2. The terms debit and credit may signify either an increase or a decrease, depending upon the nature
3. a. Assuming no errors have occurred, the credit balance in the cash account resulted from writing
checks for $1,850 in excess of the amount of cash on deposit.
4. a. The revenue was earned 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
p
7. a. No. Because the same error occurred on both the debit side and the credit side of the trial
b
b
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
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 retained earnings statement, the beginning
10. a. From the viewpoint of Surety Storage, the balance of the checking account represents an asset.
CHAPTER 2
ANALYZING TRANSACTIONS
DISCUSSION QUESTIONS
2-1
CHAPTER 2 Analyzing Transactions
PE 2–1A
2. Credit entries only, normal credit balance
4. Credit entries only, normal credit balance
6. Debit entries only, normal debit balance
1. Debit and credit entries, normal credit balance
3. Debit entries only, normal debit balance
5. Debit entries only, normal debit balance
PE 2–2A
Oct. 27 Office Equipment 32,750
Cash 6,550
Accounts Payable 26,200
PE 2–2B
PRACTICE EXERCISES
2-2
CHAPTER 2 Analyzing Transactions
PE 2–3A
PE 2–3B
Aug. 13 Cash 9,000
Fees Earned 9,000
PE 2–4A
PE 2–4B
June 30 Dividends 11,500
Cash 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
Cash receipts ?
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
CHAPTER 2 Analyzing Transactions
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
Rent Expense 4,650
Cash 4,650
Note: The first entry in (a) reverses the incorrect entry, and the second entry
2-4
CHAPTER 2 Analyzing Transactions
PE 2–7B
a. Cash 8,400
Accounts Receivable 8,400
b. Supplies 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
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
Cash Passenger Revenue
Flight Equipment
Accounts Payable Aircraft Fuel (Expense)
Air Traffic LiabilitybAircraft Maintenance (Expense)
Frequent Flyer (Obligations)cAircraft Rent (Expense)
Taxes Payable Contract Carrier Arrangements (Expense)d
Landing Fees (Expense)e
Passenger Commissions (Expense)f
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
Common Stock 31
Dividends 33
EXERCISES
Assets Revenue
Balance Sheet Accounts Income Statement Accounts
ExpensesLiabilities
Stockholders’ Equity
Account
2-6
CHAPTER 2 Analyzing Transactions
Ex. 2–3
11 Cash 41 Fees Earned
59 Miscellaneous Expense
31 Common Stock
32 Retained Earnings
33 Dividends
Note: The order of some of the accounts within the major classifications is
somewhat arbitrary, as in accounts 13–14, accounts 21–22, and accounts 51–53.
In a new business, the order of magnitude of balances in such accounts is not
determinable in advance. The magnitude may also vary from period to period.
Ex. 2–4
d. credit j. credit
e. debit k. debit
f. credit l. debit
Ex. 2–5
2. debit and credit entries (c)
4. credit entries only (b)
6. debit entries only (a)
2. Liabilities
3. Stockholders’ Equity
1. Assets 4. Revenue
Balance Sheet Accounts Income Statement Accounts
2-7
CHAPTER 2 Analyzing Transactions
Ex. 2–6
a. Liability—credit f. Revenue—credit
b. Asset—debit g. Asset—debit
Ex. 2–7
2016
March 1 Rent Expense 2,500
Cash 2,500
3 Advertising Expense 675
Cash 675
5 Supplies 1,250
Cash 1,250
6 Office Equipment 9,500
Accounts Payable 9,500
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
e. Yes, the rules of debit and credit apply to all companies.
Ex. 2–9
a. (1) Accounts Receivable 73,900
Fees Earned 73,900
(2) Supplies 1,960
Accounts Payable 1,960
(3) Cash 62,770
Date Item
Item
Credit
JOURNAL
Account:
Account: Supplies
Accounts Payable
Date
Date Description
Balance
Credit
Balance
2-9
CHAPTER 2 Analyzing Transactions
Ex. 2–9 (Concluded)
b.
(2) 1,960 (1) 73,900
c. No, an error may not have necessarily occurred. A credit balance
in Accounts Receivable could occur if a customer overpaid his or
her account. Regardless, the credit balance should be investigated to
verify that an error has not occurred.
Ex. 2–10
a. The increase of $140,000 ($515,000 – $375,000) in the cash account does not
or
X 375,000
515,000
200,000
Cash
Cash Accounts Payable
Supplies Fees Earned
2-10
CHAPTER 2 Analyzing Transactions
Ex. 2–11
a.
Feb. 1 X
186,500 201,400
Feb. 28 59,900
b.
Oct. 1 115,800 449,600
X
Oct. 31 130,770
c.
Apr. 1 46,220 X
248,600
Apr. 30 56,770
Ex. 2–12
a. Debit (negative) balance of $16,000 ($314,000 – $10,000 – $320,000). This
negative balance means that the liabilities of Waters’ business exceed the
Cash
Accounts Payable
Accounts Receivable
2-11
CHAPTER 2 Analyzing Transactions
Ex. 2–13
a. and b.
Effect Type Effect
asset + stockholders’ equity +
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) Dividends 3,000
Cash 3,000
Account Debited Account Credited
Type
(1)
Transaction
(5)
(6)
2-12
CHAPTER 2 Analyzing Transactions
Ex. 2–15
a.
Debit Credit
Balances Balances
Cash 28,850
Accounts Receivable 5,100
Supplies 1,400
b. Net income, $7,850 ($13,800 – $5,950)
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
Common Stock 15,000
Retained Earnings 60,000
Dividends 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
Retained Earnings 70,000
Dividends 13,000
Service Revenue 385,000
Wages Expense 213,000
Advertising Expense 16,350
Ex. 2–19
(a) (b)
Error Out of Balance Difference
2. no —
4. yes 480
6. yes 90
debit
—
credit
(c)
Larger Total
RANGER CO.
Unadjusted Trial Balance
August 31, 2016
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 Dividends 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 Payable 53,300
Salaries Payable 7,500
Common Stock 100,000
Retained Earnings 197,200
Dividends 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)
Prepaid Insurance 18,000
Insurance Expense 18,000
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
*The first entry reverses the original entry. The second entry is the entry that should
have been made initially.
Ex. 2–23
3.7% increase ($2,475 ÷ $67,390)
3.9% increase ($2,405 ÷ $62,138)
1.3% increase ($70 ÷ $5,252)
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:
$1,016 million increase ($26,558 – $25,542)
4.0% increase ($1,016 ÷ $25,542)
b. During the recent year, revenue increased by 6.0%, while operating expenses
by 6.0% while Target’s revenues increased by only 3.7%. The expenses of both
companies increased by approximately the same percent as revenues, which
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
(f) 3,600 (j) 950 (c) 22,800
(l) 21,900 (a) 18,000
(e) 1,875 (g) 13,650
(l) 21,900
Bal. 35,550
(f) 3,600 (m) 4,100
Cash Equipment
Accounts Receivable Common Stock
PROBLEMS
Notes Payable
Professional FeesSupplies
Prepaid Insurance Salary Expense
2-19
CHAPTER 2 Analyzing Transactions
Prob. 2–1A (Concluded)
3.
Debit Credit
Balances Balances
Cash 6,575
Accounts Receivable 21,900
Supplies 1,875
Salary Expense 4,100
Blueprint Expense 3,750
Rent Expense 1,950
Automobile Expense 1,300
Miscellaneous Expense 2,600
80,650 80,650
MANIS ARCHITECTS
Unadjusted Trial Balance
January 31, 2016
2-20