EXERCISES
Exercise 2-1 (10 minutes)
4 a. Prepare and analyze the trial balance.
Exercise 2-2 (10 minutes)
a. 5 “Three” d. 1 “Asset”
Exercise 2-3 (5 minutes)
Exercise 2-4 (15 minutes)
Type of Normal Increase
Account Account Balance (Dr. or Cr.)
a. Land…………………………………….. asset debit debit
b. Cash……………………………………. asset debit debit
c. Legal Expense……………………… expense debit debit
Exercise 2-5 (15 minutes)
Of the items listed, the following effects should be included:
a. $28,000 increase in a liability account.
Explanation: This transaction created $62,000 in revenue, which is the
value of the service provided. Payment is received in the form of a $10,000
increase in cash, an $80,000 increase in computer equipment, and a
$28,000 increase in its liabilities. The net value received by the company is
$62,000.
Exercise 2-6 (15 minutes)
a. Beginning accounts payable (credit)……………………………………… $152,000
Payments on accounts in October (debits)…………………………….. $300 ,500
Sales on account in October (debits)…………………………………….. $ 89 ,390
c. Beginning cash balance (debit)……………………………………………..$ ?
Exercise 2-7 (25 minutes)
Aug. 1 Cash……………………………………………………….. 6,500
Photography Equipment…………………………… 33,500
Paid for August utilities.
Exercise 2-8 (30 minutes)
Cash Photography Equipment
Aug. 1 6,500 Aug. 2 2,100 Aug. 1 33,500
20 3,331 5 880
31 675 M. Harris, Capital
POSE-FOR-PICS
Trial Balance
August 31
Debit Credit
Cash…………………………………………. $ 6,176
Office supplies………………………….. 880
Exercise 2-9 (30 minutes)
a. Cash……………………………………………………………….. 100,750
K. Spade, Capital………………………………………. 100,750
Owner invested in the business.
b. Office Supplies………………………………………………… 1,250
Cash………………………………………………………… 1,250
Purchased supplies with cash.
Owner withdrew cash for personal use.
Exercise 2-9 (concluded)
Cash Accounts Payable
(a) 100,750 (b) 1,250 (e) 10,050 (c) 10,050
Accounts Receivable K. Spade, Withdrawals
Office Supplies Fees Earned
Balance 18,200
Office Equipment Rent Expense
Exercise 2-10 (15 minutes)
SPADE COMPANY
Trial Balance
May 31, 2015
Debit Credit
Cash……………………………………… $ 94,850
Accounts receivable………………. 1,575
Office supplies………………………. 1,250
Exercise 2-11 (20 minutes)
Transactions that created expenses:
b. Salaries Expense…………………………………. 1,233
Paid utilities for the office.
[Note: Expenses are outflows or using up of assets (or the creation of
liabilities) that occur in the process of providing goods or services to
customers.]
Transactions a, c, and e are not expenses for the following reasons:
a. This transaction decreased assets in settlement of a previously
c. This transaction involves the purchase of an asset. The form of the
e. This transaction is a distribution of cash to the owner. Even though
0
Exercise 2-12 (20 minutes)
Transactions that created revenues:
Provided services on credit.
Provided services for cash.
[Note: Revenues are inflows of assets (or decreases in liabilities)
received in exchange for goods or services provided to customers.]
Transactions that did not create revenues along with the reasons are:
a. This transaction brought in cash, but this is an owner investment.
Exercise 2-13 (25 minutes)
a. Belle created a new business and invested $6,000 cash, $7,600 of
equipment, and $12,000 in automobiles.
b. Paid $4,800 cash in advance for insurance coverage.
Exercise 2-14 (30 minutes)
a. Cash……………………………………………………………….. 6,000
Owner investment in company.
Purchased insurance coverage.
Purchased supplies with cash.
d. Office Supplies………………………………………………… 300
Purchased supplies and equipment on credit.
Received cash from customer for services
provided.
Made payment on payables.
Paid for gas and oil.
Exercise 2-15 (20 minutes)
Calculation of change in equity for part a through part d
Assets –Liabilities =Equity
a. Net income……………………………………………….. $ ?
Plus owner investments…………………………….. 0
Since there were no additional investments or withdrawals, the net
income for the year equals the net increase in owner’s equity.
b. Net income……………………………………………….. $ ?
Plus owner investments…………………………….. 0
The withdrawals were added back because they reduced equity
without reducing net income.
c. Net income……………………………………………….. $ ?
The investment was deducted because it increased equity without
creating net income.
d. Net income……………………………………………….. $ ?
The withdrawals were added back because they reduced equity
without reducing net income and the investments were deducted
because they increased equity without creating net income.