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Practice Set
P2-43 Journalizing transactions, posting to T-accounts, and preparing a trial balance
Consider the following transactional data for the first month of operations for Crystal Clear Cleaning.
Nov. 1 Stockholders contributed $15,000 and a truck, with a market value of $3,000, to the
business in exchange for common stock.
2 The business paid $4,000 to Pleasant Properties for November through February
rent. (Debit Prepaid Rent)
3 Paid $4,800 for a business insurance policy for the term November 1, 2018 through
October 31, 2019. (Debit Prepaid Insurance)
4 Purchased cleaning supplies on account, $320.
5 Purchased on account an industrial vacuum cleaner costing $1,500. The invoice is
payable November 25.
7 Paid $3,900 for a computer and printer.
9 Performed cleaning services on account in the amount of $4,700.
10 Received $200 for services rendered on November 9.
15 Paid employees, $400.
16 Received $15,000 for a 1-year contract beginning November 16 for cleaning services
to be provided. Contract begins November 16, 2018, and ends November 15, 2019.
(Credit Unearned Revenue)
17 Provided cleaning services and received $400 cash.
18 Received a utility bill for $175 with a due date of December 4, 2018. (Use Accounts
Payable)
20 Borrowed $36,000 from bank with interest rate of 6% per year.
21 Received $500 on account for services performed on November 9.
25 Paid $750 on account for vacuum cleaner purchased on November 5.
29 Paid $200 for advertising.
30 Cash dividends of $1,400 were paid to stockholders.
Requirements
1. Journalize the transactions, using the following accounts: Cash; Accounts Receivable; Cleaning
Supplies; Prepaid Rent; Prepaid Insurance; Equipment; Truck; Accounts Payable; Unearned
Revenue; Notes Payable; Common Stock; Dividends; Service Revenue; Salaries Expense;
Advertising Expense; and Utilities Expense. Explanations are not required.
2. Open a T-account for each account.
3. Post the journal entries to the T-accounts, and calculate account balances.
4. Prepare a trial balance as of November 30, 2018.
SOLUTION
P2-43, cont.
Requirements 2 and 3
P2-43, cont.
Requirements 2 and 3
Requirement 4
Critical Thinking
Tying It All Together Case 2-1
Before you begin this assignment, review the Tying It All Together feature in the chapter.
Part of the Fry’s Electronics, Inc.’s experience involves providing technical support to its customers.
This includes in-home installations of electronics and also computer support at their retail store
locations.
Requirements
1. Suppose Fry’s Electronics, Inc. provides $10,500 of computer support at the Dallas-Fort Worth store
during the month of November. How would Fry’s Electronics record this transaction? Assume all
customers paid in cash. What financial statement(s) would this transaction affect?
2. Assume Fry’s Electronics, Inc.’s Modesto, California, location received $24,000 for an annual
contract to provide computer support to the local city government. How would Fry’s Electronics
record this transaction? What financial statement(s) would this transaction affect?
3. What is the difference in how revenue is recorded in requirements 1 and 2? Clearly state when
revenue is recorded in each requirement.
SOLUTION
Requirement 1
Decision Case 2-1
Your friend, Dean McChesney, requested that you advise him on the effects that certain transactions will
have on his business, A-Plus Travel Planners. Time is short, so you cannot journalize the transactions.
Instead, you must analyze the transactions without a journal. McChesney will continue the business only
if he can expect to earn a monthly net income of $6,000. The business completed the following
transactions during June:
a. McChesney deposited $10,000 cash in a business bank account to start the company. The company
issued common stock to McChesney.
b. Paid $300 cash for office supplies.
c. Incurred advertising expense on account, $700.
d. Paid the following cash expenses: administrative assistant’s salary, $1,400; office rent, $1,000.
e. Earned service revenue on account, $8,800.
f. Collected cash from customers on account, $1,200.
Requirements
1. Open the following T-accounts: Cash; Accounts Receivable; Office Supplies; Accounts Payable;
Common Stock; Service Revenue; Salaries Expense; Rent Expense; and Advertising Expense.
2. Post the transactions directly to the accounts without using a journal. Record each transaction by
letter. Calculate account balances.
3. Prepare a trial balance at June 30, 2018.
4. Compute the amount of net income or net loss for this first month of operations. Would you
recommend that McChesney continue in business?
SOLUTION
Ethical Issue 2-1
Better Days Ahead, a charitable organization, has a standing agreement with First National Bank. The
agreement allows Better Days Ahead to overdraw its cash balance at the bank when donations are
running low. In the past, Better Days Ahead managed funds wisely and rarely used this privilege. Jacob
Henson has recently become the president of Better Days Ahead. To expand operations, Henson
acquired office equipment and spent large amounts on fundraising. During Henson’s presidency, Better
Days Ahead has maintained a negative bank balance of approximately $10,000.
What is the ethical issue in this situation, if any? State why you approve or disapprove of Henson’s
management of Better Days Ahead’s funds.
SOLUTION
Fraud Case 2-1
Roy Akins was the accounting manager at Zelco, a tire manufacturer, and he played golf with Hugh
Stallings, the CEO, who was something of a celebrity in the community. The CEO stood to earn a
substantial bonus if Zelco increased net income by year-end. Roy was eager to get into Hugh’s elite
social circle; he boasted to Hugh that he knew some accounting tricks that could increase company
income by simply revising a few journal entries for rental payments on storage units. At the end of the
year, Roy changed the debits from “rent expense” to “prepaid rent” on several entries. Later, Hugh got
his bonus, and the deviations were never discovered.
Requirements
1. How did the change in the journal entries affect the net income of the company at year-end?
2. Who gained and who lost as a result of these actions?
SOLUTION
Financial Statement Case 2-1
Annual Report.
Requirements
1. Calculate the debt ratio for Target Corporation as of January 30, 2016.
2. How did the debt ratio for Target Corporation compare to the debt ratio for Kohl’s Corporation? Discuss.
SOLUTION
Communication Activity 2-1
In 35 words or fewer, explain the difference between a debit and a credit, and explain what the normal
balance of the six account types is.
SOLUTION
