Chapter 02 – Analyzing and Recording Transactions
Exercise 2-6 (15 minutes)
a. Beginning accounts payable (credit)…………..…………………..…..…. $152,000
Purchases on account in October (credits)…………….….….…..…... 281,000
b. Beginning accounts receivable (debit)…………..…………………….…. $102,500
Sales on account in October (debits)……………..….…..….….…..…... ?
c. Beginning cash balance (debit)……………………………..…………….….$ ?
Cash received in October (debits)……………………………..……………. 102,500
Exercise 2-7 (25 minutes)
Aug. 1 Cash…………………………………………………………. 6,500
Photography Equipment…………………..……..… 33,500
M. Harris, Capital……………………………….... 40,000
Owner investment in business.
31 Utilities Expense……………………………………….. 675
Cash………………………………………………….… 675
Paid for August utilities.
2-59
Chapter 02 – Analyzing and Recording Transactions
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
Prepaid Insurance Utilities Expense
Aug. 2 2,100 Aug. 31 675
POSE-FOR-PICS
Trial Balance
August 31
Debit Credit
Cash….…..…..……………………………… $ 6,176
Office supplies…………………………… 880
Prepaid insurance…………..………….. 2,100
Utilities expense…………………………. 675 ______
Totals……………………………….………… $43,331 $43,331
2-60
Chapter 02 – Analyzing and Recording Transactions
Exercise 2-9 (30 minutes)
a. Cash……………………………………………………………….… 100,750
K. Spade, Capital………………………………………… 100,750
Owner invested in the business.
Purchased office equipment on credit.
d. Cash……………………………………………………………….… 15,500
Fees Earned……………………………………………….. 15,500
Received cash from customer for services.
Billed customer for services provided.
g. Rent Expense………………………………………………….... 1,225
Cash………………………………………..………..………. 1,225
Paid for this period’s rental charge.
Owner withdrew cash for personal use.
2-61
Chapter 02 – Analyzing and Recording Transactions
Exercise 2-9 (concluded)
Cash Accounts Payable
(a) 100,750 (b) 1,250 (e) 10,050 (c) 10,050
(d) 15,500 (e) 10,050 Balance 0
(h) 1,125 (g) 1,225
(i) 10,000
Balance 94,850 K. Spade, Capital
(a) 100,750
Accounts Receivable K. Spade, Withdrawals
(f) 2,700 (h) 1,125 (i) 10,000
Balance 1,575 Balance 10,000
Office Supplies Fees Earned
Office Equipment Rent Expense
(c) 10,050 (g) 1,225
Balance 10,050 Balance 1,225
Exercise 2-10 (15 minutes)
SPADE COMPANY
Trial Balance
May 31, 2015
Debit Credit
Cash……….……………….…..….….…. $ 94,850
Accounts receivable……………..… 1,575
Office supplies…………….….…..…. 1,250
Office equipment……..….….…...... 10,050
Accounts payable…………….….…. $ 0
K. Spade, Capital…….…..….…...... 100,750
2-62
Chapter 02 – Analyzing and Recording Transactions
Exercise 2-11 (20 minutes)
Transactions that created expenses:
b. Salaries Expense………………………………..… 1,233
Cash……………………………………………..… 1,233
Paid salary of receptionist.
[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
existing liability, and equity did not change. Cash payment does not
mean the same as using up of assets (expense is recorded when the
supplies are used).
2-63
Chapter 02 – Analyzing and Recording Transactions
Exercise 2-12 (20 minutes)
Transactions that created revenues:
b. Accounts Receivable………………………..…………. 2,300
Services Revenue……………………………..…… 2,300
Provided services on credit.
[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.
f. This transaction brought in cash and increased assets, but it also
increased a liability by the same amount (no goods or services were
provided to generate revenue).
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.
g. Paid $820 cash for gas and oil expenses.
2-64
Chapter 02 – Analyzing and Recording Transactions
Exercise 2-14 (30 minutes)
a. Cash……………………………………………………………….… 6,000
Equipment………………………………………………..………. 7,600
Automobiles……………………………………………………… 12,000
D. Belle, Capital……………………………………....…. 25,600
Owner investment in company.
e. Cash……………………………………………………………….… 4,500
Delivery Services Revenue………….……..………. 4,500
Received cash from customer for services
provided.
2-65
Chapter 02 – Analyzing and Recording Transactions
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
Less owner withdrawals ($1,250/mo. x 12 mo.) (15,000)
Change in equity…………….…………..……………... $29,000
Net Income = $44,000
The withdrawals were added back because they reduced equity
without reducing net income.
d. Net income……………………………………………….... $ ?
Plus owner investment…………….…..…………….. 35,000
Less owner withdrawals ($1,250/mo. X 12 mo.) (15,000)
2-66
Chapter 02 – Analyzing and Recording Transactions
Exercise 2-16 (15 minutes)
HELP TODAY
Income Statement
For Month Ended August 31
Revenues
Consulting fees earned……………………. $ 27,000
Expenses
Rent expense…………………………..……… $ 9,550
Salaries expense………..……………..……. 5,600
Exercise 2-17 (15 minutes)
HELP TODAY
Statement of Owner’s Equity
For Month Ended August 31
C. Camry, Capital, July 31…………………..… $ 0
Add: Investment by owner..…..……......... 102,000
Net income (from Exercise 2-16)...... 10 ,470
2-67
Chapter 02 – Analyzing and Recording Transactions
Exercise 2-18 (15 minutes)
HELP TODAY
Balance Sheet
August 31
Assets Liabilities
Cash……………………….… $ 25,360 Accounts payable………....... $ 10,500
Accounts receivable.... 22,360
* Amount from Exercise 2-17.
Exercise 2-19 (15 minutes)
(a) (b) (c) (d)
Answers $(28,000) $42,000 $73,000 $(45,000)
Computations:
Equity, Dec. 31, 2014..….........$ 0 $ 0 $ 0 $ 0
Equity, Dec. 31, 2015..….........$104 ,000 $85 ,000 $73 ,000 $110,000
2-68