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Chapter 02 - Double-Entry Accounting
(1) Identify the errors in the trial balance. All accounts have normal balances.
(2) Prepare a corrected trial balance.
Dawson Designs Co.
Unadjusted Trial Balance
For the Month of January
Debits
Credits
Cash
23,000
Accounts Receivable
49,700
Prepaid Insurance
11,300
Equipment
150,500
Accounts Payable
6,050
Salaries Payable
4,250
Common Stock
110,000
Dividends
18,500
Service Revenue
236,600
Salary Expense
98,930
Miscellaneous Expense
4,970
424,020
424,020
ANSWER:
(1)
a. The debit column is added incorrectly; the sum is actually $289,780.
b. The trial balance should be dated January 31, rather than “For the
Month of January”
c. The Accounts Receivable balance should be in the debit column.
d. The Accounts Payable balance should be in the credit column.
e. The Dividends balance should be in the debit column.
f. The Miscellaneous Expense balance should be in the debit column.
(2)
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227.
(a)
List the errors in the following trial balance. All accounts have normal
balances.
(b)
What would be the new totals of the trial balance after errors are corrected?
What would be the balance of Accounts Receivable?
Winslow’s Auto Body
Trial Balance
For Month Ending April 30
Cash
19,475
Accounts Receivable
?
Supplies
1,000
Equipment
15,000
Prepaid Insurance
500
Accounts Payable
2,500
Common Stock
17,000
Dividends
1,000
Fees Earned
49,600
Salary Expense
14,500
Rent Expense
9,000
Utilities Expense
1,400
Supplies Expense
3,900
Miscellaneous Expense
250
55,000
81,575
ANSWER:
(a)
(1)
In the heading, the date should be April 30, not for a period of time.
(2)
The Cash balance should be a debit.
(3)
The Accounts Receivable balance is missing.
(4)
The Supplies balance should be a debit.
(5)
The Prepaid Insurance balance should be a debit and this account should
follow Supplies.
(6)
The Common Stock balance should be a credit.
(7)
The Dividends balance should be a debit.
(8)
Rent Expense should be a debit.
(9)
Utilities Expense should appear after Supplies Expense.
(10)
The trial balance does not balance.
(b)
The new total for credits would be $69,100 ($2,500 accounts payable + $49,600
fees earned + $17,000 common stock). Accounts receivable would be $3,075
($69,100 total credits − $66,025 corrected debits).
POINTS:
1
DIFFICULTY:
Challenging
Bloom's: Applying
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.02-04 - LO: 02-04
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.05 - Accounting Cycle
ACCT.ACBSP.APC.09 - Financial Statements
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:26 PM
DATE MODIFIED:
10/16/2017 4:20 PM
228. Answer the following questions for each of the errors listed below, considered individually:
(a)
Did the error cause the trial balance totals to be unequal?
(b)
What is the amount of the difference between the trial balance totals (where
applicable)?
(c)
Which of the trial balance totals, debit or credit, is the larger (where
applicable)?
Present your answers in columnar form, using the following headings:
Error
Totals
Difference in Totals
Larger of Totals
(identifying number)
(equal or unequal)
(amount)
(debit or credit)
Errors:
(1)
A dividend of $3,000 cash to shareholders was recorded by a debit of $3,000 to
Salary Expense and a credit of $3,000 to Cash.
(2)
A $650 purchase of supplies on account was recorded as a debit of $1,650 to
Equipment and a credit of $1,650 to Accounts Payable.
(3)
A purchase of equipment for $3,450 on account was not recorded.
(4)
A $870 receipt on account was recorded as a $870 debit to Cash and a $780
credit to Accounts Receivable.
(5)
A payment of $1,530 cash on account was recorded only as a credit to Cash.
(6)
Cash sales of $8,500 were recorded as a credit of $8,500 to Cash and a credit
of $8,500 to Fees Earned.
(7)
The debit to record a $4,000 cash receipt on account was posted twice; the
credit was posted once.
(8)
The credit to record a $300 cash payment on account was posted twice; the
debit was posted once.
(9)
The debit balance of $7,400 in Accounts Receivable was recorded in the trial
balance as a debit of $7,200.
ANSWER:
Error
Totals
Difference in Totals
Larger of Totals
(1)
equal
—
—
(2)
equal
—
—
(3)
equal
—
—
(4)
unequal
$ 90
debit
(5)
unequal
1,530
credit
(6)
unequal
17,000
credit
(7)
unequal
4,000
debit
(8)
unequal
300
credit
(9)
unequal
200
credit
POINTS:
1
DIFFICULTY:
Challenging
Bloom's: Applying
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.02-04 - LO: 02-04
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.05 - Accounting Cycle
ACCT.ACBSP.APC.09 - Financial Statements
ACCT.AICPA.FN.03 - Measurement
230. Lewis Company has a condensed income statement as shown:
Year 2
Year 1
Sales
$178,400
$162,500
Wage expenses
$100,000
$ 92,500
Rent expenses
33,000
30,000
Utilities expenses
30,000
25,000
Total operating expenses
$163,000
$147,500
Net income
$ 15,400
$ 15,000
REQUIRED:
Prepare a horizontal analysis of Lewis Company’s income statements. Comment on the trends, both favorable and
unfavorable.
ANSWER:
Year 2
Year 1
Increase/
(Decrease)
Percent
Sales
$178,400
$162,500
$15,900
9.8%
Wage expenses
$100,000
$ 92,500
$ 7,500
8.1%
Rent expenses
33,000
30,000
3,000
10.0%
Utilities
expenses
30,000
25,000
5,000
20.0%
Total operating
expenses
$163,000
$147,500
$15,500
10.5%
Net income
$ 15,400
$ 15,000
$ 400
2.7%
While the trend in sales revenue is favorable, it is not sufficient to offset the rising
expenses, resulting in a small increase in net income.
POINTS:
1
DIFFICULTY:
Bloom's: Applying
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.02-05 - LO: 02-05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.02 - GAAP
ACCT.ACBSP.APC.09 - Financial Statements
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:26 PM
Chapter 02 - Double-Entry Accounting
Net income
$ 20,400
$ 15,000
REQUIRED:
Prepare a horizontal analysis of Nebraska Technologies'income statements. Comment on the trends, both favorable and
unfavorable.
ANSWER:
Year 2
Year 1
Increase/
(Decrease)
Percent
Sales
$158,400
$162,500
$ (4,100)
(2.5)%
Wage expense
$ 80,000
$ 92,500
$(12,500)
(13.5)%
Rent expense
28,000
30,000
(2,000)
(6.7)%
Utilities
expense
30,000
25,000
5,000
20.0%
Total
operating
expenses
$138,000
$147,500
$ (9,500)
(6.4)%
Net income
$ 20,400
$ 15,000
$ 5,400
36.0%
The trend in sales revenue is unfavorable, but that is more than offset by the declines
in operating expenses, with the exception of utilities, which increased over the
period. Despite the 2.5% drop in sales, the net effect was a favorable increase in net
income of 36%, which was in large part spurred by the drop in wages expense.
POINTS:
1
DIFFICULTY:
Bloom's: Applying
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.02-05 - LO: 02-05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.02 - GAAP
ACCT.ACBSP.APC.09 - Financial Statements
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:26 PM
DATE MODIFIED:
10/16/2017 4:20 PM
