2–1
CHAPTER 2
ANALYZING TRANSACTIONS
DISCUSSION QUESTIONS
2. The terms debit and credit may signify either an increase or a decrease, depending upon the nature of the
3. a. Assuming no errors have occurred, the credit balance in the cash account resulted from writing checks
4. a. The revenue was earned in October.
(2) Debit Cash and credit Accounts Receivable in November.
5. No. Errors may have been made that had the same erroneous effect on both debits and credits, such as
7. a. No. Because the same error occurred on both the debit side and the credit side of the trial balance, the
8. a. The equality of the trial balance would not be affected.
b. On the income statement, total operating expenses (salary expense) would be overstated by $7,500,
9. a. The equality of the trial balance would not be affected.
b. On the income statement, revenues (fees earned) would be overstated by $300,000, and net income
10. a. From the viewpoint of Surety Storage, the balance of the checking account represents an asset.
b. From the viewpoint of Ada Savings Bank, the balance of the checking account represents a liability.
CHAPTER 2 Analyzing Transactions
2–2
BASIC EXERCISES
BE 2–1
1. Debit and credit entries, normal credit balance
BE 2–2
Nov.
2
Office Supplies
1,600
Cash
500
Accounts Payable
1,100
BE 2–3
Aug.
13
Cash
9,000
Fees Earned
9,000
BE 2–4
June
30
Dividends
11,500
Cash
11,500
BE 2–5
Using the following T account, solve for the amount of supplies expense (indicated by ?
below).
Supplies
Aug. 1 Bal.
1,025
?
Supplies expense
Supplies purchased
3,110
Aug. 31 Bal.
1,324
$1,324 = $1,025 + $3,110 – Supplies expense
Supplies expense = $1,025 + $3,110 – $1,324 = $2,811
CHAPTER 2 Analyzing Transactions
2–3
BE 2–6
a. The totals are equal because both the debit and credit entries were journalized and
BE 2–7
a.
Cash
8,400
Accounts Receivable
8,400
b.
Supplies
2,500
Office Equipment
2,500
Supplies
2,500
Accounts Payable
2,500
Note: The first entry in (b) reverses the incorrect entry, and the second entry
records the correct entry. These two entries could also be combined into one entry
as shown below; however, preparing two entries would make it easier for someone
to understand later what happened and why the entries were necessary.
Supplies
5,000
Office Equipment
2,500
Accounts Payable
2,500
BE 2–8
Paragon Company
Income Statements
For the Years Ended December 31
20Y7
20Y6
Increase/(Decrease)
Amount
Percent
Fees earned
$ 1,416,000
$1,200,000
$216,000
18.0%
Expenses
(1,044,000)
(900,000)
144,000
16.0%
Net income
$ 372,000
$ 300,000
$ 72,000
24.0%
CHAPTER 2 Analyzing Transactions
2–4
EXERCISES
Ex. 2–1
Balance Sheet Accounts
Income Statement Accounts
Assets
Revenue
Advanced Payments for Equipmenta
Cargo Revenue
Cash
Passenger Revenue
Flight Equipment
Fuel Inventory
Parts and Supplies Inventories
Prepaid Expenses
Liabilities
Expenses
Accounts Payable
Aircraft Fuel (Expense)
Air Traffic Liabilityb
Aircraft Maintenance (Expense)
Frequent Flyer (Obligations)c
Aircraft Rent (Expense)
Taxes Payable
Contract Carrier Arrangements (Expense)d
Landing Fees (Expense)e
Passenger Commissions (Expense)f
Stockholders’ Equity
None
a Advance payments (deposits) on aircraft to be delivered in the future
Ex. 2–2
Account
Account
Number
Accounts Payable
21
Accounts Receivable
12
Cash
11
Common Stock
31
Dividends
33
Fees Earned
41
Land
13
Miscellaneous Expense
53
Retained Earnings
32
Supplies Expense
52
Wages Expense
51
CHAPTER 2 Analyzing Transactions
2–5
Ex. 2–3
Balance Sheet Accounts
Income Statement Accounts
1. Assets
4. Revenue
11
Cash
41
Fees Earned
12
Accounts Receivable
13
Supplies
5. Expenses
14
Prepaid Insurance
51
Wages Expense
15
Equipment
52
Rent Expense
53
Supplies Expense
2. Liabilities
59
Miscellaneous Expense
21
Accounts Payable
22
Unearned Rent
3. Stockholders’ Equity
31
Common Stock
32
Retained Earnings
33
Dividends
Note: The order of some of the accounts within the major classifications is somewhat
arbitrary, as in accounts 13–14, accounts 21–22, and accounts 51–53. In a new business, the
order of magnitude of balances in such accounts is not determinable in advance. The
magnitude may also vary from period to period.
Ex. 2–4
a.
debit
g.
credit
b.
debit
h.
debit
c.
debit
i.
debit
d.
credit
j.
credit
e.
debit
k.
debit
f.
credit
l.
debit
Ex. 2–5
1.
debit and credit entries (c)
2.
debit and credit entries (c)
3.
debit and credit entries (c)
4.
credit entries only (b)
5.
debit entries only (a)
6.
debit entries only (a)
7.
debit entries only (a)
CHAPTER 2 Analyzing Transactions
2–6
Ex.2–6
a.
Liability—credit
f.
Revenue—credit
b.
Asset—debit
g.
Asset—debit
c.
Asset—debit
h.
Expense—debit
d.
Stockholders’ equity
(Common Stock)—credit
i.
j.
Asset—debit
Expense—debit
e.
Stockholders’ equity
(Dividends)—debit
Ex. 2–7
20Y2
Oct.
1
Rent Expense
2,500
Cash
2,500
4
Advertising Expense
1,000
Cash
1,000
5
Supplies
1,800
Cash
1,800
6
Office Equipment
11,500
Accounts Payable
11,500
12
Cash
7,500
Accounts Receivable
7,500
20
Accounts Payable
2,700
Cash
2,700
27
Miscellaneous Expense
700
Cash
700
30
Utilities Expense
475
Cash
475
31
Accounts Receivable
42,400
Fees Earned
42,400
31
Utilities Expense
900
Cash
900
31
Dividends
1,500
Cash
1,500
CHAPTER 2 Analyzing Transactions
2–7
Ex. 2–8
a.
JOURNAL
Page
73
Date
Description
Post.
Ref.
Debit
Credit
20Y9
Feb.
11
Supplies
15
2,250
Accounts Payable
21
2,250
Purchased supplies on account.
Account:
Supplies
Account No.
15
Date
Item
Post.
Ref.
Debit
Credit
Balance
Debit
Credit
20Y9
Feb.
1
Balance
✓
400
11
73
2,250
2,650
Account:
Accounts Payable
Account No.
21
Date
Item
Post.
Ref.
Debit
Credit
Balance
Debit
Credit
20Y9
Feb.
1
Balance
✓
18,300
11
73
2,250
20,550
e. Yes, the rules of debit and credit apply to all companies.
Ex. 2–9
a. (1)
Accounts Receivable
112,700
Fees Earned
112,700
(2)
Supplies
4,500
Accounts Payable
4,500
(3)
Cash
88,220
Accounts Receivable
88,220
(4)
Accounts Payable
3,100
Cash
3,100
CHAPTER 2 Analyzing Transactions
2–8
Ex. 2–9 (Concluded)
b.
Cash
Accounts Payable
(3)
88,220
(4)
3,100
(4)
3,100
(2)
4,500
Supplies
Fees Earned
(2)
4,500
(1)
112,700
Accounts Receivable
(1)
112,700
(3)
88,200
c. No, an error may not have necessarily occurred. A credit balance in Accounts Receivable
Ex. 2–10
a. The increase of $270,800 ($1,245,000 – $974,200) in the cash account does not indicate net
CHAPTER 2 Analyzing Transactions
2–9
Ex. 2–11
a.
Accounts Payable
186,500
Feb.
1
X
201,400
Feb.
28
59,900
X + $201,400 – $186,500 = $59,900
X = $59,900 + $186,500 – $201,400
X = $45,000
b.
Accounts Receivable
Oct. 1
115,800
X
449,600
Oct. 31
130,770
$115,800 + X – $449,600 = $130,770
X = $130,770 + $449,600 – $115,800
X = $464,570
c.
Cash
Apr. 1
46,220
248,600
X
Apr. 30
56,770
$46,220 + $248,600 – X = $56,770
X = $46,220 + $248,600 – $56,770
X = $238,050
Ex. 2–12
CHAPTER 2 Analyzing Transactions
2–10
Ex. 2–13
a. and b.
Account Debited
Account Credited
Transaction
Type
Effect
Type
Effect
(1)
asset
+
stockholders’ equity
+
(2)
asset
+
asset
–
(3)
asset
+
asset
–
liability
+
(4)
expense
+
asset
–
(5)
asset
+
revenue
+
(6)
liability
–
asset
–
(7)
asset
+
asset
–
(8)
expense
+
asset
–
(9)
dividend
+
asset
–
Ex. 2–14
(1)
Cash
40,000
Common Stock
40,000
(2)
Supplies
4,000
Cash
4,000
(3)
Equipment
15,000
Accounts Payable
10,000
Cash
5,000
(4)
Operating Expenses
6,175
Cash
6,175
(5)
Accounts Receivable
20,500
Service Revenue
20,500
(6)
Accounts Payable
6,000
Cash
6,000
(7)
Cash
13,100
Accounts Receivable
13,100
(8)
Operating Expenses
2,200
Supplies
2,200
(9)
Dividends
1,500
Cash
1,500
CHAPTER 2 Analyzing Transactions
2–11
Ex. 2–15
a.
Rocky Mountain Tours Co.
Unadjusted Trial Balance
June 30, 20Y2
Debit
Balances
Credit
Balances
Cash
30,425
Accounts Receivable
7,400
Supplies
1,800
Equipment
15,000
Accounts Payable
4,000
Common Stock
40,000
Dividends
1,500
Service Revenue
20,500
Operating Expenses
8,375
64,500
64,500
CHAPTER 2 Analyzing Transactions
2–12
Ex. 2–16
Seaside Furniture Company
Unadjusted Trial Balance
August 31, 20Y5
Debit
Balances
Credit
Balances
Cash
426,800
Accounts Receivable
660,500
Supplies
11,200
Prepaid Insurance
21,600
Land
1,850,000
Accounts Payable
118,600
Unearned Rent
12,000
Notes Payable
75,000
Common Stock
150,000
Retained Earnings
1,814,400
Dividends
36,000
Fees Earned
4,330,000
Wages Expense
2,950,000
Rent Expense
390,000
Utilities Expense
82,000
Supplies Expense
23,700
Insurance Expense
18,000
Miscellaneous Expense
30,200
6,500,000
6,500,000
Ex. 2–17
Inequality of trial balance totals would be caused by errors described in (c) and (e). For
CHAPTER 2 Analyzing Transactions
2–13
Ex. 2–18
Ranger Co.
Unadjusted Trial Balance
August 31, 20Y1
Debit
Balances
Credit
Balances
Cash
15,500
Accounts Receivable
46,750
Prepaid Insurance
12,000
Equipment
190,000
Accounts Payable
24,600
Unearned Rent
5,400
Common Stock
40,000
Retained Earnings
70,000
Dividends
13,000
Service Revenue
385,000
Wages Expense
213,000
Advertising Expense
16,350
Miscellaneous Expense
18,400
525,000
525,000
Ex. 2–19
Error
(a)
Out of Balance
(b)
Difference
(c)
Larger Total
1.
yes
$6,000
debit
2.
no
—
—
3.
yes
5,400
credit
4.
yes
480
debit
5.
no
—
—
6.
yes
90
credit
7.
yes
360
credit
CHAPTER 2 Analyzing Transactions
2–14
Ex. 2–20
1. The Debit column total is added incorrectly. The sum is $1,098,500 rather than
$1,801,500.
A corrected trial balance would be as follows:
Ensemble Co.
Unadjusted Trial Balance
December 31, 20Y8
Debit
Balances
Credit
Balances
Cash
42,900
Accounts Receivable
123,500
Prepaid Insurance
27,000
Equipment
300,000
Accounts Payable
52,000
Salaries Payable
4,800
Common Stock
40,000
Retained Earnings
137,200
Dividends
5,000
Service Revenue
1,216,000
Salary Expense
660,000
Advertising Expense
275,000
Miscellaneous Expense
16,600
1,450,000
1,450,000
Ex. 2–21
a. The correction could be made with one or two entries as follows:
Prepaid Insurance
36,000
Insurance Expense
18,000
Cash
18,000
or (reverse original entry)
Prepaid Insurance
18,000
Insurance Expense
18,000
Prepaid Insurance
18,000
Cash
18,000
b.
Dividends
10,000
Wages Expense
10,000
CHAPTER 2 Analyzing Transactions
2–15
Ex. 2–22
a.
Cash
17,600
Fees Earned
8,800
Accounts Receivable
8,800
b.
Accounts Payable
1,760
Supplies Expense
1,760
Supplies
1,760
Cash
1,760
CHAPTER 2 Analyzing Transactions
2–16
PROBLEMS
Prob. 2–1A
1. and 2.
Cash
Equipment
(a)
30,000
(b)
2,500
(d)
8,000
(g)
9,000
(c)
6,000
(e)
2,100
Notes Payable
(f)
3,600
(j)
1,875
(c)
22,500
(h)
2,600
Bal.
20,625
(i)
4,000
(j)
1,875
Accounts Payable
(m)
6,000
(i)
4,000
(d)
8,000
(n)
1,300
(k)
5,500
Bal.
9,025
Bal.
9,500
Accounts Receivable
Common Stock
(l)
31,400
(a)
30,000
Supplies
Professional Fees
(e)
2,100
(g)
9,000
(l)
31,400
Bal.
40,400
Prepaid Insurance
Salary Expense
(f)
3,600
(m)
6,000
Automobiles
Blueprint Expense
(c)
28,500
(k)
5,500
Rent Expense
(b)
2,500
Automobile Expense
(n)
1,300
Miscellaneous Expense
(h)
2,600
CHAPTER 2 Analyzing Transactions
2–17
Prob. 2–1A (Concluded)
3.
Knaus Architects
Unadjusted Trial Balance
January 31, 20Y4
Debit
Balances
Credit
Balances
Cash
9,025
Accounts Receivable
31,400
Supplies
2,100
Prepaid Insurance
3,600
Automobiles
28,500
Equipment
8,000
Notes Payable
20,625
Accounts Payable
9,500
Common Stock
30,000
Professional Fees
40,400
Salary Expense
6,000
Blueprint Expense
5,500
Rent Expense
2,500
Automobile Expense
1,300
Miscellaneous Expense
2,600
100,525
100,525
CHAPTER 2 Analyzing Transactions
2–18
Prob. 2–2A
1. (a)
Cash
40,000
Common Stock
40,000
(b)
Rent Expense
4,800
Cash
4,800
(c)
Supplies
2,150
Accounts Payable
2,150
(d)
Accounts Payable
1,100
Cash
1,100
(e)
Cash
18,750
Sales Commissions
18,750
(f)
Automobile Expense
1,580
Miscellaneous Expense
800
Cash
2,380
(g)
Office Salaries Expense
3,500
Cash
3,500
(h)
Supplies Expense
1,300
Supplies
1,300
(i)
Dividends
1,500
Cash
1,500
CHAPTER 2 Analyzing Transactions
2–19
Prob. 2–2A (Continued)
2.
Cash
Sales Commissions
(a)
40,000
(b)
4,800
(e) 18,750
(e)
18,750
(d)
1,100
(f)
2,380
Rent Expense
(g)
3,500
(b)
4,800
(i)
1,500
Bal.
45,470
Supplies
Office Salaries Expense
(c)
2,150
(h)
1,300
(g)
3,500
Bal.
850
Accounts Payable
Automobile Expense
(d)
1,100
(c)
2,150
(f)
1,580
Bal.
1,050
Common Stock
Supplies Expense
(a)
40,000
(h)
1,300
Dividends
Miscellaneous Expense
(i)
1,500
(f)
800
CHAPTER 2 Analyzing Transactions
2–20
Prob. 2–2A (Concluded)
3.
Affordable Realty
Unadjusted Trial Balance
October 31, 20Y6
Debit
Balances
Credit
Balances
Cash
45,470
Supplies
850
Accounts Payable
1,050
Common Stock
40,000
Dividends
1,500
Sales Commissions
18,750
Rent Expense
4,800
Office Salaries Expense
3,500
Automobile Expense
1,580
Supplies Expense
1,300
Miscellaneous Expense
800
59,800
59,800
4. a. $18,750