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Chapter Three
Challenge Exercise 1
LO: 3
Presented below is information related to Shawshank Real Estate Agency.
Oct. 1 Pete Shawshank begins business as a real estate agent with a cash investment of $25,000 in
exchange for common stock.
2 Hires an administrative assistant.
3 Purchases office furniture for $2,900, by paying $700 cash with the balance on account.
6 Sells a house and lot for N. Kidman, earning a fee of $3,600, with $600 collected in cash and the
balance billed to N. Kidman.
27 Pays $900 on the balance related to the transaction of October 3.
30 Pays the administrative assistant $2,300 in salary for October.
31 Collects $1,200 of the balance owed by N. Kidman.
Instructions:
(a) Journalize the transactions. (You may omit explanations.)
(b) What balance would Shawshank Real Estate Agency report for Accounts Payable in its October 31
financial statements? In which category of which financial statements would it be found?
(c) What balance would Shawshank Real Estate Agency report for Accounts Receivable in its October 31
financial statements? In which category of which financial statements would it be found?
Challenge Exercise 1 – Solution
1.
1
Cash…………..
25,000
Common Stock
25,000
2
No entry, not a transaction
2. The October 31 balance of Accounts Payable is $1,300 ($2,200 - $900), and would be reported in the
Challenge Exercise 2
LO: 5
The accounts in the ledger of Sun Delivery Service contain the following balances on July 31, 2014.
Accounts Receivable $ 8,000 Prepaid Insurance $ 2,000
Accounts Payable 7,900 Retained Earnings 5,000
Cash ? Service Revenue 11,000
Common Stock 42,000 Salaries and Wages Expense ?
Dividends 900 Salaries and Wages Payable 1,000
Equipment 50,000 Supplies 3,000
Gasoline and Oil Expense 800 Unearned Service Revenue 2,500
Insurance Expense 600
Maintenance and Repair Expense 1,100
Notes Payable 19,000
Instructions:
Prepare a trial balance with the accounts arranged as illustrated in the chapter and fill in the missing amounts
for Cash and Salaries Expense. Assume net income for the period is $3,500
Challenge Exercise 2 – Solution
SUN DELIVERY SERVICE
Trial Balance
July 31, 2014
Debit
Credit
Cash** ................................................................................................... $17,000
Accounts Receivable ............................................................................ 8,000
Supplies ................................................................................................ 3,000
