Accounting Chapter 2 A general journal can be used to record any

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

61

Chapter 2

Accounting for Business Transactions

QUESTIONS

1. a. Common asset accounts: cash, accounts receivable, notes receivable, prepaid

expenses (rent, insurance, etc.), office supplies, store supplies, equipment,

2. A note payable is formal promise, usually denoted by signing a promissory note to

pay a future amount. A note payable can be short-term or long-term, depending on

3. There are several steps in processing transactions: (1) Identify and analyze the

transaction or event, including the source document(s), (2) apply double-entry

4. A general journal can be used to record any business transaction or event.

5. Debited accounts are commonly recorded first. The credited accounts are commonly

indented.

6. A transaction is first recorded in a journal to create a complete record of the

7. Expense accounts have debit balances because they are decreases to equity (and

equity has a credit balance).

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

10. The four financial statements are: income statement, balance sheet, statement of

retained earnings, and statement of cash flows.

11. The balance sheet provides information that helps users understand a company’s

12. The income statement lists the types and amounts of revenues and expenses, and

13. An income statement user must know what time period is covered to judge whether

the company’s performance is satisfactory. For example, a statement user would

14. (a) Assets are probable future economic benefits obtained or controlled by a specific

entity as a result of past transactions or events. (b) Liabilities are probable future

15. The balance sheet is sometimes referred to as the statement of financial position.

16. Debit balance accounts on the Apple balance sheet include: Cash and cash

equivalents; Short-term marketable securities; Accounts receivable; Inventories;

Vendor non-trade receivables; Other current assets; Long-term marketable

17. The asset accounts with receivable in its account title are: Accounts receivable, net;

Income taxes receivable, net. The liabilities with payable in the account title are:

Accounts payable; Income taxes payable, net; Income taxes payable, non-current.

18. Samsung’s balance sheet lists the following current liabilities: Trade payables;

Short-term borrowings; Other payables; Advances received; Withholdings; Accrued

expenses; Income tax payable; Current portion of long-term liabilities; Provisions;

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

QUICK STUDIES

Quick Study 2-1 (10 minutes)

The likely source documents include:

Quick Study 2-2 (5 minutes)

a. A Asset

Quick Study 2-3 (5 minutes)

a. E Expense 655

b. R Revenue 406

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

64

Quick Study 2-4 (10 minutes)

a.

Credit

d.

Debit

g.

Credit

b.

Debit

e.

Debit

h.

Debit

c.

Debit

i.

Credit

Quick Study 2-5 (10 minutes)

a.

Debit

e.

Debit

i.

Credit

b.

Debit

Credit

j.

Debit

c.

Credit

g.

Credit

k.

Debit

d.

Credit

h.

Debit

l.

Credit

Quick Study 2-6 (15 minutes)

a.

1) Analyze:

Assets

=

Liabilities

+

Equity

Cash Equipment

7,000 + 3,000

=

+

2) Record:

Date

Account Titles and Explanation

PR

Debit

Credit

Cash ……………………………………………………….

101

Equipment ……………………………………………………

167

307

3) Post

65

Quick Study 2-6 (Continued)

b.

1) Analyze:

2) Record:

Date

Office Supplies …………………………………………….

3) Post

Office Supplies 124

500

c.

1) Analyze:

Assets

=

Liabilities

+

Equity

2) Record:

Date

Account Titles and Explanation

PR

Debit

Credit

3) Post

Accounts Payable 201

500

Landscaping Revenue 403

Cash 101

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

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Quick Study 2-6 (Continued)

d.

1) Analyze:

Assets

=

Liabilities

+

Equity

=

+

2) Record:

Date

Account Titles and Explanation

PR

Debit

Credit

Cash …………………………………………………………….

101

1,000

3) Post

Quick Study 2-7 (10 minutes)

a.

Debit

e.

Debit

i.

Credit

j.

Debit

c.

Credit

Debit

Credit

Quick Study 2-8 (10 minutes)

The correct answer is a.

Cash 101

Unearned Landscaping Revenue 236

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

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Quick Study 2-9 (10 minutes)

a.

I

e.

B

i.

E

B

j.

B

I

l.

I

Quick Study 2-10 (10 minutes)

a. b. c.

Cash

Accounts Payable

Supplies

100

50

2,000

8,000

10,000

3,800

2,700

Bal.

310

Bal.

3,300

Bal.

700

150

Bal.

50

Bal.

100

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

68

Quick Study 2-11 (15 minutes)

May 1 Accounts Receivable ………………………………… 2,000

Consulting Revenue ……………………………. 2,000

Billed customer for services provided.

Quick Study 2-12 (15 minutes)

LAWSON CONSULTING

Income Statement

For Month Ended June 30

Revenues

Service revenue ………………………………. $ 12,000

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

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Quick Study 2-13 (15 minutes)

LAWSON CONSULTING

Statement of Retained Earnings

For Month Ended June 30

Retained earnings, June 1 ……………………. $ 0

Quick Study 2-14 (15 minutes)

LAWSON CONSULTING

Balance Sheet

June 30

Assets Liabilities

Cash …………………………. $ 5,000 Accounts payable ……………. $ 3,000

Quick Study 2-15 (10 minutes)

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

EXERCISES

Exercise 2-1 (10 minutes)

4 a. Prepare and analyze the trial balance.

Exercise 2-2 (10 minutes)

a.

e.

Exercise 2-3 (5 minutes)

a.

1 “Chart”

c.

5 “Source document”

e.

3 “Journal”

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

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Exercise 2-4 (15 minutes)

Type of

Normal

Increase

Account

Balance

(Dr. or Cr.)

a.

Land ……………………………………….

asset

debit

b.

Cash ……………………………………….

asset

debit

c.

Legal Expense …………………………

debit

d.

asset

debit

Accounts Receivable ……………….

asset

debit

Dividends ………………………………..

debit

g.

License Fee Revenue ………………

h.

Unearned Revenue ………………….

Fees Earned …………………………….

Equipment ………………………………

asset

debit

Notes Payable …………………………

Common Stock………………………..

Exercise 2-5 (15 minutes)

a. Analyze:

b. Record:

Account Titles and Explanation

PR

Debit

Credit

c. Post

Cash 101

10,000

Note Payable 245

28,000

Revenue 404

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

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Exercise 2-6 (15 minutes)

a.

Beginning accounts payable (credit) ………………………………………

$152,000

Purchases on account in October (credits) …………………………..

281,000

Payments on accounts in October (debits) …………………………..

Ending accounts payable (credit) …………………………………………..

$132,500

Payments on accounts in October (debits) …………………………..

$300,500

b.

Beginning accounts receivable (debit) ……………………………………

$102,500

Sales on account in October (debits) ……………………………………..

?

Collections on account in October (credits) …………………………..

Ending accounts receivable (debit) ………………………………………..

$ 89,000

Sales on account in October (debits) ……………………………………..

$ 89,390

c.

Beginning cash balance (debit) ………………………………………………

$ ?

Cash received in October (debits) ………………………………………….

102,500

Cash disbursed in October (credits) ……………………………………….

Ending cash balance (debit) …………………………………………………..

$ 18,600

Beginning cash balance (debit) ………………………………………………

$ 19,250

Exercise 2-7 (25 minutes)

Aug. 1 Cash ………………………………………………………… 6,500

Photography Equipment …………………………... 33,500

Common Stock …………………………………… 40,000

Owner investment in exchange for stock.

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

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Exercise 2-8 (30 minutes)

Part 1

Cash

Photography Equipment

Aug. 1

6,500

Aug. 2

2,100

Aug. 1

33,500

20

3,331

5

880

675

Balance

6,176

Aug. 1

Aug. 5

Aug. 20

Aug. 2

2,100

Aug. 31

Part 2

POSE-FOR-PICS

Trial Balance

August 31

Debit

Credit

Cash …………………………………………..

$ 6,176

Office supplies …………………………..

880

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

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Exercise 2-9 (30 minutes)

a. Cash ………………………………………………………………… 100,750

Common Stock ………………………………………….. 100,750

Owner investment in exchange for stock.

d. Cash ………………………………………………………………… 15,500

Fees Earned ………………………………………………. 15,500

Received cash from customer for services.

e. Accounts Payable …………………………………………….. 10,050

Cash ………………………………………………………….. 10,050

Made payment toward account payable.

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

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Exercise 2-9 (concluded)

Cash

Accounts Payable

(a)

(b)

(e)

10,050

(c)

10,050

(d)

15,500

(e)

Balance

(h)

1,125

(g)

(i)

Balance

94,850

(a)

100,750

Balance

100,750

Accounts Receivable

Dividends

(f)

2,700

(h)

1,125

(i)

10,000

Balance

1,575

Balance

10,000

(b)

1,250

(d)

Balance

1,250

(f)

Balance

(c)

10,050

(g)

Balance

10,050

Balance

Exercise 2-10 (15 minutes)

SPADE COMPANY

Trial Balance

May 31

Debit

Credit

Cash ………………………………………

$ 94,850

Accounts receivable ……………….

1,575

Office equipment …………………….

Dividends …………………………………………………

Fees earned …………………………...

Rent expense …………………………..

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

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Exercise 2-11 (20 minutes)

1.

a. Account Payable ………………………………….. 2,000

Cash ………………………………………………. 2,000

Paid amount owed.

2. Transactions a, c, and e did not yield an expense for the following reasons:

e This transaction is a distribution of cash to the owner (shareholder).

Even though equity decreased, that decrease did not occur in the

process of providing goods or services to customers.

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

Exercise 2-12 (20 minutes)

1.

a. Cash …………………………………………………………… 20,000

Common Stock………………………………………. 20,000

Owner investment in exchange for stock.

2. Transactions a, c, d, and e did not yield revenue for the following reasons:

d This transaction changed the form of an asset from receivable to cash.

Total assets were not increased (revenue was recognized when the

services were originally provided).

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

Exercise 2-13 (25 minutes)

Cash

Supplies

Prepaid Insurance

(1)

6,000

(2)

4,800

(3)

900

(2)

4,800

(5)

4,500

(4)

800

(6)

900

(7)

3,400

Equipment

Web Servers

Accounts Payable

(1)

7,600

(1)

12,000

(6)

900

(3)

900

(7)

3,400

Services Revenue

Selling Expenses

(1)

(5)

4,500

(4)

800

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

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Exercise 2-14 (30 minutes)

1. Cash ………………………………………………………………… 6,000

Equipment ……………………………………………………….. 7,600

2. Prepaid Insurance …………………………………………….. 4,800

3. Supplies …………………………………………………………… 900

4. Selling Expenses ……………………………………………… 800

5. Cash ………………………………………………………………… 4,500

6. Accounts Payable …………………………………………….. 900

Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2

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Exercise 2-15 (20 minutes)

Calculation of change in equity for part a through part d

Assets

–

Liabilities

=

Equity

Beginning of the year ……….

–

=

–

=

a. Net income ………………………………………………….

$ ?

Plus owner investments ………………………………

Less dividends …………………………………………..

Change in equity …………………………………………

b. Net income ………………………………………………….

$ ?

Plus owner investments ………………………………

Less dividends ($1,250/mo. x 12 mo.) …………..

Change in equity …………………………………………

c. Net income ………………………………………………….

$ ?

Plus owner investment ………………………………..

55,000

Less dividends ……………………………………………

Change in equity …………………………………………

d. Net income ………………………………………………….

$ ?

Plus owner investment ………………………………..

35,000

Less dividends ($1,250/mo. X 12 mo.) …………..

(15,000)