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1. An account is a form designed to record changes in a particular asset, liability, owner’s equity,
revenue, or expense. A ledger is a group of related accounts.
2. The terms debit and credit may signify either an increase or a decrease, depending upon the nature
of the account. For example, debits signify an increase in asset and expense accounts but a decrease
in liability, owner’s capital, and revenue accounts.
3. a. Assuming no errors have occurred, the credit balance in the cash account resulted from drawing
checks for $1,850 in excess of the amount of cash on deposit.
b. The $1,850 credit balance in the cash account as of December 31 is a liability owed to the bank.
It is usually referred to as an “overdraft” and should be classified on the balance sheet as a
liability.
4. a. The revenue was earned in October.
b. (1) Debit Accounts Receivable and credit Fees Earned or another appropriately titled revenue
account in October.
(2) Debit Cash and credit Accounts Receivable in November.
5. No. Errors may have been made that had the same erroneous effect on both debits and credits, such
as failure to record and/or post a transaction, recording the same transaction more than once, and
p
osting a transaction correctly but to the wrong account.
6. The listing of $9,800 is a transposition; the listing of $100 is a slide.
7. a. No. Because the same error occurred on both the debit side and the credit side of the trial
b
alance, the trial balance would not be out of balance.
b. Yes. The trial balance would not balance. The error would cause the debit total of the trial
b
alance to exceed the credit total by $90.
8. a. The equality of the trial balance would not be affected.
b. On the income statement, total operating expenses (salary expense) would be overstated by
$7,500, and net income would be understated by $7,500. On the statement of owner’s equity,
the beginning and ending capital would be correct. However, net income and withdrawals
would be understated by $7,500. These understatements offset one another, and thus, ending
owner’s equity is correct. The balance sheet is not affected by the error.
9. a. The equality of the trial balance would not be affected.
b. On the income statement, revenues (fees earned) would be overstated by $300,000, and net
income would be overstated by $300,000. On the statement of owner’s equity, the beginning
capital would be correct. However, net income and ending capital would be overstated by
$300,000. The balance sheet total assets is correct. However, liabilities (notes payable) is
understated by $300,000, and owner’s equity is overstated by $300,000. The understatement
of liabilities is offset by the overstatement of owner’s equity, and thus, total liabilities and
owner’s equity is correct.
10. a. From the viewpoint of Surety Storage, the balance of the checking account represents an asset.
b. From the viewpoint of Ada Savings Bank, the balance of the checking account represents a
liability.
CHAPTER 2
ANALYZING TRANSACTIONS
DISCUSSION QUESTIONS
2-1
CHAPTER 2 Analyzing Transactions
PE 2–1A
1. Debit and credit entries, normal debit balance
2. Credit entries only, normal credit balance
3. Debit and credit entries, normal credit balance
PE 2–1B
1. Debit and credit entries, normal credit balance
2. Debit and credit entries, normal debit balance
3. Debit entries only, normal debit balance
PE 2–2A
Oct. 27 Office Equipment 32,750
PE 2–2B
Sept. 30 Office Supplies 2,500
Cash 800
Accounts Payable 1,700
PRACTICE EXERCISES
2-2
CHAPTER 2 Analyzing Transactions
PE 2–3A
Mar. 16 Accounts Receivable 9,450
PE 2–3B
Aug. 13 Cash 9,000
PE 2–4A
Dec. 23 Steve Buckley, Drawing 20,000
PE 2–4B
June 30 Dawn Pierce, Drawing 11,500
PE 2–5A
Using the following T account, solve for the amount of cash receipts (indicated
by ? below).
July 1 Bal. 37,450 115,860 Cash payments
PE 2–5B
Using the following T account, solve for the amount of supplies expense
(indicated by ? below).
Aug. 1 Bal. 1,025 ? Supplies expense
Cash
Supplies
2-3
PE 2–6A
a. The totals are unequal. The debit total is higher by $900 ($5,400 – $4,500).
PE 2–6B
a. The totals are equal because both the debit and credit entries were journalized
PE 2–7A
a. Rent Expense 4,650
Miscellaneous Expense 4,650
b. Accounts Payable 3,700
Accounts Receivable 3,700
2-4
CHAPTER 2 Analyzing Transactions
PE 2–7B
a. Cash 8,400
b. Supplies 2,500
Office Equipment 2,500
Supplies 2,500
Accounts Payable 2,500
PE 2–8A
2016 2015 Amount Percent
Fees earned $680,000 $850,000 $(170,000) –20.0%
PE 2–8B
2016 2015 Amount Percent
Fees earned $1,416,000 $1,200,000 $216,000 18.0%
Fuller Company
Income Statements
For Years Ended December 31
Increase/(Decrease)
Increase/(Decrease)
Paragon Company
Income Statements
For Years Ended December 31
2-5
CHAPTER 2 Analyzing Transactions
Ex. 2–1
Advanced Payments for EquipmentaCargo Revenue
Accounts Payable Aircraft Fuel (Expense)
Air Traffic LiabilitybAircraft Maintenance (Expense)
None
aAdvance payments (deposits) on aircraft to be delivered in the future
bPassenger ticket sales for future flights
Ex. 2–2
Account
Number
Accounts Payable 21
Accounts Receivable 12
Cash 11
Fees Earned 41
Jackie Vargo, Capital 31
Expenses
Liabilities
Owner’s Equity
Account
EXERCISES
Assets Revenue
Balance Sheet Accounts Income Statement Accounts
2-6
CHAPTER 2 Analyzing Transactions
Ex. 2–3
11 Cash 41 Fees Earned
59 Miscellaneous Expense
31 Ivy Bishop, Capital
32 Ivy Bishop, Drawing
Note: The order of some of the accounts within the major classifications is
Ex. 2–4
a. debit g. debit
b. credit h. credit
Ex. 2–5
2. debit and credit entries (c)
4. credit entries only (b)
6. debit entries only (a)
2. Liabilities
3. Owner’s Equity
1. Assets 4. Revenue
Balance Sheet Accounts Income Statement Accounts
2-7
CHAPTER 2 Analyzing Transactions
Ex. 2–6
a. Liability—credit e. Asset—debit
b. Asset—debit f. Revenue—credit
Ex. 2–7
2016
March 1 Rent Expense 2,500
Cash 2,500
6 Office Equipment 9,500
Accounts Payable 9,500
10 Cash 16,550
2-8
CHAPTER 2 Analyzing Transactions
Ex. 2–8
a.
Page 33
Post.
Ref. Debit Credit
2016
Jan. 7 Supplies 15 4,175
b., c., d.
Account No. 15
Post.
Ref. Debit Debit Credit
2016
Jan. 1 Balance 2,200
Account No. 21
Post.
Ref. Debit Debit Credit
2016
Jan. 1 Balance 18,430
Ex. 2–9
a. (1) Accounts Receivable 73,900
Fees Earned 73,900
(2) Supplies 1,960
Balance
Credit
Balance
JOURNAL
Account:
Account: Supplies
Accounts Payable
Date
Date Description
Date Item
Item
Credit
2-9
CHAPTER 2 Analyzing Transactions
Ex. 2–9 (Concluded)
b.
(3) 62,770 (4) 820 (4) 820 (2) 1,960
c. No, an error may not have necessarily occurred. A credit balance
in Accounts Receivable could occur if a customer overpaid his or
Ex. 2–10
a. The increase of $140,000 ($515,000 – $375,000) in the cash account does not
b. $60,000 ($200,000 – $140,000)
or
X 375,000
515,000
Cash
Cash Accounts Payable
2-10
CHAPTER 2 Analyzing Transactions
Ex. 2–11
a.
Feb. 1 X
186,500 201,400
b.
Oct. 1 115,800 449,600
X
c.
Apr. 1 46,220 X
248,600
Ex. 2–12
a. Debit (negative) balance of $16,000 ($314,000 – $10,000 – $320,000). This
Cash
Accounts Payable
Accounts Receivable
2-11
CHAPTER 2 Analyzing Transactions
Ex. 2–13
a. and b.
Effect Type Effect
asset + owner’s equity +
expense + asset –
asset + revenue +
liability – asset –
Ex. 2–14
(2) Supplies 2,500
Cash 2,500
(3) Equipment 14,500
(5) Accounts Receivable 13,800
Service Revenue 13,800
(7) Cash 8,700
Accounts Receivable 8,700
(9) Lorene Jones, Drawing 3,000
Cash 3,000
(4)
(5)
(6)
Account Debited Account Credited
Type
(1)
Transaction
2-12
CHAPTER 2 Analyzing Transactions
Ex. 2–15
a.
Debit Credit
Balances Balances
Cash 28,850
Accounts Receivable 5,100
WYOMING TOURS CO.
Unadjusted Trial Balance
June 30, 2016
2-13
CHAPTER 2 Analyzing Transactions
Ex. 2–16
Debit Credit
Balances Balances
Cash 33,320
Accounts Payable 42,770
Unearned Rent 12,000
Notes Payable 50,000
Elaine Wells, Capital 75,000
Elaine Wells, Drawing 24,000
Fees Earned 745,230
Wages Expense 580,700
Rent Expense 48,000
Ex. 2–17
Inequality of trial balance totals would be caused by errors described in (c) and
(e). For (c), the debit total would exceed the credit total by $9,900 ($4,950 + $4,950).
For (e), the credit total would exceed the debit total by $17,100 ($19,000 – $1,900).
HICKORY FURNITURE COMPANY
Unadjusted Trial Balance
December 31, 2016
2-14
CHAPTER 2 Analyzing Transactions
Ex. 2–18
Debit Credit
Balances Balances
Cash 15,500
Accounts Receivable 46,750
Carmen Meeks, Capital 110,000
Carmen Meeks, Drawing 13,000
Service Revenue 385,000
Wages Expense 213,000
Ex. 2–19
(a) (b)
Error Out of Balance Difference
2. no —
4. yes 480
6. yes 90
(c)
Larger Total
RANGER CO.
Unadjusted Trial Balance
August 31, 2016
debit
—
credit
2-15
CHAPTER 2 Analyzing Transactions
Ex. 2–20
1. The Debit column total is added incorrectly. The sum is $890,700 rather than
$1,189,300.
3. The Accounts Receivable balance should be in the Debit column.
5. The Samuel Parson, Drawing, balance should be in the Debit column.
6. The Advertising Expense balance should be in the Debit column.
A corrected trial balance would be as follows:
Debit Credit
Balances Balances
Cash 36,000
Accounts Receivable 112,600
Accounts Payable 53,300
Salaries Payable 7,500
Samuel Parson, Capital 297,200
Samuel Parson, Drawing 17,000
Service Revenue 682,000
Ex. 2–21
a. The correction could be made with one or two entries as shown below.
Prepaid Insurance 36,000
Insurance Expense 18,000
Cash 18,000
or (reverses original entry)
MASCOT CO.
Unadjusted Trial Balance
July 31, 2016
2-16
CHAPTER 2 Analyzing Transactions
Ex. 2–22
a. Cash 17,600
Fees Earned 8,800
Accounts Receivable 8,800
Ex. 2–23
a. 1. Revenue:
2. Operating expenses:
3. Operating income:
b. During the recent year, revenue increased by 3.7%, while operating expenses
2-17
CHAPTER 2 Analyzing Transactions
Ex. 2–24
a. 1. Revenue:
$25,101 million increase ($446,950 – $421,849)
2. Operating expenses:
$24,085 million increase ($420,392 – $396,307)
3. Operating income:
b. During the recent year, revenue increased by 6.0%, while operating expenses
from the prior year.
c. Because of the size differences between Target and Walmart (Walmart has
more than 6 times the revenue), it is best to compare the two companies on the
2-18
CHAPTER 2 Analyzing Transactions
Prob. 2–1A
1. and 2.
(a) 18,000 (b) 1,950 (d) 4,500
(g) 13,650 (c) 5,700
(e) 1,875
(l) 21,900 (a) 18,000
(f) 3,600 (m) 4,100
(c) 28,500 (k) 3,750
PROBLEMS
Notes Payable
Professional FeesSupplies
Prepaid Insurance Salary Expense
Automobiles Blueprint Expense
Cash Equipment
Accounts Receivable Kimberly Manis, Capital
2-19
CHAPTER 2 Analyzing Transactions
Prob. 2–1A (Concluded)
3.
Debit Credit
Balances Balances
Cash 6,575
Accounts Receivable 21,900
Notes Payable 21,850
Accounts Payable 5,250
Kimberly Manis, Capital 18,000
Professional Fees 35,550
KIMBERLY MANIS, ARCHITECT
Unadjusted Trial Balance
January 31, 2016
2-20
