BSAccountancy

Chapter 2 SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 2-1 For each of the following accounts indicate the effects of a debit and a credit on the accounts and the normal balance of the account. (a) (b) (c) Debit Credit Normal Effect Effect Balance 1. 2. 3. 4. 5. 6. Accounts Payable Advertising Expense Service Revenue Accounts Receivable Common Stock Dividends Decrease Increase Decrease Increase Decrease Increase Increase Decrease Increase Decrease Increase Decrease Credit Debit Credit Debit Credit Debit BRIEF EXERCISE 2-2 Transactions for the Kaustav Sen Company, which provides welding services, for the month of June are presented below. June 1 2 3 12 Kaustav Sen (owner) invests $4,000 cash in exchange for shares of common stock. Purchases equipment on account for $900. $800 cash is paid to landlord for June rent. Bills L. Nigh $300 for welding work done on account. Identify the accounts to be debited and credited for each transaction. June 1 2 3 12 Account Debited Account Credited Cash Equipment Rent Expense Accounts Receivable Common Stock Accounts Payable Cash Service Revenue BRIEF EXERCISE 2-3 Transactions for the Kaustav Sen Company, which provides welding services, for the month of June are presented below. June Kaustav Sen invests $4,000 cash in exchange for shares of common stock in a small 1 welding business. 2 Purchases equipment on account for $900. 3 $800 cash is paid to landlord for June rent. 12 Bills L. Nigh $300 for welding work done on account. Journalize the transactions. June 1 Cash .....................................................................................4,000 Common Stock..................................................................... 4,000 2 3 12 Equipment...................................................................................... Accounts Payable................................................................. 900 Rent Expense................................................................................. Cash...................................................................................... 800 Accounts Receivable...................................................................... Service Revenue................................................................... 300 900 800 300 BRIEF EXERCISE 2-4 The basic steps in the recording process are: 1. Analyze each transaction. In this step, business documents are examined to determine the effects of the transaction on the accounts. 2. Enter each transaction in a journal. This step is called journalizing and it results in making a chronological record of the transactions. 3. Transfer journal information to ledger accounts. This step is called posting. Posting makes it possible to accumulate the effects of journalized transactions on individual accounts. BRIEF EXERCISE 2-9 From the ledger balances given below, prepare a trial balance for Starr Company at June 30, 2014. All account balances are normal. Accounts Payable $9,000, Cash $6,800, Common Stock $20,000, Dividends $1,200, Equipment $17,000, Service Revenue $6,000, Accounts Receivable $3,000, Salaries and Wages Expense $6,000, and Rent Expense $1,000. STARR COMPANY Trial Balance June 30, 2014 Debit edit Cash........................................................................................................ Accounts Receivable.............................................................................. Equipment............................................................................................... Accounts Payable................................................................................... Common Stock....................................................................................... Dividends................................................................................................ Service Revenue..................................................................................... Salaries and Wages Expense................................................................... Rent Expense.......................................................................................... BRIEF EXERCISE 2-10 An inexperienced bookkeeper prepared the following trial balance. Prepare a correct trial balance, assuming all account balances are normal. Cheng Company Trial Balance December 31, 2014 Debit $16,800 Cash Prepaid Insurance Accounts Payable Unearned Service Revenue Common Stock Dividends Service Revenue Salaries and Wages Expense Rent Expense Credit $3,500 3,000 4,200 13,000 4,500 25,600 18,600 $39,600 2,400 $52,000 Cr $ 6,800 3,000 17,000 $ 9,000 20,000 1,200 6,000 6,000 1,000 $35,000 $35,000 CHENG COMPANY Trial Balance December 31, 2014 Debit it Cash........................................................................................................ Prepaid Insurance................................................................................... Accounts Payable................................................................................... Unearned Service Revenue..................................................................... Common Stock....................................................................................... Dividends................................................................................................ Service Revenue..................................................................................... Salaries and Wages Expense................................................................... Rent Expense.......................................................................................... Cred $16,800 3,500 $ 3,000 4,200 13,000 4,500 25,600 18,600 2,400 $45,800 $45,800 SOLUTIONS TO EXERCISES EXERCISE 2-3 Selected transactions for B. Madar, an interior decorating firm, in its first month of business, are as follows. Jan. 2 3 9 11 16 20 23 28 Invested $15,000 cash in the business in exchange for common stock. Purchased used car for $7,000 cash for use in the business. Purchased supplies on account for $500. Billed customers $1,800 for services performed. Paid $200 cash for advertising. Received $700 cash from customers billed on January 11. Paid creditor $300 cash on balance owed. Declared and paid a $1,000 cash dividend. General Journal J1 Date Account Titles and Explanation Ref. Debit Credit Jan. 2 Cash 15,000 Common Stock............................................ 3 9 11 16 20 15,000 Equipment............................................................. Cash............................................................. 7,000 Supplies................................................................. Accounts Payable........................................ 500 Accounts Receivable............................................. Service Revenue.......................................... 1,800 Advertising Expense............................................. Cash............................................................. 200 Cash 700 7,000 500 1,800 200 Accounts Receivable................................... 23 28 700 Accounts Payable.................................................. Cash............................................................. 300 Dividends.............................................................. Cash............................................................. 1,000 300 1,000 EXERCISE 2-5 Presented below is information related to Robbins Real Estate Agency. Oct. 1 2 3 6 27 30 Lynn Robbins begins business as a real estate agent with a cash investment of $20,000 in exchange for common stock. Hires an administrative assistant. Purchases office furniture for $1,900, on account. Sells a house and lot for N. Fennig; bills N. Fennig $3,200 for realty services provided. Pays $850 on the balance related to the transaction of October 3. Pays the administrative assistant $2,500 in salary for October. General Journal Date Oct. Account Titles and Explanation 1 Cash....................................................................... Ref. Debits 20,000 Credit Common Stock.......................................... 20,000 2 No entry. 3 Equipment ............................................................ Accounts Payable...................................... 1,900 Accounts Receivable............................................. Service Revenue........................................ 3,200 Accounts Payable.................................................. Cash........................................................... 850 Salaries and Wages Expense................................. Cash........................................................... 2,500 6 27 30 1,900 3,200 850 2,500 EXERCISE 2-6 Elvira Industries had the following transactions. 1. Borrowed $5,000 from the bank by signing a note. 2. Paid $2,500 cash for a computer. 3. Purchased $450 of supplies on account. (a) Indicate what accounts are increased and decreased by each transaction. (a) 1. 2. 3. Increase the asset Cash, increase the liability Notes Payable. Increase the asset Equipment, decrease the asset Cash. Increase the asset Supplies, increase the liability Accounts Payable. (b) Journalize each transaction. (b) 1. 2. 3. Cash .................................................................................5,000 Notes Payable................................................................... Equipment ................................................................................ Cash.................................................................................. Supplies..................................................................................... Accounts Payable............................................................. 5,000 2,500 2,500 450 450 EXERCISE 2-12 Selected transactions for Neve Campbell Company during its first month in business are presented below. Sept. 1 5 25 30 Invested $10,000 cash in the business in exchange for common stock. Purchased equipment for $12,000 paying $4,000 in cash and the balance on account. Paid $2,400 cash on balance owed for equipment. Declared and paid a $500 cash dividend. Campbell’s chart of accounts shows No. 101 Cash, No. 157 Equipment, No. 201 Accounts Payable, No. 311 Common Stock; No. 332 Dividends. (a) General Journal Date Sept. 1 5 25 30 J1 Account Titles and Explanation Cash Common Stock............................................ Ref. 101 311 Debit 10,000 Equipment............................................................. Cash............................................................. Accounts Payable........................................ 157 101 201 12,000 Accounts Payable.................................................. Cash............................................................. 201 101 2,400 Dividends.............................................................. Cash............................................................. 332 101 500 Credit 10,000 4,000 8,000 2,400 500 (b) No. 101 Cash Date Explanation Sept. 1 5 25 30 Equipment Ref. J1 J1 J1 J1 Debit Credit 10,000 4,000 2,400 500 Balance 10,000 6,000 3,600 3,100 No. 157 Date Explanation Ref. Sept. 5 J1 Debit Credit 12,000 No. 201 Accounts Payable Date Explanation Ref. Sept. 5 Debit J1 25 J1 Credit 8,000 2,400 5,600 No. 311 Explanation Ref. Sept. 1 Debit J1 Credit Balance 10,000 10,000 No. 332 Dividends Date Balance 8,000 Common Stock Date Balance 12,000 Explanation Ref. Sept. 30 J1 Debit Credit 500 500 EXERCISE 2-14 The accounts in the ledger of Tempus Fugit Delivery Service contain the following balances on July 31, 2014. Accounts Receivable Accounts Payable Cash Equipment Gasoline Expense Utilities Expense Notes Payable $10,642 8,396 ? 49,360 758 523 26,450 Prepaid Insurance Maintenance and Repairs Expense Service Revenue Dividends Common Stock Salaries and Wages Expense Salaries and Wages Payable Retained Earnings Prepare a trial balance and fill in the missing amount for Cash. TEMPUS FUGIT DELIVERY SERVICE Trial Balance July 31, 2014 Balance $1,968 961 10,610 700 40,000 4,428 815 4,636 Debit dit Cash ($90,907 – Debit total without Cash $69,340).............................................................................................. Accounts Receivable.............................................................................. Prepaid Insurance................................................................................... Equipment............................................................................................... Notes Payable......................................................................................... Accounts Payable................................................................................... Salaries and Wages Payable.................................................................... Common Stock....................................................................................... Retained Earnings................................................................................... Dividends................................................................................................ Service Revenue..................................................................................... Salaries and Wages Expense................................................................... Maintenance and Repairs Expense......................................................... Gasoline Expense................................................................................... Utilities Expense..................................................................................... Cre $21,567 10,642 1,968 49,360 $26,450 8,396 815 40,000 4,636 700 10,610 4,428 961 758 523 $90,907 $90,907 EXERCISE 2-15 The statement of cash flows classifies each transaction as an operating activity, an investing activity, or a financing activity. Operating activities are the types of activities the company performs to generate profits. Investing activities include the purchase of long-lived assets such as equipment or the purchase of investment securities. Financing activities are borrowing money, issuing shares of stock, and paying dividends. Classify each of the following transactions as operating, investing, or financing activities. Transactions 4, 5, and 7 are operating activities Transaction 3 is an investing activity Transactions 1, 2 and 6 are financing activities. PROBLEM 2-2A May 1 2 3 7 11 12 17 31 31 Stockholders invested $20,000 cash in exchange for common stock. Hired a secretary-receptionist at a salary of $2,000 per month. Purchased $1,500 of supplies on account from Hartig Supply Company. Paid office rent of $900 cash for the month. Completed a tax assignment and billed client $2,800 for services provided. Received $3,500 advance on a management consulting engagement. Received cash of $1,200 for services completed for Lucille Co. Paid secretary-receptionist $2,000 salary for the month. Paid 40% of balance due Hartig Supply Company. (a) J1 Date May 1 Account Titles and Explanation Ref. Debit Cash............................................................................. Common Stock.................................................. (Issued shares of stock for cash) 101 311 20,000 20,000 2 No entry—not a transaction. 3 Supplies....................................................................... Accounts Payable.............................................. (Purchased supplies on account) 126 201 1,500 Rent Expense............................................................... Cash................................................................... (Paid office rent) 729 101 900 Accounts Receivable................................................... Service Revenue................................................ (Billed client for services provided) 112 400 2,800 Cash ........................................................................... 101 3,500 7 11 12 Credit 1,500 900 2,800 Unearned Service Revenue............................... (Received cash for future services) 209 Cash ........................................................................... Service Revenue................................................ (Received cash for services provided) 101 400 1,200 Salaries and Wages Expense........................................ Cash................................................................... (Paid salaries) 726 101 2,000 Date Account Titles and Explanation Ref. Debit May 31 Accounts Payable ($1,500 X 40%)............................... Cash................................................................. (Paid creditor on account) 201 101 600 17 31 3,500 1,200 2,000 600 No. 101 Cash Date May Explanation 1 7 12 17 31 31 Ref. J1 J1 J1 J1 J1 J1 Debit Credit 20,000 900 3,500 1,200 2,000 600 Date Explanation May 11 Ref. J1 Debit Credit Balance 2,800 No. 126 Explanation 3 20,000 19,100 22,600 23,800 21,800 21,200 2,800 Supplies Date Balance No. 112 Accounts Receivable May Credit Ref. J1 Debit 1,500 Credit Balance 1,500 No. 201 Accounts Payable Date May Explanation 3 31 Ref. J1 J1 Debit Credit 600 900 No. 209 Unearned Service Revenue Date Explanation May 12 Ref. Debit J1 Credit May Explanation 1 Debit J1 Explanation May 11 17 Credit Balance 20,000 20,000 No. 400 Ref. Debit J1 J1 Credit Balance 2,800 1,200 2,800 4,000 No. 726 Salaries and Wages Expense Date Explanation May 31 Ref. J1 Debit Credit May Explanation 7 Balance 2,000 2,000 No. 729 Rent Expense Date 3,500 No. 311 Ref. Service Revenue Date Balance 3,500 Common Stock Date Balance 1,500 Ref. J1 Debit 900 Credit Balance 900 (c) KARA SHIN, INC. Trial Balance May 31, 2014 Debit Cred it Cash.............................................................................................. Accounts Receivable.................................................................... Supplies........................................................................................ Accounts Payable......................................................................... Unearned Service Revenue........................................................... Common Stock............................................................................. Service Revenue........................................................................... Salaries and Wages Expense......................................................... Rent Expense................................................................................ $21,200 2,800 1,500 $ 900 3,500 20,000 4,000 2,000 900 $28,400 $28,400