Chapter 2
Recording Business Transactions
Review Questions
1. Identify the three categories of the accounting equation, and list at least four accounts associated
with each category.
The three categories of the accounting equation are assets, liabilities, and equity. Assets include
2. What is the purpose of the chart of accounts? Explain the numbering typically associated with the
accounts.
3. What does a ledger show? What’s the difference between a ledger and the chart of accounts?
A chart of accounts and a ledger are similar in that they both list the account names and account
4. Accounting uses a double-entry system. Explain what this sentence means.
5. What is a T-account? On which side is the debit? On which side is the credit? Where does the
account name go on a T-account?
6. When are debits increases? When are debits decreases?
7. When are credits increases? When are credits decreases?
Credits are increases for liabilities, common stock, and revenue. Credits are decreases for assets,
dividends, and expenses.
2-2
8. Identify which types of accounts have a normal debit balance and which types of accounts have a
normal credit balance.
9. What are source documents? Provide examples of source documents that a business might use.
10. Where are transactions initially recorded?
Transactions are first recorded in a journal, which is the record of transactions in date order.
11. Explain the five steps in journalizing and posting transactions.
Step 1: Identify the accounts and the account type. You need this information before you can
complete the next step. Step 2: Decide if each account increases or decreases, then apply the rules of
12. What are the four parts of a journal entry?
13. What is involved in the posting process?
When transactions are posted from the journal to the ledger, the dollar amount is transferred from the
14. What is the purpose of the trial balance?
15. What is the difference between the trial balance and the balance sheet?
2-3
A trial balance verifies the equality of total debits and total credits of all accounts on the trial balance
16. If total debits equal total credits on the trial balance, is the trial balance error-free? Explain your
answer.
17. What is the calculation for the debt ratio? Explain what the debt ratio evaluates.
2-4
Short Exercises
S2-1 Identifying accounts
Learning Objective 1
Consider the following accounts and identify each account as an asset (A), liability (L), or equity (E).
a. Notes Receivable
b. Common Stock
c. Prepaid Insurance
d. Notes Payable
e. Rent Revenue
f. Taxes Payable
g. Rent Expense
h. Furniture
i. Dividends
j. Unearned Revenue
SOLUTION
a. Notes Receivable (A)
f. Taxes Payable (L)
S2-2 Identifying increases and decreases in accounts
Learning Objective 2
For each account, identify whether the changes would be recorded as a debit (DR) or credit (CR).
a. Increase to Accounts Receivable
b. Decrease to Unearned Revenue
c. Decrease to Cash
d. Increase to Interest Expense
e. Increase to Salaries Payable
f. Decrease to Prepaid Rent
g. Increase to Common Stock
h. Increase to Notes Receivable
i. Decrease to Accounts Payable
j. Increase to Interest Revenue
b. Common Stock (E)
g. Rent Expense (E)
c. Prepaid Insurance (A)
h. Furniture (A)
d. Notes Payable (L)
i. Dividends (E)
e. Rent Revenue (E)
j. Unearned Revenue (L)
2-5
SOLUTION
a. Increase to Accounts Receivable (DR)
f. Decrease to Prepaid Rent (CR)
S2-3 Identifying normal balances
Learning Objective 2
For each account, identify whether the normal balance is a debit (DR) or credit (CR).
a. Notes Payable
b. Dividends
c. Service Revenue
d. Land
e. Unearned Revenue
f. Common Stock
g. Utilities Expense
h. Office Supplies
i. Advertising Expense
j. Interest Payable
SOLUTION
a. Notes Payable (CR)
f. Common Stock (CR)
b. Dividends (DR)
g. Utilities Expense (DR)
c. Service Revenue (CR)
h. Office Supplies (DR)
d. Land (DR)
e. Unearned Revenue (CR)
j. Interest Payable (CR)
S2-4 Calculating the balance of a T-account
Learning Objective 2
Calculate the Accounts Payable balance.
b. Decrease to Unearned Revenue (DR)
g. Increase to Common Stock (CR)
c. Decrease to Cash (CR)
h. Increase to Notes Receivable (DR)
d. Increase to Interest Expense (DR)
i. Decrease to Accounts Payable (DR)
2-6
SOLUTION
Accounts Payable
May 2 6,000
21,000 May 1
S2-5 Journalizing transactions
Learning Objective 3
John Daniel opened a medical practice in Sacramento, California, and had the following transactions
during the month of January.
Jan. 1
The business received $34,000 cash and issued common stock to Daniel.
2
Purchased medical supplies on account, $17,000.
4
Performed services for patients receiving $1,600.
12
Paid monthly office rent of $3,000.
15
Recorded $7,000 revenue for services rendered to patients on account.
Journalize the transactions of John Daniel, M.D. Include an explanation with each entry.
SOLUTION
Date
Accounts and Explanation
Debit
Credit
Jan. 1
Cash
34,000
Common Stock
34,000
Medical Supplies
17,000
Accounts Payable
17,000
Cash
1,600
Service Revenue
Rent Expense
3,000
Cash
Accounts Receivable
7,000
Service Revenue
May 22 11,500
500 May 5
8,500 May 15
500 May 23
13,000 Bal.
2-7
S2-6 Journalizing transactions
Learning Objective 3
Harper Sales Consultants completed the following transactions during the latter part of January:
Jan. 22
Performed services for customers on account, $7,500.
30
Received cash on account from customers, $8,000.
31
Received a utility bill, $220, which will be paid during February.
31
Paid monthly salary to salesman, $2,500.
31
Received $2,310 for three months of consulting service to be performed starting in February.
31
Cash dividends of $950 were paid to stockholders.
Journalize the transactions of Harper Sales Consultants. Include an explanation with each journal entry.
SOLUTION
Date
Accounts and Explanation
Debit
Credit
Jan. 22
Accounts Receivable
7,500
Service Revenue
7,500
Cash
8,000
Accounts Receivable
8,000
Utilities Payable
Salaries Expense
2,500
Cash
2,500
Cash
2,310
Unearned Revenue
2,310
Dividends
Cash
2-8
S2-7 Journalizing transactions and posting to T-accounts
Learning Objective 3
Roland Foster Optical Dispensary completed the following transactions during the latter part of March:
Mar. 15
Purchased office supplies on account, $3,400.
28
Paid $1,800 on account.
Requirements
1. Journalize the transactions of Roland Foster Optical Dispensary. Include an explanation with each
journal entry.
2. Open the following accounts (use T-account format): Cash (Beginning Balance of $21,000), Office
Supplies, and Accounts Payable. Post the journal entries from Requirement 1 to the accounts, and
compute the balance in each account.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Mar. 15
Office Supplies
3,400
Accounts Payable
3,400
Requirement 2
Cash
Accounts Payable
Bal.
21,000
1,800
Mar. 28
Mar. 28
1,800
3,400
Mar. 15
Bal.
19,200
1,600
Bal.
S2-8 Preparing a trial balance
Learning Objective 4
Smithson Floor Coverings reported the following summarized data at December 31, 2018. Accounts
appear in no particular order, and all have normal balances.
2-9
Service Revenue
$ 26,000
Salaries Payable
$ 25,000
Equipment
36,000
Salaries Expense
1,600
Rent Expense
17,000
Cash
7,000
Common Stock
24,000
Accounts Receivable
3,600
Accounts Payable
2,200
Interest Payable
6,000
Dividends
16,100
Utilities Expense
1,900
Prepare the trial balance of Smithson Floor Coverings at December 31, 2018.
SOLUTION
SMITHSON FLOOR COVERINGS
Trial Balance
December 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 7,000
Accounts Receivable
Equipment
Accounts Payable
Salaries Payable
Interest Payable
Common Stock
Dividends
Service Revenue
Rent Expense
Salaries Expense
Utilities Expense
Total
S2-9 Calculating debt ratio
Learning Objective 5
Aladdin Carpet Care had the following total assets, liabilities, and equity as of October 31:
Assets
$ 200,000
Liabilities
30,000
Equity
170,000
What is Aladdin Carpet Care’s debt ratio as of October 31?
SOLUTION
Exercises
E2-10 Using accounting vocabulary
Learning Objectives 1, 2, 3, 4
Match the accounting terms with the corresponding definitions.
1. Posting
2. Account
3. Debit
4. Journal
5. Chart of accounts
6. rial balance
7. Normal balance
8. Ledger
9. Credit
10. Compound journal entry
a. A detailed record of all increases and decreases that have occurred in
a particular asset, liability, or equity during a period
b. The record holding all the accounts of a business, the changes in those
accounts, and their balances
c. A journal entry that is characterized by having multiple debits and/or
multiple credits
d. A record of transactions in date order
e. Left side of a T-account
f. Side of an account where increases are recorded
g. Transferring amounts from the journal to the ledger
h. Right side of a T-account
i. A list of all accounts with their balances at a point in time
j. A list of all accounts with their account numbers
SOLUTION
1. g
2. a
3. e
4. d
5. j
6. i
7. f
8. b
9. h
10. c
2-12
E2-11 Creating a chart of accounts
Learning Objective 1
Raymond Autobody Shop has the following accounts:
Accounts Payable
Service Revenue
Cash
Equipment
Utilities Expense
Common Stock
Automotive Supplies
Advertising Expense
Dividends
Unearned Revenue
Retained Earnings
Create a chart of accounts for Raymond Autobody Shop using the standard numbering system. Each
account is separated by a factor of 10. For example, the first asset account will be 100 and the next asset
account will 110.
SOLUTION
Assets
Equity
100 – Cash
300 – Common Stock
E2-12 Identifying accounts, increases in accounts, and normal balances
Learning Objectives 1, 2
a. Interest Revenue
b. Accounts Payable
c. Common Stock
d. Office Supplies
e. Advertising Expense
f. Unearned Revenue
g. Prepaid Rent
h. Utilities Expense
i. Dividends
j. Service Revenue
Requirements
1. Identify each account as asset (A), liability (L), or equity (E).
2. Identify whether the account is increased with a debit (DR) or credit (CR).
3. Identify whether the normal balance is a debit (DR) or credit (CR).
SOLUTION
Requirement 1
Requirement 2
Requirement 3
Account Name
Type of Account
Increase with
Debit/Credit
Normal
Balance
Debit/Credit
a.
Interest Revenue
E
CR
CR
b.
Accounts Payable
L
CR
CR
Common Stock
E
CR
CR
d.
Office Supplies
A
Advertising Expense
E
Unearned Revenue
L
CR
CR
g.
Prepaid Rent
A
h.
Utilities Expense
E
Dividends
E
Service Revenue
E
CR
CR
2-14
E2-13 Identifying increases and decreases in accounts and normal balances
Learning Objective 2
Insert the missing information into the accounting equation. Signify increases as Incr. and decreases as Decr.
2-15
SOLUTION
(a) Assets
=
Liabilities
+
(b) Equity
Contributed
Capital
+
Retained Earnings
Assets
=
(c) Liabilities
+
Common
Stock
–
(d) Dividends
+
Revenues
–
Expenses
(e) Incr.
Decr.
Decr.
(f) Incr.
(g) Decr.
(h) Incr.
(i) Incr.
(j) Decr.
(k) Decr.
(l) Incr.
Incr.
(m) Decr.
2-16
E2-14 Identifying source documents
Learning Objective 3
For each transaction, identify a possible source document.
a. The business received $20,000 cash and issued common stock to stockholders.
b. Purchased office supplies on account, $500.
c. Recorded $1,000 revenue for services rendered to customers.
SOLUTION
E2-15 Analyzing and journalizing transactions
Learning Objective 3
As the manager of Margarita Mexican Restaurant, you must deal with a variety of business transactions.
Provide an explanation for the following transactions:
a. Debit Equipment and credit Cash.
b. Debit Dividends and credit Cash.
c. Debit Wages Payable and credit Cash.
d. Debit Equipment and credit Common Stock.
e. Debit Cash and credit Unearned Revenue.
f. Debit Advertising Expense and credit Cash.
g. Debit Cash and credit Service Revenue.
SOLUTION
a. Purchased equipment with cash.
Use the following information to answer Exercises E2-16 and E2-17.
The following transactions occurred for Lawrence Engineering:
Jul. 2
Received $14,000 contribution from Brett Lawrence in exchange for common stock.
4
Paid utilities expense of $370.
5
Purchased equipment on account, $1,600.
10
Performed services for a client on account, $2,900.
12
Borrowed $7,100 cash, signing a notes payable.
19
Cash dividends of $200 were paid to stockholders.
21
Purchased office supplies for $840 and paid cash.
27
Paid the liability from July 5.
E2-16 Analyzing and journalizing transactions
Learning Objective 3
Journalize the transactions of Lawrence Engineering. Include an explanation with each journal entry.
Use the following accounts: Cash; Accounts Receivable; Office Supplies; Equipment; Accounts
Payable; Notes Payable; Common Stock; Dividends; Service Revenue; and Utilities Expense.
SOLUTION
Date
Accounts and Explanation
Debit
Credit
Jul. 2
Cash
14,000
Common Stock
14,000
Issued common stock in exchange for cash.
Utilities Expense
Cash
Equipment
Accounts Payable
Accounts Receivable
Service Revenue
Cash
Notes Payable
Dividends
Cash
Office Supplies
Purchased office supplies with cash.
Accounts Payable
Paid cash on account.
E2-16, cont.
E2-17 Posting journal entries to T-accounts
Learning Objective 3
3. Cash Balance $18,090
Requirements
1. Open the following T-accounts for Lawrence Engineering: Cash; Accounts Receivable; Office
Supplies; Equipment; Accounts Payable; Notes Payable; Common Stock; Dividends; Service
Revenue; and Utilities Expense.
2. Post the journal entries to the T-accounts. Also transfer the dates to the T-accounts.
3. Compute the July 31 balance for each account.
SOLUTION
Requirements 1, 2, and 3
Cash
Accounts Payable
Jul. 2 14,000
370 Jul. 4
Jul. 27 1,600
1,600 Jul. 5
200 Jul. 19
0 Balance
840 Jul. 21
1,600 Jul. 27
Accounts Receivable
7,100 Jul. 12
7,100 Balance
14,000 Jul. 2
14,000 Balance
Jul. 5 1,600
Use the following information to answer Exercises E2-18 and E2-19.
The following transactions occurred for Wilke Technology Solutions:
May 1
The business received cash of $105,000 and issued common stock to Zoe Wilke.
2
Purchased office supplies on account, $550.
4
Paid $57,000 cash for building and land. The building had a fair market value of $45,000.
6
Performed services for customers and received cash, $3,600.
9
Paid $350 on accounts payable.
17
Performed services for customers on account, $3,500.
19
Paid rent expense for the month, $1,200.
20
Received $1,500 from customers for services to be performed next month.
21
Paid $900 for advertising in next month’s IT Technology magazine.
23
Received $3,100 cash on account from a customer.
31
Incurred and paid salaries, $1,700.
E2-18 Analyzing and journalizing transactions
Learning Objective 3
Journalize the transactions of Wilke Technology Solutions. Include an explanation with each journal
entry. Use the following accounts: Cash; Accounts Receivable; Office Supplies; Prepaid Advertising;
Land; Building; Accounts Payable; Unearned Revenue; Common Stock; Service Revenue; Rent
Expense; and Salaries Expense.
SOLUTION
Date
Accounts and Explanation
Post.
Ref.
Debit
Credit
May 1
Cash
105,000
Common Stock.
105,000
Issued common stock in exchange for
cash.
Office Supplies
Accounts Payable
Building
Land
12,000
Cash
Cash
Service Revenue
Accounts Payable
Cash
Accounts Receivable
Service Revenue
Rent Expense
Cash
Cash
Unearned Revenue
E2-19, cont.
Cash
Accounts Receivable
Salaries Expense
1,700
Cash
21
Prepaid Advertising
Cash
Paid for next month’s advertising.
900
900
E2-19 Posting journal entries to four-column accounts
Learning Objective 3
2. Cash Balance $52,050
Requirements
1. Open four-column accounts using the following account numbers: Cash, 110; Accounts Receivable,
120; Office Supplies, 130; Prepaid Advertising, 140; Land, 150; Building, 160; Accounts Payable,
210; Unearned Revenue, 220; Common Stock, 310; Service Revenue, 410; Rent Expense, 510; and
Salaries Expense, 520.
2. Post the journal entries to the four-column accounts, and determine the balance in the account after
each transaction. Assume that the journal entries were recorded on page 10 of the journal. Make sure
to complete the Post. Ref. columns in the journal and ledger.
SOLUTION
Requirement 2
Date
Accounts and Explanation
Post.
Ref.
Debit
Credit
May 1
Cash
110
105,000
Common Stock
310
105,000
Office Supplies
130
Accounts Payable
210
2-22
E2-19, cont.
4
Building
160
45,000
Land
150
12,000
Cash
110
57,000
Purchased building and land for cash.
account.
19
Rent Expense
510
1,200
Cash
110
1,200
Paid rent for the month.
20
Cash
110
1,500
Unearned Revenue
220
Received cash from customers for
services to be performed next month.
21
Prepaid Advertising
140
Cash
110
23
Cash
110
3,100
Accounts Receivable
120
3,100
Received cash on account from
31
Salaries Expense
520
1,700
Cash
110
1,700
Paid salaries.
6
Cash
110
3,600
Service Revenue
410
Performed services for customers for
cash.
9
Accounts Payable
210
350
Cash
110
Paid cash on account.
Accounts Receivable
120
3,500
Service Revenue
410
E2-19, cont.
Requirements 1 and 2
CASH
Account No. 110
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
May 1
J10
105,000
105,000
May 4
J10
57,000
48,000
May 6
J10
3,600
51,600
May 9
J10
51,250
May 19
J10
1,200
50,050
May 20
J10
1,500
51,550
May 21
J10
50,650
May 23
J10
3,100
53,750
May 31
J10
1,700
52,050
ACCOUNTS RECEIVABLE
Account No. 120
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
May 17
J10
3,500
3,500
May 23
J10
3,100
400
OFFICE SUPPLIES
Account No. 130
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
May 2
J10
550
PREPAID ADVERTISING
Account No. 140
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
May 21
J10
900
LAND
Account No. 150
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
May 4
J10
12,000
12,000
BUILDING
Account No. 160
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
May 4
J10
45,000
45,000
2-24
E2-19, cont.
ACCOUNTS PAYABLE
Account No. 210
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
May 2
J10
550
550
May 9
J10
350
200
UNEARNED REVENUE
Account No. 220
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
RENT EXPENSE
Account No. 510
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
May 19
J10
1,200
1,200
SALARIES EXPENSE
Account No. 520
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
May 31
J10
1,700
1,700
May 20
J10
1,500
1,500
COMMON STOCK
Account No. 310
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
May 1
J10
SERVICE REVENUE
Account No. 410
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
May 6
J10
3,600
3,600
May 17
J10
3,500
7,100
2-25
E2-20 Analyzing transactions from T-accounts
Learning Objective 3
The first nine transactions of North-West Airplane Repair have been posted to the T-accounts. Provide
an explanation for each of the nine transactions.
SOLUTION
1. The business received cash of $370,000 and issued common stock.
2. Paid $360,000 cash for a building.
4. Purchased office supplies on account, $1,500.
6. Paid property tax expense, $1,500.
8. Cash dividends of $7,000 paid to stockholders.
E2-21 Journalizing transactions from T-accounts
Learning Objective 3
In December 2018, the first five transactions of Abling’s Lawn Care Company have been posted to the
T-accounts. Prepare the journal entries that served as the sources for the five transactions. Include an
explanation for each entry.
SOLUTION
Date
Accounts and Explanation
Posting
Ref.
Debit
Credit
1.
Cash
57,000
Common Stock
57,000
Issued common stock in exchange for cash.
2.
Office Supplies
Accounts Payable
3.
Building
40,000
Cash
40,000
4.
Cash
46,000
Notes Payable
46,000
5.
Equipment
Cash
2-27
E2-22 Preparing a trial balance
Learning Objective 4
Total Debits $191,800
The accounts of Anderson Moving Company follow with their normal balances as of August 31, 2018.
The accounts are listed in no particular order.
Common Stock
$ 49,800
Trucks
$ 123,000
Insurance Expense
600
Fuel Expense
1,000
Accounts Payable
4,000
Dividends
5,600
Service Revenue
82,000
Utilities Expense
300
Building
41,000
Accounts Receivable
10,000
Advertising Expense
200
Notes Payable
56,000
Salaries Expense
6,000
Office Supplies
100
Cash
4,000
Prepare Anderson’s trial balance as of August 31, 2018.
SOLUTION
ANDERSON MOVING COMPANY
Trial Balance
August 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 4,000
Accounts Receivable
10,000
Office Supplies
Building
41,000
Trucks
Accounts Payable
Notes Payable
Common Stock
Dividends
Service Revenue
Salaries Expense
Fuel Expense
Insurance Expense
Utilities Expense
Advertising Expense
Total
E2-23 Preparing a trial balance from T-accounts
Learning Objective 4
Total Debits $80,700
The T-accounts of McMahon Farm Equipment Repair follow as of May 31, 2018.
Prepare McMahon Farm Equipment Repair’s trial balance as of May 31, 2018.
SOLUTION
MCMAHON FARM EQUIPMENT REPAIR
Trial Balance
May 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 9,020
Accounts Receivable
3,100
Land
Building
Equipment
Salaries Payable
Notes Payable
Common Stock
Dividends
2,000
Service Revenue
Salaries Expense
6,300
Property Tax Expense
1,000
Advertising Expense
Total
2-29
E2-24 Journalizing transactions, posting journal entries to four-column accounts, and preparing a
trial balance
Learning Objectives 3, 4
3. Total Debits $24,670
The following transactions occurred during the month for Teresa Parker, CPA:
Jun. 1
Parker opened an accounting firm by contributing $13,200 cash and office furniture with a fair market
value of $5,300 in exchange for common stock.
5
Paid monthly rent of $1,300.
9
Purchased office supplies on account, $600.
14
Paid employee’s salary, $1,900.
18
Received a bill for utilities to be paid next month, $370.
21
Paid $500 of the accounts payable created on June 9.
25
Performed accounting services on account, $5,700.
28
Paid cash dividends of $6,700.
Requirements
1. Open the following four-column accounts of Teresa Parker, CPA: Cash, 110; Accounts
Receivable, 120; Office Supplies, 130; Office Furniture, 140; Accounts Payable, 210; Utilities Payable,
220; Common Stock, 310; Dividends, 320; Service Revenue, 410; Salaries Expense, 510; Rent Expense,
520; and Utilities Expense, 530.
2. Journalize the transactions, and then post the journal entries to the four-column accounts.
Explanations are not required for the journal entries. Keep a running balance in each account. Assume
the journal entries are recorded on page 10 of the journal.
3. Prepare the trial balance as of June 30, 2018.
SOLUTION
Requirement 2
Date
Accounts and Explanation
Post
Ref.
Debit
Credit
June 1
Cash
110
13,200
Office Furniture
140
5,300
310
Rent Expense
520
1,300
110
Office Supplies
130
600
210
E2-24, cont.
14
Salaries Expense
1,900
1,900
18
Utilities Expense
21
Accounts Payable
25
Accounts Receivable
5,700
5,700
28
Dividends
6,700
6,700
Requirements 1 & 2
CASH
Account No. 110
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
June 1
J10
13,200
13,200
June 5
J10
1,300
11,900
June 14
J10
1,900
10,000
June 21
J10
500
9,500
June 28
J10
6,700
2,800
ACCOUNTS RECEIVABLE
Account No. 120
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
June 25
J10
5,700
5,700
OFFICE SUPPLIES
Account No. 130
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
June 9
J10
600
OFFICE FURNITURE
Account No. 140
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
June 1
J10
5,300
5,300
2-31
E2-24, cont.
ACCOUNTS PAYABLE
Account No. 210
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
June 9
J10
600
600
June 21
J10
500
100
DIVIDENDS
Account No. 320
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
June 28
J10
6,700
6,700
SERVICE REVENUE
Account No. 410
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
June 25
J10
5,700
5,700
SALARIES EXPENSE
Account No. 510
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
June 14
J10
1,900
1,900
RENT EXPENSE
Account No. 520
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
June 5
J10
1,300
1,300
UTILITIES EXPENSE
Account No. 530
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
June 18
J10
370
UTILITIES PAYABLE
Account No. 220
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
June 18
J10
370
370
COMMON STOCK
Account No. 310
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
June 1
J10
18,500
E2-24, cont.
Requirement 3
TERESA PARKER, CPA
Trial Balance
June 30, 2018
Acct. No.
Account Title
Balance
Debit
Credit
110
Cash
$ 2,800
120
Accounts Receivable
5,700
130
Office Supplies
140
Office Furniture
5,300
210
Accounts Payable
220
Utilities Payable
310
Common Stock
320
Dividends
6,700
410
Service Revenue
510
Salaries Expense
1,900
520
Rent Expense
1,300
530
Utilities Expense
Total
2-33
E2-25 Analyzing accounting errors
Learning Objective 4
Courtney Meehan has trouble keeping her debits and credits equal. During a recent month, Courtney
made the following accounting errors:
a. In preparing the trial balance, Courtney omitted a $5,000 Notes Payable. The debit to Cash was
correct.
b. Courtney posted a $1,000 Utilities Expense as $100. The credit to Cash was correct.
c. In recording a $600 payment on account, Courtney debited Furniture instead of Accounts Payable.
d. In journalizing a receipt of cash for service revenue, Courtney debited Cash for $50 instead of the
correct amount of $500. The credit was correct.
e. Courtney recorded a $210 purchase of office supplies on account by debiting Office Supplies for
$120 and crediting Accounts Payable for $120.
Requirements
1. For each of these errors, state whether total debits equal total credits on the trial balance.
2. Identify each account that has an incorrect balance and the amount and direction of the error (e.g.,
“Accounts Receivable $500 too high”).
SOLUTION
Requirements 1 and 2
Debits equal Credits,
E2-26 Correcting errors in a trial balance
Learning Objective 4
Total Debits $35,600
The accountant for Countryside Painting Specialists is having a hard time preparing the trial balance as
of November 30, 2018:
Prepare the corrected trial balance as of November 30, 2018. Assume all amounts are correct and all
accounts have normal balances.
SOLUTION
COUNTRYSIDE PAINTING SPECIALISTS
Trial Balance
November 30, 2018
Account Title
Balance
Debit
Credit
Cash
$ 12,100
Accounts Receivable
1,300
Office Supplies
Painting Equipment
Accounts Payable
Unearned Revenue
Common Stock
Dividends
3,500
Service Revenue
Advertising Expense
Rent Expense
1,800
Salaries Expense
2,400
Utilities Expense
2-35
E2-27 Correcting errors in a trial balance
Learning Objective 4
Total Debits $35,300
The following trial balance of Joy McDowell Tutoring Service as of May 31, 2018, does not balance.
Investigation of the accounting records reveals that the bookkeeper:
a. Recorded a $400 cash revenue transaction by debiting Accounts Receivable. The credit entry was correct.
b. Posted a $2,000 credit to Accounts Payable as $200.
c. Did not record Utilities Expense or the related Utilities Payable in the amount of $300.
d. Understated Common Stock by $100.
Prepare the corrected trial balance as of May 31, 2018, complete with a heading; journal entries are not
required.
2-36
SOLUTION
JOY MCDOWELL TUTORING SERVICE
Trial Balance
May 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 3,200
Accounts Receivable
1,600
Office Supplies
600
Computer Equipment
Accounts Payable
Utilities Payable
Common Stock
Dividends
Service Revenue
Salaries Expense
1,900
Rent Expense
800
Utilities Expense
1,000
Total
2-37
E2-28 Calculating the debt ratio
Learning Objective 5
Total Assets $174,900
John Hart, M.D., reported the following trial balance as of September 30, 2018:
Calculate the debt ratio for John Hart, M.D.
SOLUTION
Liabilities:
Accounts Payable
$ 1,600
Utilities Payable
800
Unearned Revenue
24,795
Notes Payable
69,000
Assets:
Cash
$ 30,000
Accounts Receivable
Office Supplies
Office Equipment
Building
Land
Total assets
2-39
Problems (Group A)
P2-29A Journalizing transactions, posting journal entries to T-accounts, and preparing a trial
balance
Learning Objectives 3, 4
2. Cash Balance $56,050
Vince York practices medicine under the business title Vince York, M.D. During July, the medical
practice completed the following transactions:
Jul. 1
York contributed $63,000 cash to the business in exchange for common stock.
5
Paid monthly rent on medical equipment, $510.
9
Paid $23,000 cash to purchase land to be used in operations.
10
Purchased office supplies on account, $1,600.
19
Borrowed $22,000 from the bank for business use.
22
Paid $1,100 on account.
28
The business received a bill for advertising in the daily newspaper to be paid in August, $240.
31
Revenues earned during the month included $6,400 cash and $6,000 on account.
31
Paid employees’ salaries $2,200, office rent $1,900, and utilities $560. Record as a compound entry.
31
The business received $1,120 for medical screening services to be performed next month.
31
Paid cash dividends of $7,200.
The business uses the following accounts: Cash; Accounts Receivable; Office Supplies; Land; Accounts
Payable; Advertising Payable; Unearned Revenue; Notes Payable; Common Stock; Dividends; Service
Revenue; Salaries Expense; Rent Expense; Utilities Expense; and Advertising Expense.
Requirements
1. Journalize each transaction. Explanations are not required.
2. Post the journal entries to the T-accounts, using transaction dates as posting references in the ledger
accounts. Label the balance of each account Bal.
3. Prepare the trial balance of Vince York, M.D., as of July 31, 2018.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Post
Ref.
Debit
Credit
July 1
Cash
63,000
Common Stock
63,000
5
Rent Expense
510
Cash
510
9
Land
23,000
Cash
23,000
Office Supplies
Accounts Payable
Cash
22,000
Notes Payable
22,000
Accounts Payable
Cash
Advertising Expense
240
Advertising Payable
240
Cash
Accounts Receivable
Service Revenue
12,400
Salaries Expense
Rent Expense
Utilities Expense
560
Cash
Cash
Unearned Revenue
Dividends
Cash
2-41
P2-29A, cont.
Requirement 2
Cash
Accounts Payable
Jul. 1 63,000
510 Jul. 5
Jul. 22 1,100
1,600 Jul. 10
Jul. 19 22,000
23,000 Jul. 9
500 Bal.
Dividends
Jul. 31 7,200
Bal. 7,200
Service Revenue
Salaries Expense
Jul. 31 2,200
Bal. 2,200
Jul. 5 510
Jul. 31 1,900
Bal. 2,410
Utilities Expense
Jul. 31 560
Bal. 560
Advertising Expense
Jul. 31 6,400
1,100 Jul. 22
Jul. 31 1,120
4,660 Jul. 31
7,200 Jul. 31
240 Jul. 28
Bal. 56,050
240 Bal.
Accounts Receivable
1,120 Jul. 31
1,120 Bal.
Jul. 10 1,600
22,000 Jul. 19
Bal. 1,600
22,000 Bal.
Land
63,000 Jul. 1
63,000 Bal.
P2-29A, cont.
Requirement 3
VINCE YORK, MD
Trial Balance
July 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 56,050
Accounts Receivable
6,000
Office Supplies
1,600
Land
Accounts Payable
Advertising Payable
Unearned Revenue
Notes Payable
Common Stock
Dividends
7,200
Service Revenue
Salaries Expense
2,200
Rent Expense
2,410
Utilities Expense
Advertising Expense
Total
2-43
P2-30A Journalizing transactions, posting journal entries to T-accounts, and preparing a trial
balance
Learning Objectives 3, 4
4. Total Debits $58,300
Ann Simpson started her practice as a design consultant on September 1, 2018. During the first month of
operations, the business completed the following transactions:
Sep. 1
Received $48,000 cash and issued common stock to Simpson.
4
Purchased office supplies, $1,200, and furniture, $1,300, on account.
6
Performed services for a law firm and received $1,900 cash.
7
Paid $18,000 cash to acquire land to be used in operations.
10
Performed services for a hotel and received its promise to pay the $1,200 within one
week.
14
Paid for the furniture purchased on September 4 on account.
15
Paid assistant’s semimonthly salary, $1,500.
17
Received cash on account, $1,000.
20
Prepared a design for a school on account, $650.
25
Received $2,100 cash for design services to be performed in October.
28
Received $2,900 cash for consulting with Plummer & Gordon.
29
Paid $600 cash for a 12-month insurance policy starting on October 1.
30
Paid assistant’s semimonthly salary, $1,500.
30
Paid monthly rent expense, $600.
30
Received a bill for utilities, $350. The bill will be paid next month.
30
Paid cash dividends of $3,700.
Requirements
1. Record each transaction in the journal using the following account titles: Cash; Accounts
Receivable; Office Supplies; Prepaid Insurance; Land; Furniture; Accounts Payable; Utilities
Payable; Unearned Revenue; Common Stock; Dividends; Service Revenue; Salaries Expense; Rent
Expense; and Utilities Expense. Explanations are not required.
2. Open a T-account for each of the accounts.
3. Post the journal entries to the T-accounts, using transaction dates as posting references in the ledger
accounts. Label the balance of each account Bal.
4. Prepare the trial balance of Ann Simpson, Designer, as of September 30, 2018.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Posting
Ref.
Debit
Credit
Sep. 1
Cash
48,000
Common Stock
48,000
4
Office Supplies
1,200
Furniture
1,300
Accounts Payable
2,500
6
Cash
1,900
Service Revenue
1,900
7
Land
18,000
Cash
18,000
Accounts Receivable
1,200
Service Revenue
1,200
Accounts Payable
1,300
Cash
1,300
Salaries Expense
1,500
Cash
1,500
Cash
1,000
Accounts Receivable
1,000
Accounts Receivable
Service Revenue
Cash
2,100
Unearned Revenue
2,100
Cash
2,900
Service Revenue
2,900
Prepaid Insurance
Cash
Salaries Expense
1,500
Cash
1,500
Rent Expense
Cash
2-45
P2-30A, cont.
30
Utilities Expense
350
Sep. 17 1,000
1,500 Sep. 15
Sep. 25 2,100
600 Sep. 29
Sep. 28 2,900
1,500 Sep. 30
600 Sep. 30
350 Sep. 30
3,700 Sep. 30
350 Bal.
Requirements 2 and 3
Accounts Receivable
Unearned Revenue
Sep. 10 1,200
1,000 Sep. 17
2,100 Sep. 25
Sep. 20 650
2,100 Bal.
Bal. 850
Office Supplies
Common Stock
Sep. 4 1,200
48,000 Sep. 1
Bal. 1,200
48,000 Bal.
Sep. 29 600
Sep. 30 3,700
Bal. 3,700
Land
Sep. 7 18,000
1,900 Sep. 6
1,200 Sep. 10
650 Sep. 20
2,900 Sep. 28
6,650 Bal.
Cash
Accounts Payable
Sep. 1 48,000
18,000 Sep. 7
Sep. 14 1,300
2,500 Sep. 4
Sep. 6 1,900
1,300 Sep. 14
1,200 Bal.
Utilities Payable
30
Dividends
Cash
3,700
P2-30A, cont.
Salaries Expense
Sep. 15 1,500
Sep. 30 1,500
Bal. 3,000
Sep. 30 600
Bal. 600
Utilities Expense
Sep. 30 350
Bal. 350
Requirement 4
ANN SIMPSON, DESIGNER
Trial Balance
September 30, 2018
Account Title
Balance
Debit
Credit
Cash
$ 28,700
Accounts Receivable
850
Office Supplies
1,200
Prepaid Insurance
600
Land
Furniture
1,300
Accounts Payable
Utilities Payable
Unearned Revenue
Common Stock
Dividends
3,700
Service Revenue
Salaries Expense
3,000
Rent Expense
Utilities Expense
Total
2-47
P2-31A Journalizing transactions, posting journal entries to four-column accounts, and preparing
a trial balance
Learning Objectives 3, 4
3. Cash Balance $50,160
Terrence Murphy opened a law office on January 1, 2018. During the first month of operations, the
business completed the following transactions:
Jan. 1
Murphy contributed $78,000 cash to the business, Terrence Murphy, Attorney. The
business issued common stock to Murphy.
3
Purchased office supplies, $600, and furniture, $1,700, on account.
4
Performed legal services for a client and received $1,000 cash.
7
Purchased a building with a market value of $130,000, and land with a market value of
$25,000. The business paid $25,000 cash and signed a note payable to the bank for the
remaining amount.
11
Prepared legal documents for a client on account, $400.
15
Paid assistant’s semimonthly salary, $1,120.
16
Paid for the office supplies purchased on January 3 on account.
18
Received $2,700 cash for helping a client sell real estate.
19
Defended a client in court and billed the client for $1,800.
25
Received a bill for utilities, $600. The bill will be paid next month.
29
Received cash on account, $1,500.
30
Paid $1,200 cash for a 12-month insurance policy starting on February 1.
30
Paid assistant’s semimonthly salary, $1,120.
31
Paid monthly rent expense, $1,800.
31
Paid cash dividends of $2,200.
Requirements
1. Record each transaction in the journal, using the following account titles: Cash; Accounts
Receivable; Office Supplies; Prepaid Insurance; Land; Building; Furniture; Accounts Payable;
Utilities Payable; Notes Payable; Common Stock; Dividends; Service Revenue; Salaries Expense;
Rent Expense; and Utilities Expense. Explanations are not required.
2. Open the following four-column accounts including account numbers: Cash, 101; Accounts
Receivable, 111; Office Supplies, 121; Prepaid Insurance, 131; Land, 141; Building, 151; Furniture,
161; Accounts Payable, 201; Utilities Payable, 211; Notes Payable, 221; Common Stock, 301;
Dividends, 311; Service Revenue, 411; Salaries Expense, 511; Rent Expense, 521; and Utilities
Expense, 531.
3. Post the journal entries to four-column accounts in the ledger, using dates, account numbers, journal
references, and posting references. Assume the journal entries were recorded on page 1 of the
journal.
4. Prepare the trial balance of Terrence Murphy, Attorney, at January 31, 2018.
SOLUTION
Requirements 1 and 3
Date
Accounts and Explanation
Posting
Ref.
Debit
Credit
Jan. 1
Cash
101
78,000
Common Stock
301
78,000
3
Office Supplies
121
600
Furniture
161
Accounts Payable
201
4
Cash
101
Service Revenue
411
7
Building
151
Land
141
25,000
Cash
101
25,000
Notes Payable
221
Accounts Receivable
111
400
Service Revenue
411
400
Salaries Expense
511
Cash
101
Accounts Payable
201
600
Cash
101
600
Cash
101
Service Revenue
411
Accounts Receivable
111
Service Revenue
411
Utilities Expense
531
600
Utilities Payable
211
600
Accounts Receivable
111
Prepaid Insurance
131
Cash
101
Salaries Expense
511
Cash
101
2-49
P2-31A, cont.
31
Rent Expense
521
1,800
Cash
101
1,800
Requirements 2 and 3
CASH
Account No. 101
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Jan. 1
J1
78,000
78,000
Jan. 4
J1
1,000
79,000
Jan. 7
J1
25,000
54,000
Jan. 15
J1
1,120
52,880
Jan. 16
J1
600
52,280
Jan. 18
J1
2,700
54,980
Jan. 29
J1
1,500
56,480
Jan. 30
J1
1,200
55,280
Jan. 30
J1
1,120
54,160
Jan. 31
J1
1,800
52,360
Jan. 31
J1
2,200
50,160
ACCOUNTS RECEIVABLE
Account No. 111
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Jan. 11
J1
400
400
Jan. 19
J1
1,800
Jan. 29
J1
1,500
700
OFFICE SUPPLIES
Account No. 121
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Jan. 3
J1
600
600
31
Dividends
311
2,200
Cash
101
2,200
P2-31A, cont.
PREPAID INSURANCE
Account No. 131
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Jan. 30
J1
1,200
1,200
LAND
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Jan. 7
J1
BUILDING
Account No. 151
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Jan. 7
J1
FURNITURE
Account No. 161
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Jan. 3
J1
1,700
1,700
ACCOUNTS PAYABLE
Account No. 201
Date
Item
Post Ref.
Debit
Credit
Debit
Credit
Jan. 3
J1
2,300
2,300
Jan. 16
J1
1,700
UTILITIES PAYABLE
Account No. 211
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Jan. 25
J1
NOTES PAYABLE
Account No. 221
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Jan. 7
J1
Balance
2-51
P2-31A, cont.
COMMON STOCK
Account No. 301
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Jan. 1
J1
78,000
78,000
DIVIDENDS
Account No. 311
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Jan. 31
J1
2,200
2,200
SERVICE REVENUE
Account No. 411
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Jan. 4
J1
1,000
1,000
Jan. 11
J1
1,400
Jan. 18
J1
2,700
4,100
Jan. 19
J1
1,800
5,900
SALARIES EXPENSE
Account No. 511
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Jan. 15
J1
1,120
1,120
Jan. 30
J1
1,120
2,240
RENT EXPENSE
Account No. 521
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Jan. 31
J1
1,800
1,800
UTILITIES EXPENSE
Account No. 531
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Jan. 25
J1
2-52
P2-31A, cont.
Requirement 4
TERRENCE MURPHY, ATTORNEY
Trial Balance
January 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 50,160
Accounts Receivable
700
Office Supplies
600
P2-32A Journalizing transactions, posting journal entries to four-column accounts, and preparing
a trial balance
Learning Objectives 3, 4
3. Cash Balance $12,500
The trial balance of Shawn Merry, CPA, is dated March 31, 2018:
Prepaid Insurance
Land
Building
Furniture
Accounts Payable
Utilities Payable
Notes Payable
Common Stock
Dividends
Service Revenue
Salaries Expense
Rent Expense
Utilities Expense
Total
2-53
During April, the business completed the following transactions:
Apr. 4
Collected $2,500 cash from a client on account.
8
Performed tax services for a client on account, $5,400.
13
Paid $3,000 on account.
14
Purchased furniture on account, $3,600.
15
Merry contributed his personal automobile to the business in exchange for common stock.
The automobile had a market value of $9,500.
18
Purchased office supplies on account, $900.
19
Received $2,700 for tax services performed on April 8.
20
Paid cash dividends of $6,500.
21
Received $5,700 cash for consulting work completed.
24
Received $2,400 cash for accounting services to be completed next month.
27
Paid office rent, $600.
28
Paid employee salary, $1,700.
Requirements
1. Record the April transactions in the journal. Use the following accounts: Cash; Accounts Receivable; Office
Supplies; Land; Furniture; Automobile; Accounts Payable; Unearned Revenue; Common Stock; Dividends;
Service Revenue; Salaries Expense; and Rent Expense. Include an explanation for each entry.
2. Open the four-column ledger accounts listed in the trial balance, together with their balances as of March 31.
Use the following account numbers: Cash, 11; Accounts Receivable, 12; Office Supplies, 13; Land, 14;
Furniture, 15; Automobile, 16; Accounts Payable, 21; Unearned Revenue, 22; Common Stock, 31; Dividends,
33; Service Revenue, 41; Salaries Expense, 51; and Rent Expense, 52.
2-54
3. Post the journal entries to four-column accounts in the ledger, using dates, account numbers, journal
references, and posting references. Assume the journal entries were recorded on page 5 of the journal.
4. Prepare the trial balance of Shawn Merry, CPA, at April 30, 2018.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Post.
Ref.
Debit
Credit
Apr. 4
Cash
11
2,500
Accounts Receivable
12
2,500
Received cash from client on account.
Accounts Receivable
12
5,400
Service Revenue
41
5,400
account.
Accounts Payable
21
3,000
Cash
11
3,000
15
3,600
Accounts Payable
21
3,600
16
9,500
Common Stock
31
9,500
Office Supplies
13
Accounts Payable
21
11
2,700
Accounts Receivable
12
2,700
33
6,500
Cash
11
6,500
11
5,700
Service Revenue
41
5,700
P2-32A, cont.
Apr. 24
Cash
11
2,400
Unearned Revenue
22
2,400
Rent Expense
52
600
Cash
11
Salaries Expense
51
1,700
Cash
11
1,700
Received payment for services to be
Requirements 2 and 3
CASH
Account No. 11
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
11,000
Apr. 4
J5
2,500
13,500
Apr. 13
J5
3,000
10,500
Apr. 19
J5
2,700
13,200
Apr. 20
J5
6,500
Apr. 21
J5
5,700
12,400
Apr. 24
J5
2,400
14,800
Apr. 27
J5
14,200
Apr. 28
J5
1,700
12,500
ACCOUNTS RECEIVABLE
Account No. 12
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
16,500
Apr. 4
J5
2,500
14,000
Apr. 8
J5
5,400
19,400
Apr. 19
J5
2,700
16,700
OFFICE SUPPLIES
Account No. 13
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
Apr. 18
J5
2-56
P2-32A, cont.
LAND
Account No. 14
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
30,000
FURNITURE
Account No. 15
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
UNEARNED REVENUE
Account No. 22
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 24
J5
2,400
2,400
COMMON STOCK
Account No. 31
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
52,300
Apr. 15
J5
9,500
61,800
DIVIDENDS
Account No. 33
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 20
J5
6,500
Apr. 14
J5
3,600
AUTOMOBILE
Account No. 16
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 15
J5
9,500
ACCOUNTS PAYABLE
Account No. 21
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
3,800
Apr. 13
J5
3,000
Apr. 14
J5
3,600
4,400
Apr. 18
J5
5,300
P2-32A, cont.
SERVICE REVENUE
Account No. 41
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
8,200
Apr. 8
J5
5,400
13,600
Apr. 21
J5
5,700
19,300
SALARIES EXPENSE
Account No. 51
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
5,600
Apr. 28
J5
1,700
7,300
RENT EXPENSE
Account No. 52
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
800
Apr. 27
J5
600
1,400
Requirement 4
SHAWN MERRY, CPA
Trial Balance
April 30, 2018
Acct. No.
Account Title
Balance
Debit
Credit
11
Cash
$ 12,500
12
Accounts Receivable
16,700
13
Office Supplies
1,300
14
Land
30,000
15
Furniture
3,600
16
Automobile
9,500
21
Accounts Payable
22
Unearned Revenue
31
Common Stock
33
Dividends
6,500
41
Service Revenue
51
Salaries Expense
7,300
52
Rent Expense
1,400
Total
2-58
P2-33A Correcting errors in a trial balance
Learning Objective 4
Total Debits $123,250
The trial balance of Beautiful Tots Child Care does not balance.
The following errors are detected:
a. Cash is understated by $1,500.
b. A $4,100 debit to Accounts Receivable was posted as a credit.
c. A $1,400 purchase of office supplies on account was neither journalized nor posted.
d. Equipment was incorrectly transferred from the ledger as $91,500. It should have been transferred as
$83,000.
e. Salaries Expense is overstated by $700.
f. A $300 cash payment for advertising expense was neither journalized nor posted.
g. A $200 cash dividend was incorrectly journalized as $2,000.
h. Service Revenue was understated by $4,100.
i. A 12-month insurance policy was posted as a $1,900 credit to Prepaid Insurance. Cash was posted
correctly.
Prepare the corrected trial balance as of August 31, 2018. Journal entries are not required.
2-59
SOLUTION
BEAUTIFUL TOTS CHILD CARE
Trial Balance
August 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 10,900
Accounts Receivable
14,900
Explanations:
a. Increase Cash by $1,500.
b. Increase Accounts Receivable by $8,200 ($4,100 × 2).
Office Supplies
Prepaid Insurance
Equipment
83,000
Accounts Payable
Notes Payable
Common Stock
Dividends
Service Revenue
Salaries Expense
Rent Expense
Advertising Expense
Total
2-60
P2-34A Preparing financial statements from the trial balance and calculating the debt ratio
Learning Objectives 4, 5
2. Ending Retained Earnings $11,788
The trial balance as of July 31, 2018, for Sara Simon, Registered Dietician, is presented below:
Requirements
1. Prepare the income statement for the month ended July 31, 2018.
2. Prepare the statement of retained earnings for the month ended July 31, 2018. The beginning balance
of retained earnings was $0.
3. Prepare the balance sheet as of July 31, 2018.
4. Calculate the debt ratio as of July 31, 2018.
2-61
SOLUTION
Requirement 1
SARA SIMON, REGISTERED DIETICIAN
Income Statement
Month Ended July 31, 2018
Revenues:
Service Revenue
$ 17,888
Expenses:
Requirement 2
SARA SIMON, REGISTERED DIETICIAN
Statement of Retained Earnings
Month Ended July 31, 2018
Retained Earnings, July 1, 2018
$ 0
Net income for the month
14,588
14,588
Dividends
Retained Earnings, July 31, 2018
Net Income
$ 14,588
P2-34A, cont.
Requirements 3
SARA SIMON, REGISTERED DIETICIAN
Balance Sheet
July 31, 2018
Assets
Liabilities
Cash
$ 38,000
Accounts Payable
$ 3,000
Accounts Receivable
9,000
Unearned Revenue
3,912
Office Supplies
2,300
Notes Payable
Prepaid Insurance
2,400
Total Liabilities
Equipment
Common Stock
Requirement 4
2-63
Problems (Group B)
P2-35B Journalizing transactions, posting journal entries to T-accounts, and preparing a trial
balance
Learning Objectives 3, 4
2. Cash Balance $69,680
Victor Yang practices medicine under the business title Victor Yang, M.D. During March, the medical
practice completed the following transactions:
Mar. 1
Yang contributed $62,000 cash to the business in exchange for common stock.
5
Paid monthly rent on medical equipment, $570.
9
Paid $14,000 cash to purchase land to be used in operations.
10
Purchased office supplies on account, $1,500.
19
Borrowed $27,000 from the bank for business use.
22
Paid $1,400 on account.
28
The business received a bill for advertising in the daily newspaper to be paid in April, $220.
31
Revenues earned during the month included $6,700 cash and $5,800 on account.
31
Paid employees’ salaries $2,100, office rent $1,500, and utilities $350. Record as a compound entry.
31
The business received $1,000 for medical screening services to be performed next month.
31
Paid cash dividends of $7,100.
The business uses the following accounts: Cash; Accounts Receivable; Office Supplies; Land; Accounts
Payable; Advertising Payable; Unearned Revenue; Notes Payable; Common Stock; Dividends; Service
Revenue; Salaries Expense; Rent Expense; Utilities Expense; and Advertising Expense.
Requirements
1. Journalize each transaction. Explanations are not required.
2. Post the journal entries to the T-accounts, using transaction dates as posting references in the ledger
accounts. Label the balance of each account Bal.
3. Prepare the trial balance of Victor Yang, M.D., as of March 31, 2018.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Posting
Ref.
Debit
Credit
Mar. 1
Cash
62,000
Common Stock
62,000
5
Rent Expense
570
Cash
570
9
Land
14,000
Cash
14,000
Office Supplies
Accounts Payable
1,500
Cash
27,000
Notes Payable
27,000
Accounts Payable
Cash
1,400
Advertising Expense
220
Advertising Payable
220
Cash
Accounts Receivable
Service Revenue
12,500
Salaries Expense
Rent Expense
Utilities Expense
350
Cash
3,950
Cash
Unearned Revenue
1,000
Dividends
Cash
7,100
2-65
P2-35B, cont.
Requirement 2
Cash
Accounts Payable
Mar. 1 62,000
570 Mar. 5
Mar. 22 1,400
1,500 Mar. 10
Mar. 19 27,000
14,000 Mar. 9
100 Bal.
Office Supplies
Notes Payable
Mar. 10 1,500
27,000 Mar. 19
Bal. 1,500
27,000 Bal.
Land
Common Stock
Mar. 9 14,000
62,000 Mar. 1
Bal. 14,000
62,000 Bal.
Dividends
Mar. 31 7,100
Bal. 7,100
Service Revenue
12,500 Mar. 31
12,500 Bal.
Salaries Expense
Mar. 31 2,100
Bal. 2,100
Mar. 5 570
Mar. 31 1,500
Bal. 2,070
Utilities Expense
Mar. 31 350
Bal. 350
Mar. 28 220
Bal. 220
Mar. 31 6,700
1,400 Mar. 22
Mar. 31 1,000
3,950 Mar. 31
7,100 Mar. 31
220 Mar. 28
220 Bal.
Accounts Receivable
Mar. 31 5,800
1,000 Mar. 31
Bal. 5,800
1,000 Bal.
P2-35B, cont.
Requirement 3
VICTOR YANG, MD
Trial Balance
March 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 69,680
Accounts Receivable
5,800
Office Supplies
1,500
Land
Accounts Payable
Advertising Payable
Unearned Revenue
Notes Payable
Common Stock
Dividends
7,100
Service Revenue
Salaries Expense
2,100
Rent Expense
2,070
Utilities Expense
Advertising Expense
Total
2-67
P2-36B Journalizing transactions, posting journal entries to T-accounts, and preparing a trial
balance
Learning Objectives 3, 4
4. Total Debits $51,430
Beth Stewart started her practice as a design consultant on November 1, 2018. During the first month of
operations, the business completed the following transactions:
Nov. 1
Received $41,000 cash and issued common stock to Stewart.
4
Purchased office supplies, $1,200, and furniture, $2,300, on account.
6
Performed services for a law firm and received $2,100 cash.
7
Paid $27,000 cash to acquire land to be used in operations.
10
Performed services for a hotel and received its promise to pay the $800 within one week.
14
Paid for the furniture purchased on November 4 on account.
15
Paid assistant’s semimonthly salary, $1,470.
17
Received cash on account, $500.
20
Prepared a design for a school on account, $680.
25
Received $1,900 cash for design services to be performed in December.
28
Received $3,100 cash for consulting with Plummer & Gordon.
29
Paid $840 cash for a 12-month insurance policy starting on December 1.
30
Paid assistant’s semimonthly salary, $1,470.
30
Paid monthly rent expense, $650.
30
Received a bill for utilities, $650. The bill will be paid next month.
30
Paid cash dividends of $2,800.
Requirements
1. Record each transaction in the journal using the following account titles: Cash; Accounts
Receivable; Office Supplies; Prepaid Insurance; Land; Furniture; Accounts Payable; Utilities
Payable; Unearned Revenue; Common Stock; Dividends; Service Revenue; Salaries Expense; Rent
Expense; and Utilities Expense. Explanations are not required.
2. Open a T-account for each of the accounts.
3. Post the journal entries to the T-accounts, using transaction dates as posting references in the ledger
accounts. Label the balance of each account Bal.
4. Prepare the trial balance of Beth Stewart, Designer, as of November 30, 2018.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Posting
Ref.
Debit
Credit
Nov. 1
Cash
41,000
Common Stock
41,000
Office Supplies
1,200
Furniture
2,300
Accounts Payable
3,500
Cash
2,100
Service Revenue
2,100
Land
27,000
Cash
27,000
10
Accounts Receivable
800
Service Revenue
800
14
Accounts Payable
2,300
Cash
2,300
15
Salaries Expense
1,470
Cash
1,470
17
Cash
500
Accounts Receivable
500
20
Accounts Receivable
680
Service Revenue
680
25
Cash
1,900
Unearned Revenue
1,900
28
Cash
3,100
Service Revenue
3,100
29
Prepaid Insurance
840
Cash
840
30
Salaries Expense
1,470
Cash
1,470
30
Rent Expense
650
Cash
650
2-69
P2-36B, cont.
Requirements 2 and 3
Cash
Accounts Payable
Nov. 1 41,000
27,000 Nov. 7
Nov. 14 2,300
3,500 Nov. 4
Nov. 6 2,100
2,300 Nov. 14
1,200 Bal.
Nov. 17 500
1,470 Nov. 15
Nov. 25 1,900
840 Nov. 29
Nov. 28 3,100
1,470 Nov. 30
650 Nov. 30
650 Nov. 30
2,800 Nov. 30
650 Bal.
Bal. 12,070
Accounts Receivable
Nov. 10 800
500 Nov. 17
1,900 Nov. 25
Nov. 20 680
1,900 Bal.
Office Supplies
Common Stock
Nov. 4 1,200
41,000 Nov. 1
Bal. 1,200
41,000 Bal.
Nov. 29 840
Nov. 30 2,800
Bal. 2,800
Service Revenue
Nov. 7 27,000
2,100 Nov. 6
800 Nov. 10
680 Nov. 20
3,100 Nov. 28
6,680 Bal.
Salaries Expense
Nov. 15 1,470
Nov. 30 1,470
Bal. 2,940
Utilities Expense
Dividends
2,800
P2-36B, cont.
Rent Expense
Nov. 30 650
Utilities Expense
Nov. 30 650
Requirement 4
BETH STEWART, DESIGNER
Trial Balance
November 30, 2018
Account Title
Balance
Debit
Credit
Cash
$ 12,070
Accounts Receivable
980
Office Supplies
1,200
Prepaid Insurance
840
Furniture
2,300
Accounts Payable
Utilities Payable
Unearned Revenue
Common Stock
Dividends
2,800
Service Revenue
Salaries Expense
2,940
Rent Expense
Utilities Expense
Total
2-71
P2-37B Journalizing transactions, posting journal entries to four-column accounts, and preparing
a trial balance
Learning Objectives 3, 4
3. Service Revenue Balance $6,800
Theodore McMahon opened a law office on April 1, 2018. During the first month of operations, the
business completed the following transactions:
Apr. 1
McMahon contributed $70,000 cash to the business, Theodore McMahon,
Attorney. The business issued common stock to McMahon.
3
Purchased office supplies, $1,100, and furniture, $1,300, on account.
4
Performed legal services for a client and received $2,000 cash.
7
Purchased a building with a market value of $150,000, and land with a
market value of $30,000. The business paid $40,000 cash and signed a
note payable to the bank for the remaining amount.
11
Prepared legal documents for a client on account, $400.
15
Paid assistant’s semimonthly salary, $1,200.
16
Paid for the office supplies purchased on April 3 on account.
18
Received $2,700 cash for helping a client sell real estate.
19
Defended a client in court and billed the client for $1,700.
25
Received a bill for utilities, $650. The bill will be paid next month.
28
Received cash on account, $1,100.
29
Paid $3,600 cash for a 12-month insurance policy starting on May 1.
29
Paid assistant’s semimonthly salary, $1,200.
30
Paid monthly rent expense, $2,100.
30
Paid cash dividends of $3,200.
Requirements
1. Record each transaction in the journal, using the following account titles: Cash; Accounts
Receivable; Office Supplies; Prepaid Insurance; Land; Building; Furniture; Accounts Payable;
Utilities Payable; Notes Payable; Common Stock; Dividends; Service Revenue; Salaries Expense;
Rent Expense; and Utilities Expense. Explanations are not required.
2. Open the following four-column accounts including account numbers: Cash, 101; Accounts
Receivable, 111; Office Supplies, 121; Prepaid Insurance, 131; Land, 141; Building, 151; Furniture,
161; Accounts Payable, 201; Utilities Payable, 211; Notes Payable, 221; Common Stock, 301;
Dividends, 311; Service Revenue, 411; Salaries Expense, 511; Rent Expense, 521; and Utilities
Expense, 531.
3. Post the journal entries to four-column accounts in the ledger, using dates, account numbers, journal
references, and posting references. Assume the journal entries were recorded on page 1 of the
journal.
4. Prepare the trial balance of Theodore McMahon, Attorney, at April 30, 2018.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Posting
Ref.
Debit
Credit
Apr. 1
Cash
101
70,000
Common Stock
301
70,000
3
Office Supplies
121
1,100
Furniture
161
1,300
Accounts Payable
201
2,400
4
Cash
101
2,000
Service Revenue
411
2,000
7
Building
151
Land
141
30,000
Cash
101
40,000
Notes Payable
221
Accounts Receivable
111
Service Revenue
411
Salaries Expense
511
1,200
Cash
101
1,200
Accounts Payable
201
1,100
Cash
101
1,100
Cash
101
2,700
Service Revenue
411
2,700
Accounts Receivable
111
1,700
Service Revenue
411
1,700
Utilities Expense
531
Utilities Payable
211
Cash
101
1,100
Accounts Receivable
111
1,100
Prepaid Insurance
131
3,600
Cash
101
3,600
Salaries Expense
511
1,200
Cash
101
1,200
2-73
P2-37B, cont.
Requirements 2 and 3
CASH
Account No. 101
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 1
J1
70,000
70,000
Apr. 4
J1
2,000
72,000
Apr. 7
J1
40,000
32,000
Apr. 15
J1
30,800
Apr. 16
J1
29,700
Apr. 18
J1
2,700
32,400
Apr. 28
J1
1,100
33,500
Apr. 29
J1
29,900
Apr. 29
J1
28,700
Apr. 30
J1
26,600
Apr. 30
J1
23,400
ACCOUNTS RECEIVABLE
Account No. 111
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 11
J1
400
400
Apr. 19
J1
Apr. 28
J1
OFFICE SUPPLIES
Account No. 121
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 3
J1
PREPAID INSURANCE
Account No. 131
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 29
J1
Rent Expense
521
101
2,100
Dividends
311
101
3,200
P2-37B, cont.
LAND
Account No. 141
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 7
J1
30,000
30,000
BUILDING
Account No. 151
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 7
J1
150,000
150,000
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 3
J1
1,300
ACCOUNTS PAYABLE
Account No. 201
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 3
J1
2,400
2,400
Apr. 16
J1
1,100
1,300
UTILITIES PAYABLE
Account No. 211
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 25
J1
NOTES PAYABLE
Account No. 221
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 7
J1
140,000
COMMON STOCK
Date
Item
Post Ref.
Debit
Credit
Debit
Apr. 1
J1
2-75
P2-37B, cont.
DIVIDENDS
Account No. 311
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 30
J1
3,200
3,200
RENT EXPENSE
Account No. 521
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 30
J1
2,100
2,100
UTILITIES EXPENSE
Account No. 531
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 25
J1
SERVICE REVENUE
Account No. 411
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 4
J1
2,000
2,000
Apr. 11
J1
2,400
Apr. 18
J1
2,700
5,100
Apr. 19
J1
1,700
6,800
SALARIES EXPENSE
Account No. 511
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 15
J1
1,200
1,200
Apr. 29
J1
1,200
2,400
P2-37B, cont.
Requirement 4
THEODORE MCMAHON, ATTORNEY
Trial Balance
April 30, 2018
Account Title
Balance
Debit
Credit
Cash
$ 23,400
Accounts Receivable
1,000
Office Supplies
1,100
Prepaid Insurance
3,600
Land
Building
Furniture
1,300
Accounts Payable
Utilities Payable
Notes Payable
Common Stock
Dividends
3,200
Service Revenue
Salaries Expense
2,400
Rent Expense
2,100
Utilities Expense
Total
2-77
P2-38B Journalizing transactions, posting journal entries to four-column accounts, and preparing
a trial balance
Learning Objectives 3, 4
3. Cash Balance $20,250
The trial balance of John Menning, CPA, is dated March 31, 2018:
During April, the business completed the following transactions:
Apr. 4
Collected $6,000 cash from a client on account.
8
Performed tax services for a client on account, $5,500.
13
Paid $3,300 on account.
14
Purchased furniture on account, $4,000.
15
Menning contributed his personal automobile to the business in exchange for
common stock. The automobile had a market value of $11,500.
18
Purchased office supplies on account, $1,600.
19
Received $2,750 for tax services performed on April 8.
20
Paid cash dividends of $7,500.
21
Received $4,900 cash for consulting work completed.
24
Received $2,500 cash for accounting services to be completed next month.
27
Paid office rent, $900.
28
Paid employee salary, $1,200.
Requirements
1. Record the April transactions in the journal using the following accounts: Cash; Accounts
Receivable; Office Supplies; Land; Furniture; Automobile; Accounts Payable; Unearned Revenue;
Common Stock; Dividends; Service Revenue; Salaries Expense; and Rent Expense. Include an
explanation for each entry.
2. Open the four-column ledger accounts listed in the trial balance, together with their balances as
of March 31. Use the following account numbers: Cash, 11; Accounts Receivable, 12; Office Supplies,
13; Land, 14; Furniture, 15; Automobile, 16; Accounts Payable, 21; Unearned Revenue, 22; Common
Stock, 31; Dividends, 33; Service Revenue, 41; Salaries Expense, 51; and Rent Expense, 52.
3. Post the journal entries to four-column accounts in the ledger, using dates, account numbers,
journal references, and posting references. Assume the journal entries were recorded on page 5 of the
journal.
4. Prepare the trial balance of John Menning, CPA, at April 30, 2018.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Posting
Ref.
Debit
Credit
Apr. 4
Cash
11
6,000
Accounts Receivable
12
6,000
Received cash from client on account.
Accounts Receivable
12
5,500
account.
Accounts Payable
21
3,300
Cash
11
3,300
Paid cash on account.
Furniture
15
4,000
Accounts Payable
21
4,000
Purchased furniture on account.
Automobile
16
Office Supplies
13
1,600
Accounts Payable
21
1,600
Purchased office supplies on account.
2-79
P2-38B, cont.
Apr. 19
Cash
11
2,750
Accounts Receivable
12
2,750
Received cash on account.
20
Dividends
33
7,500
Cash
11
900
Paid office rent.
28
Salaries Expense
51
1,200
Cash
11
1,200
Paid employee salary.
Requirements 2 and 3
CASH
Account No. 11
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
17,000
Apr. 4
J5
6,000
23,000
Apr. 13
J5
3,300
19,700
Apr. 19
J5
2,750
22,450
Apr. 20
J5
7,500
14,950
Apr. 21
J5
4,900
19,850
Apr. 24
J5
2,500
22,350
Apr. 27
J5
21,450
Apr. 28
J5
1,200
20,250
Cash
11
7,500
Paid cash dividends to stockholders.
21
Cash
11
4,900
Service Revenue
41
4,900
Received cash for consulting work.
24
Cash
11
2,500
Unearned Revenue
22
2,500
Rent Expense
52
900
P2-38B, cont.
ACCOUNTS RECEIVABLE
Account No. 12
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
10,500
Apr. 4
J5
Apr. 8
J5
10,000
Apr. 19
J5
OFFICE SUPPLIES
Account No. 13
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 18
J5
LAND
Account No. 14
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
FURNITURE
Account No. 15
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 14
J5
4,000
4,000
AUTOMOBILE
Account No. 16
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
ACCOUNTS PAYABLE
Account No. 21
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
Apr. 13
J5
500
Apr. 14
J5
Apr. 18
J5
2-81
P2-38B, cont.
UNEARNED REVENUE
Account No. 22
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 24
J5
2,500
2,500
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
11,200
Apr. 8
J5
5,500
16,700
Apr. 21
J5
4,900
21,600
SALARIES EXPENSE
Account No. 51
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
Apr. 28
J5
1,200
RENT EXPENSE
Account No. 52
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
Apr. 27
J5
COMMON STOCK
Account No. 31
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Mar. 31
Balance
46,200
Apr. 15
J5
57,700
DIVIDENDS
Account No. 33
Date
Item
Post Ref.
Debit
Credit
Balance
Debit
Credit
Apr. 20
J5
7,500
SERVICE REVENUE
Account No. 41
P2-38B, cont.
Requirement 4
JOHN MENNING, CPA
Trial Balance
April 30, 2018
Acct. No.
Account Title
Balance
Debit
Credit
11
Cash
$ 20,250
12
Accounts Receivable
7,250
13
Office Supplies
2,800
14
Land
15
Furniture
4,000
16
Automobile
21
Accounts Payable
22
Unearned Revenue
31
Common Stock
33
Dividends
7,500
41
Service Revenue
51
Salaries Expense
3,700
52
Rent Expense
1,900
Total
2-83
P2-39B Correcting errors in a trial balance
Learning Objective 4
Total Debits $123,300
The trial balance of Love to Learn Child Care does not balance.
The following errors are detected:
a. Cash is understated by $1,800.
b. A $3,800 debit to Accounts Receivable was posted as a credit.
c. A $1,000 purchase of office supplies on account was neither journalized nor posted.
d. Equipment was incorrectly transferred from the ledger as $90,400. It should have been transferred as
$82,500.
e. Salaries Expense is overstated by $350.
f. A $300 cash payment for advertising expense was neither journalized nor posted.
g. A $160 cash dividend was incorrectly journalized as $1,600.
h. Service Revenue was understated by $4,000.
i. A 12-month insurance policy was posted as a $1,400 credit to Prepaid Insurance. Cash was posted
correctly.
Prepare the corrected trial balance as of May 31, 2018. Journal entries are not required.
2-84
SOLUTION
LOVE TO LEARN CHILD CARE
Trial Balance
May 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 11,000
Accounts Receivable
16,300
Explanations:
a. Increase Cash by $1,800.
b. Increase Accounts Receivable by $7,600 ($3,800 × 2).
c. Increase Office Supplies and Accounts Payable by $1,000 each.
Office Supplies
Prepaid Insurance
Equipment
82,500
Accounts Payable
Notes Payable
Common Stock
Dividends
Service Revenue
Salaries Expense
Rent Expense
Advertising Expense
Total
2-85
P2-40B Preparing financial statements from the trial balance and calculating the debt ratio
Learning Objectives 4, 5
1. Net Income $13,404
The trial balance as of July 31, 2018, for Sheila Sanchez, Registered Dietician, is presented below:
Requirements
1. Prepare the income statement for the month ended July 31, 2018.
2. Prepare the statement of retained earnings for the month ended July 31, 2018. The beginning balance
of retained earnings was $0.
3. Prepare the balance sheet as of July 31, 2018.
4. Calculate the debt ratio as of July 31, 2018.
2-86
SOLUTION
Requirement 1
SHEILA SANCHEZ, REGISTERED DIETICIAN
Income Statement
Month Ended July 31, 2018
Revenues:
Service Revenue
$ 15,804
Expenses:
Requirement 2
SHEILA SANCHEZ, REGISTERED DIETICIAN
Statement of Retained Earnings
Month Ended July 31, 2018
Retained Earnings, July 1, 2018
$ 0
Net income for the month
13,404
Dividends
Retained Earnings, July 31, 2018
2,400
Net Income
$ 13,404
2-87
P2-40B, cont.
Requirement 3
SHEILA SANCHEZ, REGISTERED DIETICIAN
Balance Sheet
July 31, 2018
Assets
Liabilities
Cash
$ 32,000
Accounts Payable
$ 3,400
Accounts Receivable
9,100
Unearned Revenue
1,296
Requirement 4
Using Excel
P2-41 Using Excel to journalize and post transactions, and to create financial statements
Redmond Corporation started operations on April 1, 2018. Seventeen transactions occurred during April.
Financial statements are prepared at the end of the month.
Requirements
1. Use Excel to record the transactions for April. Use the blue shaded areas for inputs.
a. To record the account name in the journal, click in the Account and Explanation column. A drop
down arrow will appear to the right. Click the arrow and select an account from the chart of
accounts. Use the explanation to help you with the entry.
Office Supplies
1,400
Notes Payable
Prepaid Insurance
2,600
Total Liabilities
$ 38,696
Equipment
Common Stock
Retained Earnings
b. Indent the account name of the account to be credited using the indent button on the Home tab.
Click the Increase Indent button twice.
2. Post the transactions to T-Accounts. Use the blue shaded areas for inputs.
a. For each transaction, post the amount on the correct side of the T-Account. The T-account totals
will be calculated automatically.
b. Total debits should equal total credits. The debit-credit balance check appears in the top right-
hand corner of the T-Account worksheet.
3. Prepare the income statement, statement of retained earnings, and balance sheet for the company
using the trial balance. Each financial statement appears on a separate worksheet tab.
a. Fill in the blue shaded areas using a formula that references the account balances in the trial
balance at the end of the month.
b. Format the cells requiring dollar signs. Number formatting is located on the Home tab.
c. Format the cells requiring a single underline and cells requiring double underlines. The borders
tool is found on the Home tab. It looks like a window pane. Click the down arrow for different
border selections.
SOLUTION
The student templates for Using Excel are available online in MyAccountingLab in the Multimedia
2-89
Continuing Problem
P2-42 Journalizing transactions, posting to T-accounts, and preparing a trial balance
Problem P2-42 continues with the company introduced in Chapter 1, Canyon Canoe Company. Here you
will account for Canyon Canoe Company’s transactions as it is actually done in practice. Begin by
reviewing the transactions from Chapter 1. The transactions have been reprinted below.
Nov. 1
Received $16,000 cash to begin the company and issued common stock to Amber and
Zach.
2
Signed a lease for a building and paid $1,200 for the first month’s rent.
3
Purchased canoes for $4,800 on account.
4
Purchased office supplies on account, $750.
7
Earned $1,400 cash for rental of canoes.
13
Paid $1,500 cash for wages.
15
Paid $50 dividends to stockholders.
16
Received a bill for $150 for utilities. (Use separate payable account.)
20
Received a bill for $175 for cell phone expenses. (Use separate payable account.)
22
Rented canoes to Early Start Daycare on account, $3,000.
26
Paid $1,000 on account related to the November 3 purchase.
28
Received $750 from Early Start Daycare for canoe rental on November 22.
30
Paid $100 dividends to stockholders.
In addition, Canyon Canoe Company completed the following transactions for December.
Dec. 1
Amber and Zack contributed land on the river (worth $85,000) and a small building to use
as a rental office (worth $35,000) in exchange for common stock.
1
Prepaid $3,000 for three months’ rent on the warehouse where the company stores the
canoes.
2
Purchased canoes signing a note payable for $7,200
4
Purchased office supplies on account for $500.
9
Received $4,500 cash for canoe rentals to customers.
15
Rented canoes to customers for $3,500, but will be paid next month.
16
Received a $750 deposit from a canoe rental group that will use the canoes next month.
18
Paid the utilities and telephone bills from last month.
19
Paid various accounts payable, $2,000.
20
Received bills for the telephone ($325) and utilities ($295) which will be paid later.
31
Paid wages of $1,800.
31
Paid cash dividend to stockholders, $300.
Requirements
1. Journalize the transactions for both November and December, using the following accounts: Cash;
Accounts Receivable; Office Supplies; Prepaid Rent; Land; Building; Canoes; Accounts Payable;
Utilities Payable; Telephone Payable; Unearned Revenue; Notes Payable; Common Stock;
Dividends; Canoe Rental Revenue; Rent Expense; Utilities Expense; Wages Expense; and
Telephone Expense. Explanations are not required. (Hint: For November transactions, refer to your
answer for Chapter 1.)
2. Open a T-account for each of the accounts.
3. Post the journal entries to the T-accounts, and calculate account balances. Formal posting references
are not required.
4. Prepare a trial balance as of December 31, 2018.
5. Prepare the income statement of Canyon Canoe Company for the two months ended December 31,
2018.
6. Prepare the statement of retained earnings for the two months ended December 31, 2018.
7. Prepare the balance sheet as of December 31, 2018.
8. Calculate the debt ratio for Canyon Canoe Company at December 31, 2018.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Posting
Ref.
Debit
Credit
Nov. 1
Cash
16,000
Common Stock
16,000
2
Rent Expense
1,200
Cash
1,200
3
Canoes
4,800
Accounts Payable
4,800
4
Office Supplies
Accounts Payable
7
Cash
1,400
Canoe Rental Revenue
1,400
Wages Expense
1,500
Cash
1,500
Dividends
Cash
Utilities Expense
Utilities Payable
Telephone Expense
Telephone Payable
Accounts Receivable
3,000
Canoe Rental Revenue
3,000
P2-42, cont.
Requirement 1, cont.
Nov. 26
Accounts Payable
1,000
Cash
1,000
28
Cash
750
Accounts Receivable
750
30
Dividends
100
Cash
100
Land
Building
Common Stock
1
Prepaid Rent
3,000
Cash
3,000
2
Canoes
7,200
Notes Payable
7,200
4
Office Supplies
500
Accounts Payable
500
9
Cash
4,500
Canoe Rental Revenue
4,500
15
Accounts Receivable
3,500
Canoe Rental Revenue
3,500
16
Cash
750
Unearned Revenue
750
18
Utilities Payable
150
Telephone Payable
175
Cash
325
19
Accounts Payable
2,000
Cash
2,000
20
Telephone Expense
325
Utilities Expense
295
Telephone Payable
325
Utilities Payable
295
31
Wages Expense
1,800
Cash
1,800
31
Dividends
300
Cash
300
2-92
P2-42, cont.
Requirements 2 and 3
Cash
Accounts Payable
Nov. 1 16,000
1,200 Nov. 2
Nov. 26 1,000
4,800 Nov. 3
Nov. 7 1,400
1,500 Nov. 13
Dec. 19 2,000
750 Nov. 4
Accounts Receivable
Utilities Payable
Nov. 22 3,000
750 Nov. 28
Dec. 18 150
150 Nov. 16
Dec. 15 3,500
295 Dec. 20
Balance 5,750
295 Balance
Office Supplies
Telephone Payable
Nov. 4 750
Dec. 18 175
175 Nov. 20
Dec. 4 500
325 Dec. 20
Balance 1,250
325 Balance
Unearned Revenue
Dec. 1 3,000
750 Dec. 16
Balance 3,000
750 Balance
Dec. 1 85,000
7,200 Dec. 2
Balance 85,000
7,200 Balance
Dec. 1 35,000
16,000 Nov. 1
Balance 35,000
120,000 Dec. 1
136,000 Balance
Canoes
Dividends
Nov. 3 4,800
Nov. 15 50
Dec. 2 7,200
Nov. 30 100
Balance 12,000
Balance 450
Nov. 28 750
50 Nov. 15
500 Dec. 4
Dec. 9 4,500
1,000 Nov. 26
3,050 Balance
Dec. 16 750
100 Nov. 30
3,000 Dec. 1
325 Dec. 18
2,000 Dec. 19
1,800 Dec. 31
300 Dec. 31
Balance 12,125
P2-42, cont.
Requirements 2 and 3, cont.
Canoe Rental Revenue
1,400 Nov. 7
3,000 Nov. 22
4,500 Dec. 9
3,500 Dec. 15
12,400 Balance
Dec. 31 1,800
Dec. 20 295
2-94
P2-42, cont.
Requirement 4
CANYON CANOE COMPANY
Trial Balance
December 31, 2018
Utilities Payable
295
Telephone Payable
325
Unearned Revenue
750
Notes Payable
7,200
Common Stock
136,000
Dividends
Canoe Rental Revenue
Rent Expense
Wages Expense
Utilities Expense
Telephone Expense
Total
Requirement 5
CANYON CANOE COMPANY
Income Statement
Two Months Ended December 31, 2018
Revenues:
Canoe Rental Revenue
$ 12,400
Expenses:
Wages Expense
$ 3,300
Rent Expense
Telephone Expense
Utilities Expense
Net Income
Cash
Accounts Receivable
Office Supplies
Prepaid Rent
Land
Building
Canoes
Accounts Payable
P2-42, cont.
Requirement 6
CANYON CANOE COMPANY
Statement of Retained Earnings
Two Months Ended December 31, 2018
Retained Earnings, November 1, 2018
$ 0
Net income for the month
6,955
Dividends
Retained Earnings, December 31, 2018
Requirement 7
CANYON CANOE COMPANY
Balance Sheet
December 31, 2018
Assets
Liabilities
Cash
$ 12,125
Accounts Payable
$ 3,050
Accounts Receivable
5,750
Utilities Payable
295
Office Supplies
1,250
Telephone Payable
325
Prepaid Rent
3,000
Unearned Revenue
750
Land
Notes Payable
7,200
Building
Total Liabilities
11,620
Canoes
Common Stock
Retained Earnings
6,505
Requirement 8
Debt ratio = Total liabilities / Total assets = $11,620 / $154,125 = 0.075* = 7.5%
* rounded
2-96
Practice Set
P2-43 Journalizing transactions, posting to T-accounts, and preparing a trial balance
Consider the following transactional data for the first month of operations for Crystal Clear Cleaning.
Nov. 1
Stockholders contributed $15,000 and a truck, with a market value of $3,000, to the
business in exchange for common stock.
2
The business paid $4,000 to Pleasant Properties for November through February
rent. (Debit Prepaid Rent)
3
Paid $4,800 for a business insurance policy for the term November 1, 2018 through
October 31, 2019. (Debit Prepaid Insurance)
4
Purchased cleaning supplies on account, $320.
5
Purchased on account an industrial vacuum cleaner costing $1,500. The invoice is
payable November 25.
7
Paid $3,900 for a computer and printer.
9
Performed cleaning services on account in the amount of $4,700.
10
Received $200 for services rendered on November 9.
15
Paid employees, $400.
16
Received $15,000 for a 1-year contract beginning November 16 for cleaning services
to be provided. Contract begins November 16, 2018, and ends November 15, 2019.
(Credit Unearned Revenue)
17
Provided cleaning services and received $400 cash.
18
Received a utility bill for $175 with a due date of December 4, 2018. (Use Accounts
Payable)
20
Borrowed $36,000 from bank with interest rate of 6% per year.
21
Received $500 on account for services performed on November 9.
25
Paid $750 on account for vacuum cleaner purchased on November 5.
29
Paid $200 for advertising.
30
Cash dividends of $1,400 were paid to stockholders.
Requirements
1. Journalize the transactions, using the following accounts: Cash; Accounts Receivable; Cleaning
Supplies; Prepaid Rent; Prepaid Insurance; Equipment; Truck; Accounts Payable; Unearned
Revenue; Notes Payable; Common Stock; Dividends; Service Revenue; Salaries Expense;
Advertising Expense; and Utilities Expense. Explanations are not required.
2. Open a T-account for each account.
3. Post the journal entries to the T-accounts, and calculate account balances.
4. Prepare a trial balance as of November 30, 2018.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Posting
Ref.
Debit
Credit
Nov. 1
Cash
15,000
Truck
3,000
Common Stock
18,000
Prepaid Rent
4,000
Cash
4,000
Prepaid Insurance
4,800
Cash
4,800
Cleaning Supplies
Accounts Payable
Equipment
1,500
Accounts Payable
1,500
Equipment
3,900
Cash
3,900
Accounts Receivable
4,700
Service Revenue
4,700
Cash
Accounts Receivable
Salaries Expense
Cash
Cash
15,000
Unearned Revenue
15,000
Cash
Service Revenue
Utilities Expense
Accounts Payable
Cash
36,000
Notes Payable
36,000
2-98
P2-43, cont.
Nov. 21
Cash
500
Accounts Receivable
500
Requirements 2 and 3
Cash
Accounts Payable
Nov. 1 15,000
4,000 Nov. 2
Nov. 25 750
320 Nov. 4
Nov. 10 200
4,800 Nov. 3
1,500 Nov. 5
Nov. 16 15,000
3,900 Nov. 7
175 Nov. 18
Nov. 17 400
400 Nov. 15
1,245 Balance
Nov. 20 36,000
750 Nov. 25
200 Nov. 29
1,400 Nov. 30
Balance 51,650
Accounts Receivable
Unearned Revenue
Nov. 9 4,700
200 Nov. 10
15,000 Nov. 16
500 Nov. 21
15,000 Balance
Balance 4,000
Nov. 4 320
36,000 Nov. 20
Balance 320
36,000 Balance
18,000 Nov. 1
18,000 Balance
Accounts Payable
750
Cash
750
Advertising Expense
200
Cash
200
Dividends
Cash
P2-43, cont.
Requirements 2 and 3
Equipment
Service Revenue
Nov. 5 1,500
4,700 Nov. 9
Nov. 7 3,900
400 Nov. 17
5,100 Balance
Salaries Expense
Nov. 1 3,000
Balance 3,000
Utilities Expense
Requirement 4
CRYSTAL CLEAR CLEANING
Trial Balance
November 30, 2018
Account Title
Balance
Cash
Accounts Receivable
4,000
Cleaning Supplies
320
Prepaid Rent
4,000
Prepaid Insurance
4,800
Equipment
5,400
Truck
3,000
Accounts Payable
Unearned Revenue
15,000
Notes Payable
36,000
Common Stock
18,000
Dividends
1,400
Service Revenue
5,100
Salaries Expense
400
Advertising Expense
200
Utilities Expense
175
Total
2-100
Critical Thinking
Tying It All Together Case 2-1
Before you begin this assignment, review the Tying It All Together feature in the chapter.
Part of the Fry’s Electronics, Inc.’s experience involves providing technical support to its customers.
This includes in-home installations of electronics and also computer support at their retail store locations.
Requirements
1. Suppose Fry’s Electronics, Inc. provides $10,500 of computer support at the Dallas-Fort Worth store
during the month of November. How would Fry’s Electronics record this transaction? Assume all
customers paid in cash. What financial statement(s) would this transaction affect?
2. Assume Fry’s Electronics, Inc.’s Modesto, California, location received $24,000 for an annual
contract to provide computer support to the local city government. How would Fry’s Electronics
record this transaction? What financial statement(s) would this transaction affect?
3. What is the difference in how revenue is recorded in requirements 1 and 2? Clearly state when
revenue is recorded in each requirement.
SOLUTION
Requirement 1
Fry’s Electronics would record the following journal entry:
Date
Accounts and Explanation
Debit
Credit
Cash
10,500
Requirement 2
Fry’s Electronics would record the following journal entry:
Date
Accounts and Explanation
Debit
Credit
Cash
24,000
Requirement 3
In requirement 1, Fry’s Electronics recorded revenue because the company had received the cash from
Decision Case 2-1
2-101
Your friend, Dean McChesney, requested that you advise him on the effects that certain transactions will
have on his business, A-Plus Travel Planners. Time is short, so you cannot journalize the transactions.
Instead, you must analyze the transactions without a journal. McChesney will continue the business only
if he can expect to earn a monthly net income of $6,000. The business completed the following
transactions during June:
a. McChesney deposited $10,000 cash in a business bank account to start the company. The company
issued common stock to McChesney.
b. Paid $300 cash for office supplies.
c. Incurred advertising expense on account, $700.
d. Paid the following cash expenses: administrative assistant’s salary, $1,400; office rent, $1,000.
e. Earned service revenue on account, $8,800.
f. Collected cash from customers on account, $1,200.
Requirements
1. Open the following T-accounts: Cash; Accounts Receivable; Office Supplies; Accounts Payable;
Common Stock; Service Revenue; Salaries Expense; Rent Expense; and Advertising Expense.
2. Post the transactions directly to the accounts without using a journal. Record each transaction by
letter. Calculate account balances.
3. Prepare a trial balance at June 30, 2018.
4. Compute the amount of net income or net loss for this first month of operations. Would you
recommend that McChesney continue in business?
SOLUTION
Requirements 1 and 2
Cash
Accounts Payable
a. 10,000
300 b.
700 c.
2,400 d.
700 Bal.
Accounts Receivable
1,200 f.
10,000 a.
8,800 e.
8,800 Bal.
2-102
Requirement 3
A-PLUS TRAVEL PLANNERS
Trial Balance
June 30, 2018
Account Title
Balance
Debit
Credit
Cash
$ 8,500
Accounts Receivable
7,600
Office Supplies
Accounts Payable
Common Stock
Service Revenue
Salaries Expense
1,400
Rent Expense
1,000
Advertising Expense
Total
Requirement 4
Revenues:
Service Revenue
$ 8,800
Expenses:
$ 1,400
Net Income
$ 5,700
2-103
Ethical Issue 2-1
Better Days Ahead, a charitable organization, has a standing agreement with First National Bank. The
agreement allows Better Days Ahead to overdraw its cash balance at the bank when donations are
running low. In the past, Better Days Ahead managed funds wisely and rarely used this privilege. Jacob
Henson has recently become the president of Better Days Ahead. To expand operations, Henson
acquired office equipment and spent large amounts on fundraising. During Henson’s presidency, Better
Days Ahead has maintained a negative bank balance of approximately $10,000.
What is the ethical issue in this situation, if any? State why you approve or disapprove of Henson’s
management of Better Days Ahead’s funds.
SOLUTION
The bank has a standing agreement with Better Days Ahead for overdrafts, so as long as transactions are
compliant with terms of the agreement, there is no ethical issue. The exercise refers to Better Days
Ahead managing funds “wisely.” However, whether funds are managed wisely or not is a matter of
Fraud Case 2-1
Roy Akins was the accounting manager at Zelco, a tire manufacturer, and he played golf with Hugh
Stallings, the CEO, who was something of a celebrity in the community. The CEO stood to earn a
substantial bonus if Zelco increased net income by year-end. Roy was eager to get into Hugh’s elite
social circle; he boasted to Hugh that he knew some accounting tricks that could increase company
income by simply revising a few journal entries for rental payments on storage units. At the end of the
year, Roy changed the debits from “rent expense” to “prepaid rent” on several entries. Later, Hugh got
his bonus, and the deviations were never discovered.
Requirements
1. How did the change in the journal entries affect the net income of the company at year-end?
2. Who gained and who lost as a result of these actions?
SOLUTION
2-104
Requirement 2
Financial Statement Case 2-1
Refer to http://www.pearsonhighered.com/Horngren to view a link to Target Corporation’s Fiscal 2015
Annual Report.
Requirements
1. Calculate the debt ratio for Target Corporation as of January 30, 2016.
2. How did the debt ratio for Target Corporation compare to the debt ratio for Kohl’s Corporation? Discuss.
SOLUTION
Requirement 1
Debt ratio = Total liabilities / Total assets
Communication Activity 2-1
In 35 words or fewer, explain the difference between a debit and a credit, and explain what the normal
balance of the six account types is.
SOLUTION