DQ1.
DQ8.
TRANSACTIONS
CHAPTER 2—Solutions
ANALYZING AND RECORDING BUSINESS
Discussion Questions
All equipment needs normal repairs. These are considered an ongoing cost of busi-
such as a major overhaul that is done every five years, the expenditure will benefit
ness and, thus, are expenses. However, it may be argued that if the repair is major,
ments (e.g., unused equipment), or get a loan from a bank.
To maintain liquidity it can seek more time from creditors, sell long-term invest-
2-1
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a. e.
b. f.
c. g.
d. h.
10
a. e.
2
5
7
Debit Cash; credit S. Michael, Capital
Debit Office Equipment; credit Cash
Debit Supplies; credit Accounts Payable
SE5. Transaction Analysis
May
The classification concept is applied by reducing the asset Cash and increasing the asset
The concept of valuation is applied by recording the supplies at cost of $1,000.
will benefit future operations. If they were used up immediately, they could be classified
as Supplies Expense.
Revenue
Asset
None (Owner’s Equity) Liability
Asset
Asset
point on June 1 when the transaction takes place. Supplies are purchased with cash,
and the buyer takes title to the supplies.
Expense
SE2. Recognition, Valuation, and Classification
Liability
The concept of recognition is applied by recording the transaction at the recognition
SE4. Normal Balances
Credit Debit
SE1. Classification of Accounts
Do not recognize because an order is not a complete transaction. There is no
Short Exercises
obligation on the part of either party at this point.
SE3. Recognition
Jan.
2-2
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May 2 10,000 May 5 5,000 May 22 1,200
19 1,000 25 1,300
May 31 500 May 19 1,000
Cash
Accounts Receivable
Programming Service
SE6. Recording Transactions in T Accounts
Revenue
Service Revenue
Unearned Programming
2-3
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Page 4
Post.
Ref. Debit Credit
Sept. 6 3,800
3,800
Ref. Debit Debit Credit
Sept. 16 J4 1,800 1,800
Ref. Debit Debit Credit
Ref. Debit Debit Credit
Sept. 6 J4 3,800
$ 7,700
2,500
600
DescriptionDate
Credit
3,800
Accounts Receivable
Service Revenue
Billed customer for services performed
Credit
Accounts Receivable
SE9. Posting to the Ledger Accounts
SE8. Recording Transactions in the General Journal
Received cash on account from
customer billed on Sept. 6
General Journal
Michael’s Programming Service
Trial Balance
September 30, 2014
Cash
general journal in SE8.
Account No. 113
Account No. 411
Accounts Receivable
Supplies
Credit
Note: At this point, the account numbers would also be posted to the accounts in the
Cash Account No. 111
Balance
Item
Date
Post.
Date
Item
Balance
Post. Balance
Post.
Service Revenue
Date Item
2-4
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Post.
Ref. Debit Credit
2014
May 2 10,000
10,000
5 5,000
5,000
1
1/4
SE12. Timing and Cash Flows
Recognition: A violation because the revenue from the service was earned in
the prior year.
business
Office Equipment
Cash
Purchased a computer for cash
Description
Cash
S. Michael Capital
1/2
2,400
Cash
1,400
actions of Jan. 8 and 9 will not impact cash until later when the cash is received or paid.
The transactions of Jan. 2 and 4 have an immediate impact on cash, whereas the trans-
SE11. Identifying Ethical Transactions
Billed a customer for services performed
SE10. Recording Transactions in the General Journal
Date
General Journal
Owner invested cash to start the
2-5
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Jan. 15
Feb. 2
Mar. 29
June 10
July 6
=+
=
E2A. T Accounts, Normal Balance, and the Accounting Equation
3,450
Exercises: Set A
E1A. Recognition
+–
+Owner’s Equity
Expenses
T. Captain,
Withdrawals
Cash Accounts
Payable
$2,250
T. Captain,
Withdrawals Service
Revenue Rent
Expense
LiabilitiesAssets
–
T. Captain,
Capital
=
Revenues
T. Captain,
Capital
2-6
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D. Minimus, D. Minimus,
Item Asset Liability Capital Withdrawals Revenue Expense Debit Credit
a. x x
b. x x
c. x x
d. x x
e. x x
f. x x
g. x x
h. x x
i. x x
j. xx
k. x x
l. xx
m. x x
n. x x
o. x x
p. x x
q. x x
r. x x
s. x x
t. x x
u. x x
v. x x
w. x x
x. x x
Type of Account
E3A. Classification of Accounts
Owner’s Equity Normal Balance
2-7
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a.
e.
Debit Credit
a. 51
b. 12
i.
Ordered equipment.
No entry
Paid for supplies purchased on credit last month.
Received cash from customers billed last month.
E4A. Transaction Analysis
The asset account Cash was increased. Increases in assets are recorded by debits.
The liability Accounts Payable was decreased. Decreases in liabilities are recorded
E5A. Transaction Analysis
2-8
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