Chapter 02 – Investing and Financing Decisions and the Accounting System
2-32
HANDOUT 2 – 4, continued
(i) Order a $900 computer, to be delivered in 90 days.
Debit and credit the accounts affected
Ensure the equation still balances and debits = credits
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-33
HANDOUT 2 – 4 SOLUTION
THE DEBIT/CREDIT FRAMEWORK
Analyze each of the following transactions of World Wide Webster and prepare the journal entry required
to record the related transaction.
(f) Company pays $300 on accounts payable to the vendor in (d).
Debit and credit the accounts affected
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
–300
Acct. Pay.
–300
(g) Company pays for and receives $600 worth of supplies.
Debit and credit the accounts affected
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Supplies
+600
Cash
–600
(h) Company acquires and receives $1,000 worth of equipment.
Debit and credit the accounts affected
Assets
=
Liabilities
+
Equipment
Cash
(i) Order a $900 computer, to be delivered in 90 days.
No entry – this is not a transaction.
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-34
HANDOUT 2 – 5
POSTING TO T-ACCOUNTS
Post the transactions from handouts 2-3 and 2-4 and determine the ending balances of each of the
following T-accounts.
Assets
Liabilities
Stockholders’ Equity
+ Cash –
– Accounts Payable +
– Common Stock +
+ Supplies –
– Short-Term Notes Payable +
– Retained Earnings +
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-35
HANDOUT 2 – 5 SOLUTION
POSTING TO T-ACCOUNTS
Post the transactions from handouts 2-3 and 2-4 and determine the ending balances of each of the
following T-accounts.
Assets
Liabilities
Stockholders’ Equity
+ Cash –
BegBal
0
(a)
10,000
(b)
15,000
20,000
(c)
300
(f)
600
(g)
(h)
EndBal
0
EndBal
10,000
EndBal
– Accounts Payable +
0
BegBal
(f)
300
300
(d)
– Common Stock +
0
BegBal
10,000
(a)
+ Supplies –
BegBal
0
(d)
300
(g)
600
EndBal
900
– Short-Term Notes Payable +
0
BegBal
15,000
(b)
15,000
EndBal
– Retained Earnings +
0
BegBal
0
EndBal
BegBal
0
(c)
20,000
(h)
EndBal
21,000
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-36
HANDOUT 2 – 6
PREPARING A TRIAL BALANCE
World Wide Webster
Trial Balance
At December 31, Current Year
Debit
Credit
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-37
HANDOUT 2 – 6
PREPARING A TRIAL BALANCE
Use the ending balances from the T-accounts on Handout 2-5 to prepare a trial balance for World Wide
Webster as of December 31 of the current year.
World Wide Webster
Trial Balance
At December 31, Current Year
Debit
Credit
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-38
HANDOUT 2 – 7 SOLUTION
PREPARING A BALANCE SHEET
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-39
HANDOUT 2 – 7 SOLUTION
PREPARING A BALANCE SHEET
Use the balances from the trial balance on Handout 2-6 to prepare a classified balance sheet for World
Wide Webster as of December 31 of the current year.
World Wide Webster
Balance Sheet
At December 31, Current Year
Assets
Current Assets:
Cash
$ 3,100
Supplies
900
Total Current Assets
Equipment
21,000
Total Assets
$25,000
Current Liabilities:
Short-Term Notes Payable
$15,000
Total Current Liabilities
15,000
Common Stock
Retained Earnings
0
Total Stockholders’ Equity
10,000
$25,000
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-40
HANDOUT 2 – 8
CURRENT RATIO
Refer to the classified balance sheet from Handout 2-7 and calculate the current ratio of World Wide
Webster as of December 31 of the current year. Then, interpret the current ratio.
Chapter 02 – Investing and Financing Decisions and the Accounting System
HANDOUT 2 – 8 SOLUTION
CURRENT RATIO
Refer to the classified balance sheet from Handout 2-7 and calculate the current ratio of World Wide
Webster as of December 31 of the current year. Then, interpret the current ratio.
Calculation: