

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

59 11

450

Accounts Receivable ............................. Fees Earned .......................................

12 41

31,750

Salary and Commission Expense......... Cash ....................................................

51 11

13,500

Maya Garmin, Drawing .......................... Cash ....................................................

32 11

1,000

Cash ........................................................ Unearned Rent ...................................

11 22

2,000

Debit

Credit

3,000 1,000 2,400 25,000 16

90,000 10,000 80,000 2,910 200 1,250 400 900 450 31,750 13,500 1,000 2,000

Prob. 2–4B

Continued

1. and 3. Cash

11 Item

Post. Ref.

Dr.

Cr.

Balance ................................ .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. ..............................................

 18 18 18 18 18 18 19 19 19 19 19 19

............ ............ ............ 25,000 ............ ............ ............ 400 ............ ............ ............ ............ 2,000

........... 3,000 2,400 ........... 10,000 2,910 1,250 ........... 900 450 13,500 1,000 ...........

Date

2010 Nov. 1 1 5 10 15 17 23 27 28 29 30 30 30

Accounts Receivable 2010 Nov. 1 10 30

Balance ................................ .............................................. ..............................................

Balance ................................ ..............................................

 18 19

............ ........... ............ 25,000 31,750 ...........

Balance ................................ .............................................. ..............................................

 18

............ ........... 2,400 ...........

33,750 ........... 8,750 ........... 40,500 ...........

1,500 ........... 3,900 ........... 14

 18 18

............ ........... 1,000 ........... ............ 200

Land 2010 Nov. 15

........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ...........

13

Office Supplies 2010 Nov. 1 2 20

13,150 10,150 7,750 32,750 22,750 19,840 18,590 18,990 18,090 17,640 4,140 3,140 5,140

12

Prepaid Insurance 2010 Nov. 1 5

Balance Dr. Cr.

900 ........... 1,900 ........... 1,700 ........... 16

..............................................

18

90,000 ...........

90,000 ...........

Prob. 2–4B

Continued

Accounts Payable Item

Post. Ref.

Balance ................................ .............................................. .............................................. ..............................................

 18 18 18

Date

2010 Nov. 1 2 17 20

21 Dr.

Cr.

............ ........... ............ 1,000 2,910 ........... 200 ...........

Balance Dr. Cr.

........... ........... ........... ...........

Unearned Rent 2010 Nov. 30

..............................................

22 19

............

2,000 ...........

Notes Payable 2010 Nov. 15

..............................................

Balance ................................

18

............

80,000 ...........

Balance ................................ ..............................................



............ ...........

Balance ................................ ..............................................

 19

............ ........... 1,000 ...........

Balance ................................ .............................................. ..............................................

16,490

1,000 ........... 2,000 ........... 41

 19

............ ........... ........... 130,000 ............ 31,750 ........... 161,750

Salary and Commission Expense 2010 Nov. 1 27 30

...........

32

Fees Earned 2010 Nov. 1 30

80,000 31

Maya Garmin, Drawing 2010 Nov. 1 30

2,000 23

Maya Garmin, Capital 2010 Nov. 1

6,510 7,510 4,600 4,400

51  19 19

............ ........... ............ 400 13,500 ...........

74,100 ........... 73,700 ........... 87,200 ...........

Rent Expense Item

Post. Ref.

Balance ................................ ..............................................

 18

Date

2010 Nov. 1 1

52 Dr.

Cr.

............ ........... 3,000 ...........

Advertising Expense 2010 Nov. 1 23

Balance ................................ ..............................................

Balance ................................ ..............................................

 18

............ ........... 1,250 ...........

Balance ................................ ..............................................

8,900 ........... 10,150 ........... 54

 19

............ ........... 900 ...........

Miscellaneous Expense 2010 Nov. 1 29

15,000 ........... 18,000 ........... 53

Automobile Expense 2010 Nov. 1 28

Balance Dr. Cr.

2,750 ........... 3,650 ........... 59

 19

............ ........... 450 ...........

1,950 ........... 2,400 ...........

Prob. 2–4B

Concluded

4. AMPERE REALTY Unadjusted Trial Balance November 30, 2010 Debit Credit Balances Balances Cash .................................................................................... Accounts Receivable ......................................................... Prepaid Insurance .............................................................. Office Supplies ................................................................... Land..................................................................................... Accounts Payable .............................................................. Unearned Rent.................................................................... Notes Payable..................................................................... Maya Garmin, Capital......................................................... Maya Garmin, Drawing....................................................... Fees Earned........................................................................ Salary and Commission Expense ..................................... Rent Expense ..................................................................... Advertising Expense .......................................................... Automobile Expense .......................................................... Miscellaneous Expense .....................................................

10 6

5,140 40,500 3,900 1,700 90,000 4,400 2,000 80,000 16,490 2,000 161,750 87,200 18,000 10,150 3,650 2,400 264,640

264,640

Prob. 2–5B 1. Totals of preliminary trial balance: Debit Credit 2. Difference between preliminary trial balance totals:

$30,515.39 $43,862.30 $13,346.91

3. Errors in trial balance: (a) Supplies debit balance was listed as $99.79 instead of $997.90 (slide). (b) Notes Payable credit balance was listed as $5,600.00 instead of $6,500.00 (transposition). (c) Tina Reid, Drawing debit balance of $1,350.00 was listed as credit balance. (d) Advertising Expense of $275.00 was omitted. 4. Errors in account balances: (a) Accounts Payable balance of $1,077.50 was totaled as $1,151.70. 5. Errors in posting: (a) Prepaid Insurance entry of May 9 for $144.00 was posted as $14.40 (slide). (b) Land entry of May 10 for $12,000.00 was posted as $1,200.00 (slide). (c) Cash entry of May 30 for $436.60 was posted as $346.60 (transposition). (d) Wages Expense entry of May 31 for $1,390.00 was posted as $1,930.00 (transposition). 6. May

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

53 11

175.00 175.00

HALLMARK ELECTRONIC REPAIR Unadjusted Trial Balance May 31, 20— Debit Credit Balances Balances Cash .................................................................................... Supplies .............................................................................. Prepaid Insurance .............................................................. 10 7

8,741.00 997.90 395.50

Land..................................................................................... Notes Payable..................................................................... Accounts Payable .............................................................. Tina Reid, Capital ............................................................... Tina Reid, Drawing............................................................. Service Revenue................................................................. Wages Expense.................................................................. Rent Expense ..................................................................... Advertising Expense .......................................................... Utilities Expense ................................................................ Miscellaneous Expense .....................................................

10 8

26,625.00 6,500.00 1,077.50 27,760.20 1,350.00 8,000.40 2,518.60 1,540.00 450.00 436.60 283.50 43,338.10

43,338.10

Prob. 2–6B 1. DAMASCUS CARPET Unadjusted Trial Balance August 31, 2010 Debit Credit Balances Balances Cash .................................................................................... Accounts Receivable ......................................................... Supplies .............................................................................. Prepaid Insurance .............................................................. Equipment........................................................................... Notes Payable..................................................................... Accounts Payable .............................................................. Isaiah Betts, Capital ........................................................... Isaiah Betts, Drawing......................................................... Fees Earned........................................................................ Wages Expense.................................................................. Rent Expense ..................................................................... Advertising Expense .......................................................... Gas, Electricity, and Water Expense ................................ Miscellaneous Expense .....................................................

11,200* 24,010 4,375 2,150 98,000 58,800 15,400 61,075 31,500 214,725 122,500 29,050 12,600 12,075 2,540 350,000

350,000

*$8,650 + $5,250 (a) – $2,700 (b) 2. No. The trial balance indicates only that the debits and credits are equal. Any errors that have the same effect on debits and credits will not affect the balancing of the trial balance.

CONTINUING PROBLEM 2. and 3.

Date

2010 July 1 1 1 2 3 3 4 5 8 11 13 14

JOURNAL

Page 1

Description

Post. Ref.

Cash ........................................................ Lee Chang, Capital ............................

11 31

2,500

Office Rent Expense .............................. Cash ....................................................

51 11

2,000

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

15 11

2,700

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

11 12

1,350

Cash ........................................................ Unearned Revenue ............................

11 23

7,200

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

21 11

250

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

59 11

500

Office Equipment ................................... Accounts Payable ..............................

17 21

5,000

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

55 11

200

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

11 41

800

Equipment Rent Expense ...................... Cash ....................................................

52 11

600

Wages Expense...................................... Cash ....................................................

50 11

1,000

Debit

Credit

2,500 2,000 2,700 1,350 7,200 250 500 5,000 200 800 600 1,000

Continuing Problem

Continued

2. and 3. JOURNAL Date

2010 July 16 18 21 22 23

27 28 29 30

31 31 31

Page 2

Description

Post. Ref.

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

11 41

1,750

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

14 21

680

Music Expense ....................................... Cash ....................................................

54 11

420

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

55 11

800

Cash ........................................................ Accounts Receivable ............................. Fees Earned .......................................

11 12 41

750 1,750

Utilities Expense .................................... Cash ....................................................

53 11

560

Wages Expense...................................... Cash ....................................................

50 11

1,000

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

59 11

150

Cash ........................................................ Accounts Receivable ............................. Fees Earned .......................................

11 12 41

400 1,400

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

11 41

2,800

Music Expense ....................................... Cash ....................................................

54 11

1,100

Lee Chang, Drawing .............................. Cash ....................................................

32 11

1,500

Debit

Credit

1,750 680 420 800

2,500 560 1,000 150

1,800 2,800 1,100 1,500

Continuing Problem

Continued

1. and 3. Cash

11 Item

Post. Ref.

Dr.

Cr.

Balance ................................ .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. .............................................. ..............................................

 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2

............ 2,500 ............ ............ 1,350 7,200 ............ ............ ............ 800 ............ ............ 1,750 ............ ............ 750 ............ ............ ............ 400 2,800 ............ ............

........... ........... 2,000 2,700 ........... ........... 250 500 200 ........... 600 1,000 ........... 420 800 ........... 560 1,000 150 ........... ........... 1,100 1,500

Date

2010 July 1 1 1 1 2 3 3 4 8 11 13 14 16 21 22 23 27 28 29 30 31 31 31

Accounts Receivable 2010 July 1 2 23 30

Balance ................................ .............................................. .............................................. ..............................................

Supplies 2010 July 1 Balance ................................ 18 ..............................................

..............................................

8,010 10,510 8,510 5,810 7,160 14,360 14,110 13,610 13,410 14,210 13,610 12,610 14,360 13,940 13,140 13,890 13,330 12,330 12,180 12,580 15,380 14,280 12,780

........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... 12

 1 2 2

............ ........... ............ 1,350 1,750 ........... 1,400 ...........

1,350 ........... — — 1,750 ........... 3,150 ........... 14

 2

............ ........... 680 ...........

Prepaid Insurance 2010 July 1

Balance Dr. Cr.

170 ........... 850 ........... 15

1

2,700 ...........

2,700 ...........

Continuing Problem

Continued

Office Equipment Date

2010 July 5

17 Item

Post. Ref.

..............................................

1

Dr.

Cr.

5,000 ...........

Balance Dr. Cr.

5,000 ...........

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

18

Accounts Payable 2010 July 1 Balance ................................ 3 .............................................. 5 .............................................. 18 ..............................................

21  1 1 2

............ ........... ........... 250 ........... — ............ 5,000 ........... ............ 680 ...........

250 — 5,000 5,680

Wages Payable This account is not used in Chapter 2.

22

Unearned Revenue 2010 July 3 ..............................................

23

Lee Chang, Capital 2010 July 1 Balance ................................ 1 .............................................. Lee Chang, Drawing 2010 July 1 Balance ................................ 31 ..............................................

1

............

7,200 ...........

7,200 31

 1

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

8,000 10,500 32

 2

............ ........... 1,500 ...........

200 ........... 1,700 ...........

Income Summary This account is not used in Chapter 2.

33

Fees Earned 2010 July 1 Balance ................................ 11 .............................................. 16 .............................................. 23 .............................................. 30 .............................................. 31 ..............................................

41  1 2 2 2 2

............ ........... ............ 800 ............ 1,750 ............ 2,500 ............ 1,800 ............ 2,800

........... ........... ........... ........... ........... ...........

5,650 6,450 8,200 10,700 12,500 15,300

Wages Expense Item

Post. Ref.

Balance ................................ .............................................. ..............................................

 1 2

Date

2010 July 1 14 28

50 Dr.

Cr.

............ ........... 1,000 ........... 1,000 ...........

Office Rent Expense 2010 July 1 1

Balance ................................ ..............................................

Equipment Rent Expense 2010 July 1 Balance ................................ 13 ..............................................

Balance ................................ ..............................................

 1

............ ........... 2,000 ...........

Balance ................................ .............................................. ..............................................

 1

............ ........... 600 ...........

Balance ................................ .............................................. ..............................................

 2

............ ........... 560 ...........

Balance ................................

Insurance Expense This account is not used in Chapter 2.

300 ........... 860 ........... 54

 2 2

............ ........... 420 ........... 1,100 ...........

1,290 ........... 1,710 ........... 2,810 ........... 55

 1 2

............ ........... 200 ........... 800 ...........

Supplies Expense 2010 July 1

500 ........... 1,100 ........... 53

Advertising Expense 2010 July 1 8 22

750 ........... 2,750 ........... 52

Music Expense 2010 July 1 21 31

400 ........... 1,400 ........... 2,400 ........... 51

Utilities Expense 2010 July 1 27

Balance Dr. Cr.

600 ........... 800 ........... 1,600 ........... 56



............ ...........

180 ........... 57

Continuing Problem

Concluded

Depreciation Expense Date

58 Post. Ref.

Item

Dr.

Cr.

Balance Dr. Cr.

This account is not used in Chapter 2. Miscellaneous Expense 2010 July 1 4 29

59  1 2

Balance ................................ .............................................. ..............................................

............ ........... 500 ........... 150 ...........

150 ........... 650 ........... 800 ...........

4. MUSIC DEPOT Unadjusted Trial Balance July 31, 2010 Debit Credit Balances Balances Cash .................................................................................... Accounts Receivable ......................................................... Supplies .............................................................................. Prepaid Insurance .............................................................. Office Equipment ............................................................... Accounts Payable .............................................................. Unearned Revenue............................................................. Lee Chang, Capital ............................................................. Lee Chang, Drawing........................................................... Fees Earned........................................................................ Wages Expense.................................................................. Office Rent Expense .......................................................... Equipment Rent Expense .................................................. Utilities Expense ................................................................ Music Expense ................................................................... Advertising Expense .......................................................... Supplies Expense .............................................................. Miscellaneous Expense .....................................................

11 5

12,780 3,150 850 2,700 5,000 5,680 7,200 10,500 1,700 15,300 2,400 2,750 1,100 860 2,810 1,600 180 800 38,680

38,680

SPECIAL ACTIVITIES SA 2– 1 Acceptable ethical conduct requires that Hannah look for the difference. If Han- nah cannot find the difference within a reasonable amount of time, she should confer with her supervisor as to what action should be taken so that the financial statements can be prepared by the 5 o’clock deadline. Hannah’s responsibility to her employer is to act with integrity, objectivity, and due care, so that users of the financial statements will not be misled.

SA 2– 2 The following general journal entry should be used to record the receipt of tuition payments received in advance of classes: Cash ..................................................................... Unearned Tuition Deposits ...........................

XXXX XXXX

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

SA 2– 3 The journal is called the book of original entry. It provides a time-ordered history of the transactions that have occurred for the firm. This time-ordered history is very important because it allows one to trace ledger account balances back to the original transactions that created those balances. This is called an ―audit trail.‖ If the firm recorded transactions by posting ledgers directly, it would be nearly im- possible to reconstruct actual transactions. The debits and credits would all be separated and accumulated into the ledger balances. Once the transactions be- come part of the ledger balances, the original transactions would be lost. That is, there would be no audit trail, and any errors that might occur in recording trans- actions would be almost impossible to trace. Thus, firms first record transaction debits and credits in a journal. These transactions are then posted to the ledger to update the account balances. The journal and ledger are linked using posting references. This allows an analyst to trace the transaction flow forward or back- ward, depending on the need.

11 6

SA 2–4 1. The rules of debit and credit must be memorized. Loyd is correct in that the rules of debit and credit could be reversed as long as everyone accepted and abided by the rules. However, the important point is that everyone accepts the rules as the way in which transactions should be recorded. This generates uniformity across the accounting profession and reduces errors and confusion. Since the current rules of debit and credit have been used for centuries, Loyd should adapt to the current rules of debit and credit, rather than devise his own. The primary reason that all accounts do not have the same rules for increases and decreases is for control of the recording process. The double-entry accounting system, which includes both (1) the rules of debit and credit and (2) the accounting equation, guarantees that (1) debits always equals credits and (2) assets always equals liabilities plus owner’s equity. If all increases in the account were recorded by debits, then the control that debits always equals credits would be removed. In addition, the control that the normal bal- ance of assets is a debit would also be removed. The accounting equation would still hold, but the control over recording transactions would be wea- kened. Loyd is correct that we could call the left and right sides of an account differ- ent terms, such as ―LE‖ or ―RE.‖ Again, centuries of tradition dictate the cur- rent terminology used. One might note, however, that in Latin, debere (debit) means left and credere (credit) means right. 2. The accounting system may be designed to capture information about the buying habits of various customers or vendors, such as the quantity normally ordered, average amount ordered, number of returns, etc. Thus, in a sense, there can be other ―sides‖ of (information about) a transaction that are rec- orded by the accounting system. Such information would be viewed as sup- plemental to the basic double-entry accounting system.

SA 2–5 a. Although the titles and numbers of accounts may differ, depending on how expenses are classified, the following accounts would be adequate for recording transaction data for Ace Caddy Service: Balance Sheet Accounts 11 12 13

21

31 32

1.Assets Cash Accounts Receivable Supplies 2.Liabilities Accounts Payable

3.Owner’ s Equity Cody Packwood, Capital Cody Packwood, Drawing b.

Income Statement Accounts 41

4. Revenue Service Revenue

51 52 53 54 55

5. Expenses Rent Expense Supplies Expense Wages Expense Utilities Expense Miscellaneous Expense

ACE CADDY SERVICE Income Statement For Month Ended June 30, 2010 Service revenue.................................................................. Expenses: Rent expense............................................................... Supplies expense........................................................ Wages expense ........................................................... Utilities expense.......................................................... Miscellaneous expense .............................................. Total expenses ...................................................... Net income..........................................................................

$6,200 $2,600 1,225 450 140 150 4,565 $1,635

Note to Instructors: Students may have prepared slightly different income statements, depending upon the titles of the major expense classifications chosen. Regardless of the classification of expenses, however, the total sales, total expenses, and net income should be as presented above. T accounts are not required for the preparation of the income statement of Ace Caddy Service. The following presentation illustrates one solution using T accounts. Alternative solutions are possible if students used different accounts. In presenting the following T account solution, instructors may wish to emphasize the advantages of using T accounts (or a journal and four-column accounts) when a large number of transactions must be recorded.

SA 2–5

Continued

2010 June 1 15 30 30

Bal.

Cash 2010 2,500 June 2,350 2,650 800

11 1 2 3 17 20 28

600 750 500 500 1,500 150

30 30

140 450

3,710

Accounts Receivable 2010 June 25 Bal.

2010 1,200 June 30 400 Supplies

2010 500

22

400

Bal.

2010 June 1 3 Bal.

800

2010 June 30

1,225

June 30

52

53

450 Utilities Expense

54

2010

Accounts Payable

Miscellaneous Expense

500 June 3 1,500

140

21

2010 20

51

1,225

Wages Expense

June 30

June 17

2,350 1,200 2,650 6,200

2010

425

2010

41

600 2,000 2,600 Supplies Expense

13

750 June 30

7

Rent Expense

12

2010

June 2

Service Revenue 2010 June 15 25 30 Bal.

7 22 Bal.

Cody Packwood, Capital

1,500 500 400 400 31

2010 June 1

2,500

2010 June 28

150

55

SA 2–5

Concluded

c. $3,710, computed in the following manner: Cash receipts: Initial investment................................................... Cash sales ............................................................. Collections on accounts ...................................... Total cash receipts during June..................

$2,500 5,000 800

Cash disbursements: Rent expense ........................................................ Supplies purchased for cash............................... Wages expense..................................................... Payment for supplies on account........................ Utilities expense ................................................... Miscellaneous expense ........................................ Total cash disbursements during June ......

$2,600 750 450 500 140 150

Cash on hand according to records..........................

$8,300

4,590 $3,710*

*If the student used T accounts in completing part (b), or this part, this amount ($3,710) should agree with the balance of the cash account. d. The difference of $110 between the cash on hand according to records ($3,710) and the cash on hand according to the count ($3,600) could be due to many factors, including errors in the record keeping and withdrawals made by Cody.

SA 2– 6 Note to Instructors: The purpose of this activity is to familiarize students with the job opportunities available in accounting or in fields that require (or prefer) the employee to have some knowledge of accounting.

12 0