P2-41, cont.
Requirements 2 and 3
Cash
Accounts Payable
Dec. 2 20,000
2,000 Dec. 2
Dec. 26 200
3,000 Dec. 4
Dec. 18 2,100
3,600 Dec. 3
800 Dec. 5
Dec. 21 2,400
150 Dec. 12
3,600 Balance
Dec. 28 400
200 Dec. 26
1,000 Dec. 30
Balance 17,950
Accounts Receivable
Dec. 9 2,500
400 Dec. 28
2,400 Dec. 21
Balance 2,100
2,400 Balance
Dec. 5 800
20,000 Dec. 2
Balance 800
20,000 Balance
Equipment
Dividends
Dec. 3 3,600
Dec. 30 1,000
Balance 3,600
Balance 1,000
Dec. 4 3,000
2,500 Dec. 9
Balance 3,000
2,100 Dec. 18
4,600 Balance
Balance 2,000
P2-41, cont.
Requirement 4
DANIELS CONSULTING
Trial Balance
December 31, 2016
Account Title
Balance
Debit
Credit
Cash
$ 17,950
Accounts Receivable
2,100
Office Supplies
800
Equipment
3,600
Furniture
3,000
Accounts Payable
Unearned Revenue
Common Stock
Dividends
1,000
Service Revenue
Rent Expense
2,000
Utilities Expense
Total
Requirement 5
DANIELS CONSULTING
Income Statement
Month Ended December 31, 2016
Revenues:
Service Revenue
Expenses:
Net Income
P2-41, cont.
Requirement 6
DANIELS CONSULTING
Statement of Retained Earnings
Month Ended December 31, 2016
Retained Earnings, December 1, 2016
$ 0
Net income for the month
Dividends
Retained Earnings, December 31, 2016
Requirement 7
DANIELS CONSULTING
Balance Sheet
December 31, 2016
Assets
Liabilities
Cash
$ 17,950
Accounts Payable
$ 3,600
Accounts Receivable
2,100
Unearned Revenue
2,400
Office Supplies
800
Total Liabilities
$ 6,000
Equipment
Furniture
3,000
Common Stock
Retained Earnings
1,450
Requirement 8
Debt ratio = Total liabilities / Total assets = $6,000 / $27,450 = 0.22* = 22%
* rounded
Practice Set
P2-42 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.
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. Formal posting references
are not required.
4. Prepare a trial balance as of November 30, 2017.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Posting
Ref.
Debit
Credit
Nov. 1
Cash
35,000
Truck
7,000
Common Stock
42,000
2
Prepaid Rent
2,000
Cash
2,000
3
Prepaid Insurance
1,800
Cash
1,800
4
Cleaning Supplies
220
Accounts Payable
220
5
Equipment
2,000
Accounts Payable
2,000
7
Equipment
1,200
Cash
1,200
9
Accounts Receivable
3,800
Service Revenue
3,800
10
Cash
300
Accounts Receivable
300
15
Salaries Expense
350
Cash
350
16
Cash
12,000
Unearned Revenue
12,000
17
Cash
1,000
Service Revenue
1,000
18
Utilities Expense
250
Accounts Payable
250
20
Cash
96,000
Notes Payable
96,000
P2-42, cont.
Nov. 21
Cash
900
Accounts Receivable
900
25
Accounts Payable
Cash
29
Advertising Expense
500
Cash
500
30
Dividends
200
Cash
200
Requirements 2 and 3
Cash
Accounts Payable
Nov. 1 35,000
2,000 Nov. 2
Nov. 25 1,000
220 Nov. 4
Nov. 10 300
1,800 Nov. 3
2,000 Nov. 5
Nov. 16 12,000
1,200 Nov. 7
250 Nov. 18
Nov. 17 1,000
350 Nov. 15
1,470 Balance
Nov. 20 96,000
1,000 Nov. 25
500 Nov. 29
Balance 138,150
Accounts Receivable
Unearned Revenue
Nov. 9 3,800
300 Nov. 10
12,000 Nov. 16
900 Nov. 21
12,000 Balance
Balance 2,600
Cleaning Supplies
Notes Payable
Nov. 4 220
96,000 Nov. 20
Balance 220
96,000 Balance
42,000 Nov. 1
42,000 Balance
Nov. 1 7,000
Nov. 15 350
Balance 7,000
Balance 350
Nov. 29 500
Balance 500
Nov. 18 250
Balance 250
Requirement 4
CRYSTAL CLEAR CLEANING
Trial Balance
November 30, 2017
Account Title
Balance
Debit
Credit
Cash
$ 138,150
Accounts Receivable
2,600
Cleaning Supplies
220
Prepaid Rent
2,000
Prepaid Insurance
1,800
Equipment
3,200
Truck
7,000
Accounts Payable
Unearned Revenue
Notes Payable
Common Stock
Dividends
Service Revenue
Salaries Expense
Advertising Expense
Utilities Expense
Total
P2-42, cont.
Requirements 2 and 3
Equipment
Service Revenue
Nov. 5 2,000
3,800 Nov. 9
Nov. 7 1,200
1,000 Nov. 17
Balance 3,200
4,800 Balance
Critical Thinking
Decision Case 2-1
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
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, 2016.
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.
f. 1,200
2,400 d.
700 Bal.
Bal. 8,500
Accounts Receivable
1,200 f.
10,000 a.
10,000 Bal.
8,800 e.
8,800 Bal.
Decision Case 2-1, cont.
Requirement 3
A-PLUS TRAVEL PLANNERS
Trial Balance
June 30, 2016
Account Title
Balance
Debit
Credit
Cash
$ 8,500
Accounts Receivable
7,600
Office Supplies
300
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
McChesney should discontinue the business because net income falls below the target amount.
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. 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
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
Requirement 1
By changing an expense to an asset, the total expenses will decrease and net income will increase.
Financial Statement Case 2-1
Requirements
1. Calculate the debt ratio for Starbucks Corporation as of September 29, 2013.
2. How did the debt ratio for Starbucks Corporation compare to the debt ratio for
Green Mountain Coffee Roasters, Inc.? Discuss.
SOLUTION
Requirement 1
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