Chapter 02 – Analyzing and Recording Transactions
Exercise 2-20 (20 minutes)
Description
(1)
Difference
between
Debit and
Credit
Columns
(2)
Column
with the
Larger
Total
(3)
Identify
account(s)
incorrectly
stated
(4)
Amount that account(s)
is overstated or
understated
a. $3,600 debit to Rent
Expense is posted as
a $1,340 debit.
$2,260 Credit Rent Expense Rent Expense is
understated by $2,260
d. $2,050 debit to
Prepaid Insurance is
posted as a debit to
Insurance Expense.
$0 ––
Prepaid
Insurance
Insurance
Expense
Prepaid Insurance is
understated by $2,050
Insurance Expense is
overstated by $2,050
e. $38,000 debit to
Machinery is posted
as a debit to Accounts
Payable.
$0 ––
Machinery
Accounts
Payable
Machinery is
understated by $38,000
Accounts Payable is
understated by $38,000
posted.
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Chapter 02 – Analyzing and Recording Transactions
Exercise 2-21 (15 minutes)
a. The debit column is correctly stated because the erroneous debit (to
Accounts Payable) is deducted from an account with a (larger assumed)
credit balance.
Exercise 2-22 (10 minutes)
HEINEKEN N.V.
Balance Sheet (in Euro millions)
December 31, 2013
Assets Equity and liabilities
Noncurrent assets…….. € 27,842 Total equity…………..……….... € 12,356
Current assets....…….... 5,495 Noncurrent liabilities....……. 12,978
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Chapter 02 – Analyzing and Recording Transactions
Exercise 2-23 (15 minutes)
a.
Co. Liabilities / Assets =
Debt
Ratio
Net
Income /
Average
Assets = ROA
1 $11,765 $ 90,500 0.13 $20,000 $100,000 0.200
2 46,720 64,000 0.73 3,800 40,000 0.095
b. Company 3 relies most heavily on creditor (non-owner) financing with 82%
of its assets financed by liabilities.
f. As an investor, one prefers high returns at low risk. Company 1 is the
preferred investment since it yields the lowest risk (debt ratio is 13%) and
highest return on assets (20%).
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Chapter 02 – Analyzing and Recording Transactions
PROBLEM SET A
Problem 2-1A (90 minutes)
Part 1
April 1 Cash………….……………….……….….…….….…101 80,000
Cash..…..…..………………………………….101 9,000
Prepaid twelve months’ rent.
3 Office Equipment………….…….….….….….…163 8,000
Office Supplies……….………………….….…….124 3,600
Accounts Payable..….….….….….….....201 11,600
Purchased equip. & supplies on credit.
19 Prepaid Insurance…….……………….…….…..128 2,400
Cash..…..…..………………………………….101 2,400
Paid premium for insurance.
22 Cash………..……………….……..…….….….….…101 4,400
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Chapter 02 – Analyzing and Recording Transactions
Cash..…..…..………………………………….101 5,500
Owner withdrew cash for personal use.
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Chapter 02 – Analyzing and Recording Transactions
Problem 2-1A (Continued)
Part 2
Cash Acct. No. 101
Date Explanation PR Debit Credit Balance
April 1 G1 80,000 80,000
2 G1 9,000 71,000
6 G1 4,000 75,000
30 G1 435 59,465
Accounts Receivable Acct. No. 106
Date Explanation PR Debit Credit Balance
April 9 G1 6,000 6,000
22 G1 4,400 1,600
25 G1 2,890 4,490
Office Supplies Acct. No. 124
Date Explanation PR Debit Credit Balance
Prepaid Insurance Acct. No. 128
Date Explanation PR Debit Credit Balance
April 19 G1 2,400 2,400
Prepaid Rent Acct. No. 131
Date Explanation PR Debit Credit Balance
April 2 G1 9,000 9,000
Office Equipment Acct. No. 163
Date Explanation PR Debit Credit Balance
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Chapter 02 – Analyzing and Recording Transactions
Problem 2-1A (Continued)
Accounts Payable Acct. No. 201
Date Explanation PR Debit Credit Balance
K. Tanner, Capital Acct. No. 301
Date Explanation PR Debit Credit Balance
April 1 G1 106,000 106,000
K. Tanner, Withdrawals Acct. No. 302
Date Explanation PR Debit Credit Balance
April 28 G1 5,500 5,500
Services Revenue Acct. No. 403
Date Explanation PR Debit Credit Balance
Utilities Expense Acct. No. 690
Date Explanation PR Debit Credit Balance
April 30 G1 435 435
Problem 2-1A (Continued)
Part 3
LINKWORKS
Trial Balance
April 30
Debit Credit
Cash…………………………………………………………..… $ 59,465
Accounts receivable………………..…..………..…..… 4,490
Accounts payable…………………………………………. $ 600
K. Tanner, Capital…………………..…..…..………..….. 106,000
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Chapter 02 – Analyzing and Recording Transactions
K. Tanner, Withdrawals………………….…..…..…….. 5,500
Services revenue………………………………………..… 12,890
Utilities expense……………………………..………..….. 435
Total………………………………………….…..…..………... $119 ,490 $119 ,490
Problem 2-2A (90 minutes)
Part 1
b. Land………..……………..….….….….….…….…..172 49,000
Cash..…..…..………………………………….101 6,300
Notes Payable……….…………….….….…250 42,700
Purchased land with cash and note payable.
Purchased equipment with cash and note
payable.
g. Accounts Receivable……………..….….….….106 14,000
Engineering Fees Earned..……..........402 14,000
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Chapter 02 – Analyzing and Recording Transactions
Completed services for client.
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Chapter 02 – Analyzing and Recording Transactions
Problem 2-2A (Part 1 Continued)
i. Accounts Receivable……………..…….….…..106 22,000
Engineering Fees Earned..……..........402 22,000
Billed client for completed work.
l. Wages Expense………..………………….….…..601 1,200
Cash..…..…..………………………………….101 1,200
Paid assistant’s wages.
Owner withdrew cash for personal use.
p. Wages Expense………..………………….….…..601 1,200
Cash..…..…..………………………………….101 1,200
Paid assistant’s wages.
q. Advertising Expense…………………………....603 2,500
Cash..…..…..………………………………….101 2,500
Paid for advertising expense.
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Chapter 02 – Analyzing and Recording Transactions
Problem 2-2A (Continued)
Part 2
Cash No. 101 Accounts Payable No. 201
Date PR Debit Credit Balance Date PR Debit Credit Balance
(d) 3,000 35,700
(e) 6,200 41,900 Notes Payable No. 250
(f) 9,500 32,400 Date PR Debit Credit Balance
(k) 7,000 39,400 (b) 42,700 42,700
(l) 1,200 38,200 (f) 10,500 53,200
Accounts Receivable No. 106 J. Aracel, Withdrawals No. 302
Date PR Debit Credit Balance Date PR Debit Credit Balance
(g) 14,000 14,000 (o) 9,480 9,480
(i) 22,000 36,000
(k) 7,000 29,000 Engineering Fees Earned No. 402
Date PR Debit Credit Balance
Office Equipment No. 163 Wages Expense No. 601
Date PR Debit Credit Balance Date PR Debit Credit Balance
(a) 5,000 5,000 (l) 1,200 1,200
(h) 1,150 6,150 (p) 1,200 2,400
Drafting Equipment No. 164 Equipment Rental Expense No. 602
Date PR Debit Credit Balance Date PR Debit Credit Balance
Land No. 172 Repairs Expense No. 604
Date PR Debit Credit Balance Date PR Debit Credit Balance
(b) 49,000 49,000 (n) 925 925
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Education.