Chapter 2: Exercises

Exercise 2-1: Steps in Analyzing and Recording Transactions (C1) Order the steps in the accounting process for analyzing and recording transactions: 1. 2. 3. 4. Analyze each transaction from source documents. Record relevant transactions in a journal. Post journal information to ledger accounts. Prepare and analyze the trial balance. Exercise 2-2: Identifying Source Documents from Accounting Processes (C1) Identify the source documents for NDX Company: 1. Electronic sales receipt: Used when a customer purchases merchandise with a credit card. 2. Supplier’s bill: Used when NDX purchases goods and receives a bill from the supplier. 3. Bank statement: Used by an NDX employee to record bank fees incurred for the month. Exercise 2-3: Identifying and Classifying Accounts (C1) Identify the item that completes the descriptions: 1. Three: Balance sheet accounts are arranged into general categories. 2. Equity: The owner’s claim on a company’s assets is called equity. 3. Liability: Accounts Payable and Notes Payable are examples of liability accounts. 4. Asset: Accounts Receivable, Prepaid Accounts, Supplies, and Land are examples of asset accounts. 5. Account: An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item. Exercise 2-4: Identifying a Ledger and Chart of Accounts (C1) Identify the items that complete the descriptions: 1. Chart of accounts: A list of all accounts a company uses, not including account balances. 2. General ledger: A record containing all accounts used by a company, including account balances. 3. Source document: Describes transactions entering an accounting system, such as a purchase order. 4. Account: Increases and decreases in a specific asset, liability, equity, revenue, or expense are recorded in an account. 5. Journal: Has a complete record of every transaction recorded. Exercise 2-5: Identifying Type and Normal Balances of Accounts (C2) For each account, identify (1) its type, (2) normal balance (debit/credit), and (3) the type of entry (debit/credit) that increases its balance: 1. Land – Asset | Normal Balance: Debit | Increases with: Debit 2. Accounts Receivable – Asset | Normal Balance: Debit | Increases with: Debit 3. Equipment – Asset | Normal Balance: Debit | Increases with: Debit 4. Cash – Asset | Normal Balance: Debit | Increases with: Debit 5. Tour Service Revenue – Revenue | Normal Balance: Credit | Increases with: Credit 6. Notes Payable – Liability | Normal Balance: Credit | Increases with: Credit 7. Legal Expense – Expense | Normal Balance: Debit | Increases with: Debit 8. Unearned Revenue – Liability | Normal Balance: Credit | Increases with: Credit 9. Prepaid Insurance – Asset | Normal Balance: Debit | Increases with: Debit 10. Services Revenue – Revenue | Normal Balance: Credit | Increases with: Credit Exercise 2-6: Analyzing Effects of a Compound Entry (A1) Groro Co. bills a client $62,000 for services provided and receives: 1. $10,000 cash 2. $80,000 equipment 3. $28,000 note payable (a) Analyze the transaction using the accounting equation: • • • Assets increase by $10,000 (Cash) and $80,000 (Equipment). Liabilities increase by $28,000 (Note Payable). Equity increases by $62,000 (Revenue). (b) Journal Entry: bash Debit: Cash (101) ........................... $10,000 Debit: Equipment (167) ...................... $80,000 Credit: Note Payable (245) .................. $28,000 Credit: Services Revenue (403) ............ $62,000 (c) T-accounts: Cash (101) Services Revenue (403) Debit $10,000 Credit $62,000 Equipment (167) Note Payable (245) Debit $80,000 Credit $28,000 Exercise 2-7: Analyzing Account Entries and Balances (A1) Calculate the unknown amount in the following cases: 1. Corentine Co. had $152,000 accounts payable on September 30 and $132,500 on October 31. Total credit purchases in October were $281,000. o Cash paid during October = $152,000 + $281,000 - $132,500 = $300,500 2. Valerian Co. had $102,500 accounts receivable on September 30 and $89,000 on October 31. Collections from customers were $102,890. o Sales on credit in October = $102,500 + $102,890 - $89,000 = $116,390 3. Alameda Co. had $102,500 cash receipts and $103,150 cash disbursements in October. The cash balance on October 31 was $18,600. o Cash balance on September 30 = $18,600 + $103,150 - $102,500 = $19,250