Chapter 2
Transaction Analysis
Ethics Check
(5-10 min.) EC 2-1
a. Due care
b. Integrity
c. Due care
d. Objectivity and independence
Short Exercises
(5 min.) S 2-1
a. No (no dollars involved)
b. Yes
(5 min.) S 2-2
a. L
b. E
(10 min.) S 2-3
G
1. Debit
A
2. Expense
3. Net income
D
5. Posting
6. Normal balance
H
9. Receivable
B
(5 min.) S 2-4
Anderson’s payment was not an expense.
(5 min.) S 2-5
a. Purchase of asset on account
Borrow money
b. Declaration and payment of dividends to owners
Expense transaction (ex: received and paid utility bill)
c. Pay a liability
Return an asset purchased on account
d. Issuance of stock
Revenue transaction (ex: provided services on account or for
cash)
(5 min.) S 2-7
a. $19,200 ($17,000 + $2,200 + $4,600 − $4,600)
(5-10 min.) S 2-8
Reqs. 1, 2
Cash
Computer Equipment
250,000
106,000
Req. 3
Total debits = $356,000 ($250,000 + $106,000)
Cash
7,100
Bal.
32,100
(10 min.) S 2-10
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Jan.
15
Cash ………………………………………………..
31,000
Note Payable …………………………...
31,000
Borrowed money from the bank.
22
Accounts Receivable ………………………..
16,800
Service Revenue ………………………
16,800
Performed service on account.
28
Cash ………………………………………………..
12,000
Accounts Receivable ………………..
12,000
Received cash on account.
29
Utilities Expense ………………………………
Cash ………………………………………..
Paid utility bill.
Cash ………………………………………..
Paid salary expense.
(10-15 min.) S 2-11
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Supplies …………………………………………..
5,200
Accounts Payable ……………………..
5,200
Purchased supplies on account.
Accounts Payable …………………………..…
1,750
Cash …………………………………………
1,750
(10-15 min.) S 2-12
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Accounts Receivable …………………………
4,900
Service Revenue …………………………
4,900
Performed service on account.
Cash …………………………………………………
2,300
Accounts Receivable ………………….
2,300
Bal.
Bal.
(15-20 min.) S 2-13
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
July
1
Cash …………………………………………………………
10,000
Common Stock………………………………….
10,000
Issued stock to owner.
5
Accounts Receivable …………………………..……
5,000
Service Revenue ……………………………….
5,000
Provided (sold) services on account.
9
500
Accounts Payable ……………………………..
500
Purchased supplies on account.
10
Cash …………………………………………………………
2,100
Service Revenue ……………………………….
2,100
Provided (sold) services for cash.
12
Cash …………………………………………………………
5,000
Accounts Receivable …………………………
5,000
Collected cash on account.
24
Accounts Payable …………………………………….
Cash …………………………………………………
25
Utilities Expense ……………………………………….
200
Cash …………………………………………………
200
Paid expenses.
30
Office Furniture ………………………………………..
3,500
Note Payable …………………………………….
3,500
Purchased furniture with note payable.
31
Salary Expense …………………………………………
3,000
Cash …………………………………………………
3,000
Paid payroll.
(10 min.) S 2-14
Navy Port Company
Trial Balance
December 31, 2016
ACCOUNT
DEBIT
CREDIT
Millions
Cash ………………………………………..
$ 4
Other assets ……………………………..
23
Accounts payable ……………………..
$ 5
Other liabilities …………………………
Revenues …………………………………
Total …………………………………………
(10 min.) S 2-15
1. Total assets = $94,000 ($4,000 + $14,000 + $1,000 +
$48,000 + $27,000)
(10 min.) S 2-16
1. Total debits = $ 90,400 ($133,600 + $4,800 − $48,000)
Total credits = $133,600
Difference = $ 43,200 ($133,600 − $90,400);
$43,200 / 9 = $4,800 (an integer), which suggests either a transposition or
a slide.
2. Total debits = $160,600 ($133,600 + $41,000 − $14,000)
Total credits = $133,600
Exercises
(10-15 min.) E 2-17A
TO: Home Office
FROM: Laura Sprague, Store Manager
During the first week, I used the store’s beginning cash to purchase
equipment and supplies. I signed a note payable to buy land and a
building. After all these transactions, the store’s balance sheet appears
as follows:
Designs Unlimited
Columbus Store
Balance Sheet
Date
ASSETS
LIABILITIES
Cash
$ 55,400
Note payable*
$275,000
Supplies
6,600
(10-15 min.) E 2-18A
a. No effect on total assets. Increase in cash offsets the decrease in
land.
b. No effect on total assets. Increase in cash offsets the decrease in
accounts receivable.
c. No effect on total assets. Increase in land offsets the decrease in
cash.
(15-20 min.) E 2-19A
Req. 1
Analysis of Transactions
ASSETS
=
LIABILITIES + STOCKHOLDERS’
EQUITY
Date
Cash +
Accounts
Receivable +
Medical
Supplies +
Land
=
Accounts
Payable +
Note
Payable +
Common
Stock +
Retained
Earnings
Type of Stockholders’
Equity Transaction
July 6
148,000
148,000
Issued stock
9
(66,000)
66,000
12
2,000
2,000
15
Not a transaction of the business.
Service revenue
Rent expense
Utilities expense
31
31
36,000
36,000
31
(1,500)
(1,500)
Bal.
116,600
4,600
1,400
66,000
500
36,000
148,000
4,100
(continued) E 2-19A
Req. 2
a. $188,600
b. $4,600
(10-15 min.) E 2-20A
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
July
6
Cash …………………………………………………………
148,000
Common Stock………………………………….
148,000
Issued stock to owner.
9
Cash …………………………………………………
12
Medical Supplies …………………………..………….
2,000
Accounts Payable ……………………………..
2,000
Purchased supplies on account.
15
Not a transaction of the business.
15–31
Cash …………………………………………………………
4,600
Accounts Receivable …………………………..……
4,600
Service Revenue ……………………………….
9,200
Performed service for cash and on account.
15–31
Salary Expense …………………………………………
2,900
Rent Expense ……………………………………………
1,500
Utilities Expense ……………………………………….
700
Cash …………………………………………………
5,100
Paid expenses.
31
Cash …………………………………………………………
600
Medical Supplies ……………………………….
31
Cash …………………………………………………………
Note Payable …………………………..………..
Borrowed money.
31
Accounts Payable …………………………………….
1,500
Cash …………………………………………………
1,500
(20-30 min.) E 2-21A
Req. 1
Cash
Accounts Receivable
July 6
148,000
July 9
66,000
July 15–31
4,600
15–31
4,600
15–31
5,100
Bal.
4,600
600
31
1,500
36,000
Bal.
116,600
Medical Supplies
Land
July 12
2,000
July 31
600
July 9
66,000
Bal.
1,400
Bal.
66,000
July 31
1,500
July 12
2,000
July 31
36,000
Bal.
500
Bal.
36,000
July 6
148,000
July 15–31
9,200
Bal.
148,000
Bal.
9,200
July 15–31
2,900
July 15–31
1,500
Bal.
2,900
Bal.
1,500
July 15–31
700
Bal.
700
(continued) E 2-21A
Req. 2
Dr. Kristine Cohen, P.C.
Trial Balance
July 31, 2016
ACCOUNT
DEBIT
CREDIT
Cash……………………………………..
$116,600
Accounts receivable ………………
4,600
Medical supplies ……………………
Land ……………………………………..
Note payable …………………………
Common stock ………………………
Service revenue …………………….
Salary expense ……………………..
2,900
Rent expense ………………………..
1,500
Utilities expense ……………………
Req. 3
Total assets ($116,600 + $4,600 + $1,400 + $66,000) ……. $188,600
Total liabilities ($500 + $36,000) ………………………………… (36,500)
(10-15 min.) E 2-22A
Req. 1
Journal
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
1.
Cash …………………………..……………………………..
8,900
Common Stock ……………………………………..
8,900
Issued common stock.
2.
Cash …………………………..……………………………..
10,000
Note Payable ………………………………………..
10,000
Borrowed money; signed note payable.
3.
Supplies …………………………………………………….
1,000
Accounts Payable …………………………………
Purchased supplies on account.
4.
Land ………………………………………………………….
36,000
Cash …………………………………………………….
12,000
Note Payable ………………………………………..
24,000
Purchased land by paying cash and signing
a note payable.
5.
Cash …………………………..……………………………..
75
Supplies ……………………………………………….
75
Sold supplies for cash.
6.
Accounts Payable ………………………………………
Cash …………………………………………………….
Paid cash on account.
7.
Equipment …………………………………………………
3,700
Cash …………………………………………………….
Paid cash for equipment.
(10-20 min.) E 2-23A
Req. 1
Custom Patio Service, Inc.
Trial Balance
April 30, 2016
ACCOUNT
DEBIT
CREDIT
Cash ………………………………………..
$18,700
Accounts receivable ………………..
5,100
Equipment ……………………………….
30,400
Accounts payable ……………………
Note payable …………………………...
24,000
Common stock ………………………..
16,800
Retained earnings ……………………
Dividends ………………………………..
3,400
Service revenue ……………………….
21,100
Salary expense ………………………..
8,800
Utilities expense ………………………
2,200
Delivery expense ……………………..
600
Total ………………………………………..
$69,200
$69,200
Req. 2
Custom Patio Service, Inc.
Income Statement
For the Month Ended April 30, 2016
Service revenue ……………………………..
$21,100