Analyzing Transactions: Class Discussion Questions

CHAPTER 2
ANALYZING TRANSACTIONS
CLASS DISCUSSION QUESTIONS
1. An account is a form designed to record c. The account number, 41, is recorded in

changes in a particular asset, liability, the posting reference column of the
owner's equity, revenue, or expense. A journal.
ledger is a group of related accounts. 10. When an entry has been posted to the
2. The sequence of accounts in the ledger accounts, the account number is inserted in
corresponds generally to the sequence of the journal in the posting reference column.
accounts as they appear in the balance 11. a. The revenue was earned in October.
sheet, followed by the accounts as they b. (1) Debit Accounts Receivable and
appear in the income statement.
credit Fees Earned or another
3. The terms debit and credit may signify either appropriately titled revenue account
an increase or decrease, depending upon
in October.
the nature of the account. For example,
debits signify an increase in asset and (2) Debit Cash and credit Accounts
expense accounts but a decrease in liability, Receivable in November.
owner's capital, and revenue accounts. 12. The trial balance is a proof of the equality of
4. Liabilities and owner's equity both have the debits and the credits in the ledger.
rights or claims to assets as indicated by the 13. No. Errors may have been made that had
accounting equation, Assets = Liabilities + the same erroneous effect on both debits
Owner's Equity. Therefore, the same rules and credits, such as failure to record and/or
of debit and credit apply to both liabilities post a transaction, recording the same
and owner's equity. transaction more than once, and posting a
5. a. Decrease in owner's equity transaction correctly but to the wrong
b. Increase in expense account.
6. a. Increase in owner's equity 14. The listing of $21,570 is a transposition; the
b. Increase in revenue listing of $610 is a slide.
7. a. Assuming no errors have occurred, the 15. a. No. Because the same error occurred
credit balance in the cash account on both the debit side and the credit
resulted from drawing checks for $900 side of the trial balance, the trial balance
in excess of the amount of cash on would not be out of balance.
deposit. b. Yes. The trial balance would not
b. The $900 credit balance in the cash balance. The error would cause the
account as of July 31 is a liability owed credit total of the trial balance to exceed
to the bank. It is usually referred to as the debit total by $450.
an "overdraft" and should be classified 16. The correction is made by drawing a line
on the balance sheet as a liability. through the error and inserting the correct
8. e. Business transaction is authorized. title or amount immediately above.
b. Business transaction occurs. 17. The preferred procedure is to journalize and
d. Business document is prepared. post a correcting entry debiting Accounts
c. Entry is recorded in journal. Receivable and crediting Accounts Payable.
a. Entry is posted to ledger. 18. a. From the viewpoint of ABC Storage, the
9. a. The date, November 23, and the balance of the checking account
amount, $3,020, are recorded in the represents an asset.
credit section of the fees earned
account. b. From the viewpoint of American Savings
Bank, the balance of the checking
b. The journal page number, 19, is
recorded in the posting reference account represents a liability.
column of the fees earned account.
39
EXERCISES
Ex. 2–1
Balance Sheet Accounts Income Statement Accounts

Assets Revenue
Flight Equipment Cargo and Mail Revenue
Purchase Deposits Passenger Revenue
for Flight Equipment* Expenses
Spare Parts and Supplies Aircraft Fuel Expense
Liabilities Commissions***
Accounts Payable Landing Fees****
Air Traffic Liability**
Owner's Equity
None
* Advance payments on aircraft purchases

** Passenger ticket sales not yet recognized as revenue
*** Commissions paid to travel agents
**** Fees paid to airports for landing rights
Ex. 2–2
Account
Account Number
Accounts Payable 21
Accounts Receivable 12
Cash 11
Fees Earned 41
Kim Walks, Capital 31
Kim Walks, Drawing 32
Land 13
Miscellaneous Expense 53
Supplies Expense 52
Wages Expense 51
40
Ex. 2–3
1. Assets 4. Revenue
11 Cash 41 Fees Earned
12 Accounts Receivable 5. Expenses
13 Supplies 51 Wages Expense
14 Prepaid Insurance 52 Rent Expense
15 Equipment 53 Supplies Expense
2. Liabilities 59 Miscellaneous Expense
21 Accounts Payable
22 Unearned Rent
3. Owner's Equity
31 Gerald Emerson, Capital
32 Gerald Emerson, Drawing
Note: The order of some of the accounts within the major classifications is
somewhat arbitrary, as in accounts 13–14 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
a. and b.
Account Debited Account Credited
Transaction Type Effect Type Effect
(1) asset + owner's equity +

(2) asset + asset –
liability +
(4) expense + asset –
(5) asset + revenue +
(6) liability – asset –
(8) drawing + asset –
(9) expense + asset –
41
Ex. 2–5
(1) Cash....................................................................... 30,000

Emmer Liu, Capital......................................... 30,000
(2) Supplies................................................................. 1,500
Cash.................................................................. 1,500
(3) Equipment............................................................. 30,000
Accounts Payable........................................... 20,000
Cash.................................................................. 10,000
(4) Operating Expenses............................................. 4,050
Cash.................................................................. 4,050
(5) Accounts Receivable........................................... 13,000
Service Revenue............................................. 13,000
(6) Accounts Payable................................................ 7,500
Cash.................................................................. 7,500
(7) Cash....................................................................... 9,500
Accounts Receivable...................................... 9,500
(8) Emmer Liu, Drawing............................................. 3,000
Cash.................................................................. 3,000
(9) Operating Expenses............................................. 1,050
Supplies........................................................... 1,050
Ex. 2–6
WORLD CO.
Trial Balance
April 30, 20—
Cash...................................................................................... 13,450
Accounts Receivable.......................................................... 3,500
Supplies................................................................................ 450
Equipment............................................................................ 30,000
Accounts Payable............................................................... 12,500
Emmer Liu, Capital.............................................................. 30,000
Emmer Liu, Drawing............................................................ 3,000
Service Revenue.................................................................. 13,000
Operating Expenses............................................................ 5,100
55,500 55,500
42
Ex. 2–7
1. debit and credit (c)

4. credit only (b)
5. debit only (a)
6. debit only (a)
7. debit only (a)
Ex. 2–8
a. Liability—credit f. Asset—debit
b. Asset—debit g. Revenue—credit
c. Asset—debit h. Expense—debit
d. Owner's equity i. Expense—debit
(Craig Arant, Capital)—credit j. Asset—debit
e. Owner's equity
(Craig Arant, Drawing)—debit
Ex. 2–9
a. debit g. debit
b. credit h. debit
c. debit i. credit
d. credit j. credit
e. credit k. debit
f. debit l. debit
Ex. 2–10
a. Debit (negative) balance of $3,500 ($7,500 – $5,000 – $6,000). Such a

negative balance means that the liabilities of Kristi’s business exceed the
assets.
b. Yes. The balance sheet prepared at December 31 will balance, with Kristi
Toohey, Capital, being reported in the owner’s equity section as a negative
$3,500.
43
Ex. 2–11
a. The increase of $17,800 in the cash account does not indicate earnings of
that amount. Earnings will represent the net change in all assets and
liabilities from operating transactions.
b. $8,500 ($26,300 – $17,800)
Ex. 2–12
a. $11,550 ($3,850 + $11,850 – $4,150)

b. $30,000 ($21,000 + $27,500 – $18,500)
c. $13,800 ($60,500 – $77,700 + $31,000)
Ex. 2–13
20—
Mar. 1 Rent Expense........................................................ 2,500
Cash.................................................................. 2,500
2 Advertising Expense............................................ 600
Cash.................................................................. 600
4 Supplies................................................................. 1,050
Cash.................................................................. 1,050
6 Office Equipment.................................................. 4,500
8 Cash....................................................................... 3,600
12 Accounts Payable................................................ 2,150
Cash.................................................................. 2,150
20 Bob Lyons, Drawing............................................. 1,000
Cash.................................................................. 1,000
25 Miscellaneous Expense....................................... 120
Cash.................................................................. 120
30 Utilities Expense................................................... 195
Cash.................................................................. 195
31 Accounts Receivable........................................... 11,150
Fees Earned..................................................... 11,150
31 Utilities Expense................................................... 280
Cash.................................................................. 280
44
Ex. 2–14
a.
JOURNAL Page 29
Post.
Date Description Ref. Debit Credit
2003
Nov. 12 Supplies................................................... 15 1,720
Accounts Payable............................... 21 1,720
Purchased supplies on account.
b., c., d.
Supplies 15
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.
2003
Nov. 1 Balance.................................  ............ ............ 390 ............
12 ................................................ 29 1,720 ............ 2,110 ............
Accounts Payable 21
2003
Nov. 1 Balance.................................  ............ ............ ............ 9,681
12 ................................................ 29 ............ 1,720 ............ .11,401
45
Ex. 2–15
a.
(1) Accounts Receivable........................................... 8,210
Fees Earned..................................................... 8,210
(2) Supplies................................................................. 1,070
(3) Cash....................................................................... 6,150
(4) Accounts Payable................................................ 750
Cash.................................................................. 750
b.
Cash Accounts Payable

(3) 6,150 (4) 750 (4) 750 (2) 1,070
Supplies Fees Earned

(2) 1,070 (1) 8,210
Accounts Receivable
(1) 8,210 (3) 6,150
46
Ex. 2–16
BOGART PARK CO.

Trial Balance
August 31, 20—
Cash...................................................................................... 23,450
Supplies................................................................................ 4,100
Prepaid Insurance............................................................... 3,150
Land...................................................................................... 125,000
Unearned Rent..................................................................... 6,000
Notes Payable...................................................................... 40,000
Don Cline, Capital................................................................ 110,290
Don Cline, Drawing............................................................. 25,000
Fees Earned......................................................................... 333,500
Wages Expense................................................................... 175,000
Rent Expense....................................................................... 58,000
Utilities Expense.................................................................. 41,500
Supplies Expense................................................................ 5,900
Insurance Expense.............................................................. 5,000
Miscellaneous Expense...................................................... 9,900
503,500 503,500
Ex. 2–17
Inequality of trial balance totals would be caused by errors described in (a) and
(e).
47
Ex. 2–18
ENTRÉE CO.
Trial Balance
December 31, 20—
Cash...................................................................................... 21,375
Equipment............................................................................ 68,000
Unearned Rent..................................................................... 2,750
Byron Reynolds, Capital..................................................... 91,615
Byron Reynolds, Drawing.................................................. 10,000
Service Revenue.................................................................. 64,940
Wages Expense................................................................... 33,400
Advertising Expense........................................................... 5,200
167,255 167,255
Ex. 2–19
(a) (b) (c)

Error Out of Balance Difference Larger Total
1. yes $1,500 credit
2. yes 180 credit
3. no — —
4. yes 1,050 debit
5. yes 3,600 debit
6. yes 3,175 debit
7. no — —
48
Ex. 2–20
1. The credit column total is added incorrectly. The sum is $147,650, rather
than $94,150.
2. The trial balance should be dated January 31, 2003, not for the month of
January.
3. The Accounts Receivable balance should be in the debit column.
4. The Accounts Payable balance should be in the credit column.
5. The Pug Myslik, Drawing, 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:
GOULET CO.
Trial Balance
January 31, 2003
Cash...................................................................................... 8,010
Equipment............................................................................ 52,000
Salaries Payable.................................................................. 750
Pug Myslik, Capital.............................................................. 39,600
Pug Myslik, Drawing........................................................... 5,000
Service Revenue.................................................................. 78,700
Salary Expense.................................................................... 28,400
120,900 120,900
Ex. 2–21
a. Julie Snyder, Drawing.......................................... 20,000

Salary Expense................................................ 20,000
b. Accounts Payable................................................ 3,000
Cash.................................................................. 3,000
49
Ex. 2–22
a. Supplies................................................................. 750
Accounts Payable........................................... 750
Cash....................................................................... 750
Miscellaneous Expense................................. 750
b. Cash....................................................................... 5,400
Ex. 2–23
a. 1. Net sales: $6,755,000,000 increase
($18,928,000,000 – $12,173,000,000)
55.5% increase ($6,755,000,000 ÷ $12,173,000,000)
2. Sales and marketing

expenses: $1,481,000,000 increase
($3,946,000,000 – $2,465,000,000)
60.1% increase ($1,481,000,000 ÷ $2,465,000,000)
b. During 2000, the percent increase in sales and marketing expenses (60.1%) is
more than the percent increase in net sales (55.5%), an unfavorable trend.
50
PROBLEMS
Prob. 2–1A
1. and 2.
Cash Equipment
(a) 15,000 (b) 2,000 (d) 5,500
(g) 3,100 (c) 2,500
7,025 18,100 (e) 750 Notes Payable
(f) 1,050 (j) 400 (c) 9,000
(h) 75 8,600
(i) 2,950
(j) 400 Accounts Payable
(m) 1,200 (i) 2,950 (d) 5,500
(n) 150 (k) 525
11,075 3,075 6,025
Accounts Receivable Sherry Lundin, Capital

(l) 4,150 (a) 15,000
Supplies Professional Fees
(e) 750 (g) 3,100
(l) 4,150
7,250
Prepaid Insurance Rent Expense

(f) 1,050 (b) 2,000
Automobiles Salary Expense

(c) 11,500 (m) 1,200
Automobile Expense
(n) 150
Blueprint Expense
(k) 525
Miscellaneous Expense
(h) 75
51
Prob. 2–1A Concluded
3.
SHERRY LUNDIN, ARCHITECT
Trial Balance
March 31, 20—
Cash...................................................................................... 7,025
Supplies................................................................................ 750
Automobiles......................................................................... 11,500
Equipment............................................................................ 5,500
Notes Payable...................................................................... 8,600
Sherry Lundin, Capital........................................................ 15,000
Professional Fees................................................................ 7,250
Rent Expense....................................................................... 2,000
Salary Expense.................................................................... 1,200
Automobile Expense........................................................... 150
Blueprint Expense............................................................... 525
Miscellaneous Expense...................................................... 75
33,925 33,925
52
Prob. 2–2A
1.
(a) Cash....................................................................... 7,500
Jim Lindley, Capital........................................ 7,500
(b) Rent Expense........................................................ 2,500
Cash.................................................................. 2,500
(c) Supplies................................................................. 1,200
(d) Accounts Payable................................................ 900
Cash.................................................................. 900
(e) Cash....................................................................... 15,750
Sales Commissions........................................ 15,750
(f) Automobile Expense............................................ 2,400
Miscellaneous Expense....................................... 1,250
Cash.................................................................. 3,650
(g) Office Salaries Expense....................................... 4,500
Cash.................................................................. 4,500
(h) Supplies Expense................................................. 875
Supplies........................................................... 875
(i) Jim Lindley, Drawing........................................... 2,500
Cash.................................................................. 2,500
53
2.
Cash Sales Commissions
(a) 7,500 (b) 2,500 (e) 15,750
(e) 15,750 (d) 900
9,200 23,250 (f) 3,650 Office Salaries Expense
(g) 4,500 (g) 4,500
(i) 2,500
14,050
Supplies Rent Expense
(c) 1,200 (h) 875 (b) 2,500
325
Accounts Payable Automobile Expense
(d) 900 (c) 1,200 (f) 2,400
300
Jim Lindley, Capital Supplies Expense
(a) 7,500 (h) 875
Jim Lindley, Drawing Miscellaneous Expense

(i) 2,500 (f) 1,250
3. HOMESTEAD REALTY
Trial Balance
May 31, 2003
Cash...................................................................................... 9,200
Supplies................................................................................ 325
Accounts Payable............................................................... 300
Jim Lindley, Capital............................................................. 7,500
Jim Lindley, Drawing.......................................................... 2,500
Sales Commissions............................................................ 15,750
Office Salaries Expense...................................................... 4,500
Rent Expense....................................................................... 2,500
Automobile Expense........................................................... 2,400
Supplies Expense................................................................ 875
23,550 23,550
4. a. $15,750
b. $11,525
c. $4,225
54
Prob. 2–3A
1.
JOURNAL Pages 1 and 2
Post.
20—
April 5 Cash.......................................................... 11 18,000
John Bike, Capital.............................. 31 18,000
6 Rent Expense.......................................... 53 2,000
Cash..................................................... 11 2,000
7 Equipment................................................ 16 10,500
8 Truck......................................................... 18 18,000
Cash..................................................... 11 10,000
Notes Payable..................................... 21 8,000
10 Supplies................................................... 13 1,315
Cash..................................................... 11 1,315
12 Cash.......................................................... 11 7,300
Fees Earned........................................ 41 7,300
20 Prepaid Insurance................................... 14 1,200
Cash..................................................... 11 1,200
23 Accounts Receivable.............................. 12 4,950
Fees Earned........................................ 41 4,950
24 Truck Expense......................................... 55 450
Accounts Payable............................... 22 450
29 Utilities Expense..................................... 54 750
Cash..................................................... 11 750
29 Miscellaneous Expense......................... 59 210
Cash..................................................... 11 210
30 Cash.......................................................... 11 2,200
Accounts Receivable......................... 12 2,200
55
Prob. 2–3A Continued

Post.
20—
April 30 Wages Expense....................................... 51 3,000
Cash..................................................... 11 3,000
30 Accounts Payable................................... 22 1,800
Cash..................................................... 11 1,800
30 John Bike, Drawing................................. 32 3,500
Cash..................................................... 11 3,500
2.
GENERAL LEDGER
Cash 11
Post. Balance
20—
April 5 ................................................ 1 .18,000 ............ 18,000 ............
6 ................................................ 1 ............ 2,000 16,000 ............
8 ................................................ 1 ............ 10,000 6,000 ............
10 ................................................ 1 ............ 1,315 4,685 ............
12 ................................................ 1 7,300 ............ 11,985 ............
20 ................................................ 1 ............ 1,200 10,785 ............
29 ................................................ 2 ............ 750 10,035 ............
29 ................................................ 2 ............ 210 9,825 ............
30 ................................................ 2 2,200 ............ 12,025 ............
30 ................................................ 2 ............ 3,000 9,025 ............
30 ................................................ 2 ............ 1,800 7,225 ............
30 ................................................ 2 ............ 3,500 3,725 ............
20—
April 23 ................................................ 1 4,950 ............ 4,950 ............
30 ................................................ 2 ............ 2,200 2,750 ............
56
Supplies 13
Post. Balance
20—
April 10 ................................................ 1 1,315 ............ 1,315 ............
Prepaid Insurance 14
20—
April 20 ................................................ 1 1,200 ............ 1,200 ............
Equipment 16
20—
April 7 ................................................ 1 10,500 ............ 10,500 ............
Truck 18
20—
April 8 ................................................ 1 .18,000 ............ 18,000 ............
Notes Payable 21
20—
April 8 ................................................ 1 ............ 8,000 ............ 8,000
Accounts Payable 22
20—
April 7 ................................................ 1 ............ 10,500 ............ 10,500
24 ................................................ 1 ............ 450 ............ 10,950
30 ................................................ 2 1,800 ............ ............ 9,150
John Bike, Capital 31

20—
April 5 ................................................ 1 ............ 18,000 ............ 18,000
John Bike, Drawing 32

20—
April 30 ................................................ 2 3,500 ............ 3,500 ............
57
Fees Earned 41
Post. Balance
20—
April 12 ................................................ 1 ............ 7,300 ............ 7,300
23 ................................................ 1 ............ 4,950 ............ 12,250
Wages Expense 51
20—
April 30 ................................................ 2 3,000 ............ 3,000 ............
Rent Expense 53
20—
April 6 ................................................ 1 2,000 ............ 2,000 ............
Utilities Expense 54
20—
April 29 ................................................ 2 750 ............ 750 ............
Truck Expense 55
20—
April 24 ................................................ 1 450 ............ 450 ............
20—
April 29 ................................................ 2 210 ............ 210 ............
58
3.
TUCSON DESIGNS
Trial Balance
April 30, 20—
Cash...................................................................................... 3,725
Supplies................................................................................ 1,315
Equipment............................................................................ 10,500
Truck..................................................................................... 18,000
Notes Payable...................................................................... 8,000
John Bike, Capital............................................................... 18,000
John Bike, Drawing............................................................. 3,500
Fees Earned......................................................................... 12,250
Wages Expense................................................................... 3,000
Rent Expense....................................................................... 2,000
Utilities Expense.................................................................. 750
Truck Expense..................................................................... 450
47,400 47,400
59
Prob. 2–4A
2. and 3.

Post.
20—
Apr. 1 Rent Expense.......................................... 52 5,000
Cash..................................................... 11 5,000
2 Office Supplies........................................ 14 1,375
Cash..................................................... 11 1,650
8 Cash.......................................................... 11 20,200
15 Land.......................................................... 16 75,000
Cash..................................................... 11 7,500
Notes Payable..................................... 22 67,500
Cash..................................................... 11 4,150
20 Accounts Payable................................... 21 275
Office Supplies.................................... 14 275
24 Advertising Expense.............................. 53 1,050
Cash..................................................... 11 1,050
27 Cash.......................................................... 11 350
Salary and Commission Expense..... 51 350
28 Automobile Expense.............................. 54 715
Cash..................................................... 11 715
Cash..................................................... 11 215
Fees Earned........................................ 41 28,400
30 Salary and Commission Expense......... 51 11,500
Cash..................................................... 11 11,500
30 Reba Heflin, Drawing.............................. 32 2,000
Cash..................................................... 11 2,000
60
1. and 3.
Cash 11
Post. Balance
20—
Apr. 1 Balance.................................  ............ ............ 18,150 ............
1 ................................................ 18 ............ 5,000 13,150 ............
5 ................................................ 18 ............ 1,650 11,500 ............
8 ................................................ 18 .20,200 ............ 31,700 ............
15 ................................................ 18 ............ 7,500 24,200 ............
17 ................................................ 18 ............ 4,150 20,050 ............
24 ................................................ 18 ............ 1,050 19,000 ............
27 ................................................ 19 350 ............ 19,350 ............
28 ................................................ 19 ............ 715 18,635 ............
29 ................................................ 19 ............ 215 18,420 ............
30 ................................................ 19 ............ 11,500 6,920 ............
30 ................................................ 19 ............ 2,000 4,920 ............
20—
Apr. 1 Balance.................................  ............ ............ 48,750 ............
8 ................................................ 18 ............ 20,200 28,550 ............
30 ................................................ 19 .28,400 ............ 56,950 ............
20—
Apr. 1 Balance.................................  ............ ............ 1,100 ............
5 ................................................ 18 1,650 ............ 2,750 ............
Office Supplies 14
20—
Apr. 1 Balance.................................  ............ ............ 1,050 ............
2 ................................................ 18 1,375 ............ 2,425 ............
20 ................................................ 18 ............ 275 2,150 ............
Land 16
20—
Apr. 15 ................................................ 18 .75,000 ............ 75,000 ............
61
Accounts Payable 21
Post. Balance
20—
Apr. 1 Balance.................................  ............ ............ ............ .11,510
2 ................................................ 18 ............ 1,375 ............ .12,885
17 ................................................ 18 4,150 ............ ............ 8,735
20 ................................................ 18 275 ............ ............ 8,460
Notes Payable 22
20—
Apr. 15 ................................................ 18 ............ 67,500 ............ .67,500
Reba Heflin, Capital 31

20—
Apr. 1 Balance.................................  ............ ............ ............ .34,340
Reba Heflin, Drawing 32

20—
Apr. 1 Balance.................................  ............ ............ 1,000 ............
30 ................................................ 19 2,000 ............ 3,000 ............
Fees Earned 41
20—
Apr. 1 Balance.................................  ............ ............ ............
126,500
30 ................................................ 19 ............ 28,400 ............
154,900
Salary and Commission Expense 51

20—
Apr. 1 Balance.................................  ............ ............ 74,100 ............
27 ................................................ 19 ............ 350 .73,750 ............
30 ................................................ 19 .11,500 ............ 85,250 ............
Rent Expense 52
20—
Apr. 1 Balance.................................  ............ ............ 15,000 ............
1 ................................................ 18 5,000 ............ 20,000 ............
62
Advertising Expense 53
Post. Balance
20—
Apr. 1 Balance.................................  ............ ............ 8,900 ............
24 ................................................ 18 1,050 ............ 9,950 ............
Automobile Expense 54
20—
Apr. 1 Balance.................................  ............ ............ 2,750 ............
28 ................................................ 19 715 ............ 3,465 ............
20—
Apr. 1 Balance.................................  ............ ............ 1,550 ............
29 ................................................ 19 215 ............ 1,765 ............
63
4.
EASTSIDE REALTY
Trial Balance
April 30, 20—
Cash...................................................................................... 4,920
Office Supplies.................................................................... 2,150
Land...................................................................................... 75,000
Notes Payable...................................................................... 67,500
Reba Heflin, Capital............................................................. 34,340
Reba Heflin, Drawing.......................................................... 3,000
Fees Earned......................................................................... 154,900
Salary and Commission Expense...................................... 85,250
Rent Expense....................................................................... 20,000
265,200 265,200
64
Prob. 2–5A
1. Totals of preliminary trial balance: Debit $47,729.40
Credit $36,293.70
2. Difference between preliminary trial balance totals: $11,435.70
3. Errors in trial balance:
(a) Prepaid Insurance debit balance was listed as $359.50 instead of $395.50.
(b) Wages Expense debit balance of $3,018.60 was listed as credit balance.
(c) Miscellaneous Expense of $283.50 was omitted.
4. Errors in account balances:
(a) Erin Dunahoo, Drawing, balance of $1,350.00 was totaled as $1,200.00.
5. Errors in posting:
(a) Rent Expense entry of March 1 for $1,540.00 was posted as $15,400.00 (slide).
(b) Cash entry of March 15 for $1,785.50 was posted as $1,875.50
(transposition).
(c) Service Revenue entry of March 25 for $1,681.30 was posted as
$1,618.30 (transposition).
(d) Utilities Expense entry of March 30 for $436.60 was posted as $4,366.00
(slide).
6. Mar. 31 Advertising Expense...................... 53 100.00
Cash.......................................... 11 100.00
7.
RELIABLE TV REPAIR
Trial Balance
March 31, 20—
Cash...................................................................................... 8,316.00
Supplies................................................................................ 997.90
Prepaid Insurance............................................................... 395.50
Land...................................................................................... 16,625.00
Notes Payable...................................................................... 6,500.00
Accounts Payable............................................................... 1,077.50
Erin Dunahoo, Capital......................................................... 17,760.20
Erin Dunahoo, Drawing....................................................... 1,350.00
Service Revenue.................................................................. 8,000.40
Wages Expense................................................................... 3,018.60
Utilities Expense.................................................................. 436.60
Advertising Expense........................................................... 375.00
Rent Expense....................................................................... 1,540.00
Miscellaneous Expense...................................................... 283.50
33,338.10 33,338.10
65
Prob. 2–6A
1.
PERSIAN CARPET
Trial Balance
March 31, 20—
Cash...................................................................................... 2,815*
Supplies................................................................................ 1,100
Prepaid Insurance............................................................... 550
Equipment............................................................................ 25,000
Notes Payable...................................................................... 15,000
Serena Nodvin, Capital....................................................... 16,300
Serena Nodvin, Drawing..................................................... 8,000
Fees Earned......................................................................... 54,790
Wages Expense................................................................... 31,100
Rent Expense....................................................................... 7,455
Gas, Electricity, and Water Expense................................. 3,150
90,000 90,000
* $7,315 + $900 (a) – $5,400 (b)
2. No. The trial balance indicates only that the debits and credits are equal. Any
errors that have the same effect on debits and credits will not affect the
balancing of the trial balance.
66
Prob. 2–1B
1. and 2.
Cash Accounts Payable

(a) 25,000 (b) 6,000 (h) 2,100 (e) 6,200
(g) 3,725 (c) 2,500 (j) 350
13,955 28,725 (d) 300 4,450 6,550
(f) 1,200
(h) 2,100 James Bitnar, Capital
(i) 120 (a) 25,000
(l) 1,500
(m) 105 Professional Fees
(n) 800 (g) 3,725
(o) 145 (k) 3,500
14,770 7,225
Accounts Receivable Rent Expense

(k) 3,500 (c) 2,500
Supplies Salary Expense

(d) 300 (l) 1,500
Prepaid Insurance Blueprint Expense

(f) 1,200 (j) 350
Automobiles Automobile Expense

(b) 18,300 (o) 145
Equipment Miscellaneous Expense

(e) 6,200 (i) 120
(m) 105
225
Notes Payable
(n) 800 (b) 12,300
11,500
67
Prob. 2–1B Concluded
3.
JAMES BITNAR, ARCHITECT
Trial Balance
September 30, 20—
Cash...................................................................................... 13,955
Supplies................................................................................ 300
Automobiles......................................................................... 18,300
Equipment............................................................................ 6,200
Notes Payable...................................................................... 11,500
James Bitnar, Capital.......................................................... 25,000
Professional Fees................................................................ 7,225
Rent Expense....................................................................... 2,500
Salary Expense.................................................................... 1,500
Blueprint Expense............................................................... 350
Automobile Expense........................................................... 145
48,175 48,175
68
Prob. 2–2B
1.
(a) Cash....................................................................... 10,000
Mary Jo Croy, Capital..................................... 10,000
(b) Supplies................................................................. 1,900
(c) Cash....................................................................... 22,600
Sales Commissions........................................ 22,600
(d) Rent Expense........................................................ 4,500
Cash.................................................................. 4,500
(e) Accounts Payable................................................ 1,000
Cash.................................................................. 1,000
(f) Mary Jo Croy, Drawing........................................ 3,000
Cash.................................................................. 3,000
(g) Automobile Expense............................................ 1,900
Miscellaneous Expense....................................... 1,050
Cash.................................................................. 2,950
(h) Office Salaries Expense....................................... 4,000
Cash.................................................................. 4,000
(i) Supplies Expense................................................. 905
Supplies........................................................... 905
69
2.
Cash Sales Commissions
(a) 10,000 (d) 4,500 (c) 22,600
(c) 22,600 (e) 1,000
17,150 32,600 (f) 3,000
(g) 2,950 Rent Expense
(h) 4,000 (d) 4,500
15,450
Supplies Office Salaries Expense
(b) 1,900 (i) 905 (h) 4,000
995
Accounts Payable Automobile Expense
(e) 1,000 (b) 1,900 (g) 1,900
900
Mary Jo Croy, Capital Supplies Expense
(a) 10,000 (i) 905
Mary Jo Croy, Drawing Miscellaneous Expense
(f) 3,000 (g) 1,050
3. PREFERRED REALTY
Trial Balance
December 31, 2003
Cash...................................................................................... 17,150
Supplies................................................................................ 995
Mary Jo Croy, Capital.......................................................... 10,000
Mary Jo Croy, Drawing....................................................... 3,000
Sales Commissions............................................................ 22,600
Rent Expense....................................................................... 4,500
Office Salaries Expense...................................................... 4,000
33,500 33,500
4. a. $22,600
b. $12,355
c. $10,245
70
Prob. 2–3B
1.
Post.
20—
Oct. 10 Cash.......................................................... 11 15,000
Kirk Hurwitz, Capital........................... 31 15,000
10 Rent Expense.......................................... 53 1,600
Cash..................................................... 11 1,600
11 Truck......................................................... 18 15,000
Cash..................................................... 11 5,000
Notes Payable..................................... 21 10,000
13 Equipment................................................ 16 3,500
14 Supplies................................................... 13 1,050
Cash..................................................... 11 1,050
14 Prepaid Insurance................................... 14 750
Cash..................................................... 11 750
15 Cash.......................................................... 11 3,100
Fees Earned........................................ 41 3,100
Cash..................................................... 11 3,500
Fees Earned........................................ 41 5,100
26 Truck Expense......................................... 55 280
27 Utilities Expense..................................... 54 1,205
Cash..................................................... 11 1,205
Cash..................................................... 11 180
71
Prob. 2–3B Continued

Post.
20—
Oct. 29 Cash.......................................................... 11 2,420
30 Wages Expense....................................... 51 2,500
Cash..................................................... 11 2,500
31 Kirk Hurwitz, Drawing............................. 32 1,000
Cash..................................................... 11 1,000
2.
Cash 11
Post. Balance
20—
Oct. 10 ................................................ 1 .15,000 ............ 15,000 ............
10 ................................................ 1 ............ 1,600 13,400 ............
11 ................................................ 1 ............ 5,000 8,400 ............
14 ................................................ 1 ............ 1,050 7,350 ............
14 ................................................ 1 ............ 750 6,600 ............
15 ................................................ 1 3,100 ............ 9,700 ............
21 ................................................ 2 ............ 3,500 6,200 ............
27 ................................................ 2 ............ 1,205 4,995 ............
27 ................................................ 2 ............ 180 4,815 ............
29 ................................................ 2 2,420 ............ 7,235 ............
30 ................................................ 2 ............ 2,500 4,735 ............
31 ................................................ 2 ............ 1,000 3,735 ............
20—
Oct. 24 ................................................ 2 5,100 ............ 5,100 ............
29 ................................................ 2 ............ 2,420 2,680 ............
72
Supplies 13
Post. Balance
20—
Oct. 14 ................................................ 1 1,050 ............ 1,050 ............
20—
Oct. 14 ................................................ 1 750 ............ 750 ............
Equipment 16
20—
Oct. 13 ................................................ 1 3,500 ............ 3,500 ............
Truck 18
20—
Oct. 11 ................................................ 1 .15,000 ............ 15,000 ............
Notes Payable 21
20—
Oct. 11 ................................................ 1 ............ 10,000 ............ .10,000
Accounts Payable 22
20—
Oct. 13 ................................................ 1 ............ 3,500 ............ 3,500
21 ................................................ 2 3,500 ............ ............ 0
26 ................................................ 2 ............ 280 ............ 280
Kirk Hurwitz, Capital 31

20—
Oct. 10 ................................................ 1 ............ 15,000 ............ 15,000
Kirk Hurwitz, Drawing 32

20—
Oct. 31 ................................................ 2 1,000 ............ 1,000 ............
73
Fees Earned 41
Post. Balance
20—
Oct. 15 ................................................ 1 ............ 3,100 ............ 3,100
24 ................................................ 2 ............ 5,100 ............ 8,200
Wages Expense 51
20—
Oct. 30 ................................................ 2 2,500 ............ 2,500 ............
Rent Expense 53
20—
Oct. 10 ................................................ 1 1,600 ............ 1,600 ............
20—
Oct. 27 ................................................ 2 1,205 ............ 1,205 ............
Truck Expense 55
20—
Oct. 26 ................................................ 2 280 ............ 280 ............
20—
Oct. 27 ................................................ 2 180 ............ 180 ............
74
3.
MARQUIS DESIGNS
Trial Balance
October 31, 20—
Cash...................................................................................... 3,735
Supplies................................................................................ 1,050
Equipment............................................................................ 3,500
Truck..................................................................................... 15,000
Notes Payable...................................................................... 10,000
Kirk Hurwitz, Capital........................................................... 15,000
Kirk Hurwitz, Drawing......................................................... 1,000
Fees Earned......................................................................... 8,200
Wages Expense................................................................... 2,500
Rent Expense....................................................................... 1,600
Utilities Expense.................................................................. 1,205
Truck Expense..................................................................... 280
33,480 33,480
75
Prob. 2–4B
2. and 3.
Post.
20—
Dec. 1 Office Supplies........................................ 14 1,100
2 Rent Expense.......................................... 52 1,600
Cash..................................................... 11 1,600
3 Cash.......................................................... 11 24,200
Cash..................................................... 11 1,925
Office Supplies.................................... 14 150
14 Advertising Expense.............................. 53 2,150
Cash..................................................... 11 2,150
Cash..................................................... 11 1,650
Cash..................................................... 11 215
30 Automobile Expense.............................. 54 850
Cash..................................................... 11 850
31 Cash.......................................................... 11 500
Salary and Commission Expense..... 51 500
31 Salary and Commission Expense......... 51 10,850
Cash..................................................... 11 10,850
Fees Earned........................................ 41 26,200
31 Land.......................................................... 16 50,000
Cash..................................................... 11 10,000
Notes Payable..................................... 22 40,000
31 Katie Chaney, Drawing........................... 32 2,500
Cash..................................................... 11 2,500
76
1. and 3.
Cash 11
Post. Balance
20—
Dec. 1 Balance.................................  ............ ............ 19,500 ............
2 ................................................ 18 ............ 1,600 17,900 ............
3 ................................................ 18 .24,200 ............ 42,100 ............
8 ................................................ 18 ............ 1,925 40,175 ............
14 ................................................ 18 ............ 2,150 38,025 ............
23 ................................................ 18 ............ 1,650 36,375 ............
29 ................................................ 19 ............ 215 36,160 ............
30 ................................................ 19 ............ 850 35,310 ............
31 ................................................ 19 500 ............ .35,810 ............
31 ................................................ 19 ............ 10,850 24,960 ............
31 ................................................ 19 ............ 10,000 14,960 ............
31 ................................................ 19 ............ 2,500 12,460 ............
20—
Dec. 1 Balance.................................  ............ ............ 28,600 ............
3 ................................................ 18 ............ 24,200 4,400 ............
31 ................................................ 19 .26,200 ............ 30,600 ............
20—
Dec. 1 Balance.................................  ............ ............ 1,750 ............
8 ................................................ 18 1,925 ............ 3,675 ............
Office Supplies 14
20—
Dec. 1 Balance.................................  ............ ............ 625 ............
1 ................................................ 18 1,100 ............ 1,725 ............
10 ................................................ 18 ............ 150 1,575 ............
Land 16
20—
Dec. 31 ................................................ 19 .50,000 ............ 50,000 ............
77
Accounts Payable 21
Post. Balance
20—
Dec. 1 Balance.................................  ............ ............ ............ 3,250
1 ................................................ 18 ............ 1,100 ............ 4,350
10 ................................................ 18 150 ............ ............ 4,200
23 ................................................ 18 1,650 ............ ............ 2,550
Notes Payable 22
20—
Dec. 31 ................................................ 19 ............ 40,000 ............ 40,000
Katie Chaney, Capital 31

20—
Dec. 1 Balance.................................  ............ ............ ............ 12,625
Katie Chaney, Drawing 32

20—
Dec. 1 Balance.................................  ............ ............ 10,000 ............
31 ................................................ 19 2,500 ............ .12,500 ............
Fees Earned 41
20—
Dec. 1 Balance.................................  ............ ............ ............ 158,725
31 ................................................ 19 ............ 26,200 ............ 184,925
Salary and Commission Expense 51

20—
Dec. 1 Balance.................................  ............ ............ 83,075 ............
31 ................................................ 19 ............ 500 82,575 ............
31 ................................................ 19 .10,850 ............ 93,425 ............
Rent Expense 52
20—
Dec. 1 Balance.................................  ............ ............ 16,000 ............
2 ................................................ 18 1,600 ............ 17,600 ............
78
Post. Balance
20—
Dec. 1 Balance.................................  ............ ............ 10,500 ............
14 ................................................ 18 2,150 ............ 12,650 ............
Automobile Expense 54
20—
Dec. 1 Balance.................................  ............ 3,950 ............
30 ................................................ 19 850 ............ 4,800 ............
20—
Dec. 1 Balance.................................  ............ ............ 600 ............
29 ................................................ 19 215 ............ 815 ............
79
4.
GALLATIN REALTY
Trial Balance
December 31, 20—
Cash...................................................................................... 12,460
Office Supplies.................................................................... 1,575
Land...................................................................................... 50,000
Notes Payable...................................................................... 40,000
Katie Chaney, Capital.......................................................... 12,625
Katie Chaney, Drawing....................................................... 12,500
Fees Earned......................................................................... 184,925
Salary and Commission Expense...................................... 93,425
Rent Expense....................................................................... 17,600
240,100 240,100
80
Prob. 2–5B
1. Totals of preliminary trial balance: Debit $47,729.40
Credit $36,293.70
2. Difference between preliminary trial balance totals: $11,435.70
3. Errors in trial balance:
(a) Prepaid Insurance debit balance was listed as $359.50 instead of $395.50
(b) Wages Expense debit balance of $3,018.60 was listed as credit balance.
(c) Miscellaneous Expense of $283.50 was omitted.
4. Errors in account balances:
(a) Erin Dunahoo, Drawing, balance of $1,350.00 was totaled as $1,200.00.
5. Errors in posting:
(a) Rent Expense entry of March 1 for $1,540.00 was posted as $15,400.00
(slide).
(b) Cash entry of March 15 for $1,785.50 was posted as $1,875.50
(transposition).
(c) Service Revenue entry of March 25 for $1,681.30 was posted as
$1,618.30 (transposition).
(d) Utilities Expense entry of March 30 for $436.60 was posted as $4,366.00
(slide).
6. Mar. 31 Utilities Expense.............................. 52 163.40
Cash............................................. 11 163.40
7.
RELIABLE TV REPAIR
Trial Balance
March 31, 20—
Cash...................................................................................... 8,252.60
Supplies................................................................................ 997.90
Prepaid Insurance............................................................... 395.50
Land...................................................................................... 16,625.00
Notes Payable...................................................................... 6,500.00
Accounts Payable............................................................... 1,077.50
Erin Dunahoo, Capital......................................................... 17,760.20
Erin Dunahoo, Drawing....................................................... 1,350.00
Service Revenue.................................................................. 8,000.40
Wages Expense................................................................... 3,018.60
Utilities Expense.................................................................. 600.00
Advertising Expense........................................................... 275.00
Rent Expense....................................................................... 1,540.00
Miscellaneous Expense...................................................... 283.50
33,338.10 33,338.10
81
Prob. 2–6B
1.
PATEL VIDEOGRAPHY
Trial Balance
December 31, 20—
Cash...................................................................................... 3,765*
Supplies................................................................................ 1,250
Equipment............................................................................ 30,000
Notes Payable...................................................................... 10,000
Ramesh Patel, Capital......................................................... 18,000
Ramesh Patel, Drawing....................................................... 7,500
Fees Earned......................................................................... 98,900
Wages Expense................................................................... 56,730
Rent Expense....................................................................... 11,585
Gas, Electricity, and Water Expense................................. 3,150
130,000 130,000
* $1,865 – $2,500 (a) + $4,400 (b)
2. No. The trial balance indicates only that the debits and credits are equal. Any
errors that have the same effect on debits and credits will not affect the
balancing of the trial balance.
82
CONTINUING PROBLEM
2. and 3.
JOURNAL Page 1
Post.
2002
Dec. 1 Cash.......................................................... 11 1,500
Lynn Kwan, Capital............................ 31 1,500
1 Office Rent Expense............................... 51 800
Cash..................................................... 11 800
Cash..................................................... 11 1,680
2 Cash.......................................................... 11 600
Accounts Receivable......................... 12 600
3 Cash.......................................................... 11 2,400
Unearned Revenue............................. 23 2,400
Cash..................................................... 11 125
Cash..................................................... 11 75
5 Office Equipment.................................... 17 2,500
8 Advertising Expense.............................. 55 100
Cash..................................................... 11 100
11 Cash.......................................................... 11 300
Fees Earned........................................ 41 300
13 Equipment Rent Expense...................... 52 250
Cash..................................................... 11 250
14 Wages Expense....................................... 50 600
Cash..................................................... 11 600
83
Continuing Problem Continued
2. and 3.
JOURNAL Page 2
Post.
2002
Dec. 16 Cash.......................................................... 11 550
Fees Earned........................................ 41 550
18 Supplies................................................... 14 375
21 Music Expense........................................ 54 120
Cash..................................................... 11 120
22 Advertising Expense.............................. 55 250
Cash..................................................... 11 250
23 Cash.......................................................... 11 200
Accounts Receivable.............................. 12 580
Fees Earned........................................ 41 780
27 Utilities Expense..................................... 53 280
Cash..................................................... 11 280
28 Wages Expense....................................... 50 600
Cash..................................................... 11 600
Cash..................................................... 11 85
30 Cash.......................................................... 11 300
Accounts Receivable.............................. 12 300
Fees Earned........................................ 41 600
31 Cash.......................................................... 11 1,000
Fees Earned........................................ 41 1,000
31 Music Expense........................................ 54 300
Cash..................................................... 11 300
31 Lynn Kwan, Drawing............................... 32 1,000
Cash..................................................... 11 1,000
84
1. and 3.
Cash 11
Post. Balance
2002
Dec. 1 Balance.................................  ............ ............ 3,080 ............
1 ................................................ 1 1,500 ............ 4,580 ............
1 ................................................ 1 ............ 800 3,780 ............
1 ................................................ 1 ............ 1,680 2,100 ............
2 ................................................ 1 600 ............ 2,700 ............
3 ................................................ 1 2,400 ............ 5,100 ............
3 ................................................ 1 ............ 125 4,975 ............
4 ................................................ 1 ............ 75 4,900 ............
8 ................................................ 1 ............ 100 4,800 ............
11 ................................................ 1 300 ............ 5,100 ............
13 ................................................ 1 ............ 250 4,850 ............
14 ................................................ 1 ............ 600 4,250 ............
16 ................................................ 2 550 ............ 4,800 ............
21 ................................................ 2 ............ 120 4,680 ............
22 ................................................ 2 ............ 250 4,430 ............
23 ................................................ 2 200 ............ 4,630 ............
27 ................................................ 2 ............ 280 4,350 ............
28 ................................................ 2 ............ 600 3,750 ............
29 ................................................ 2 ............ 85 3,665 ............
30 ................................................ 2 300 ............ 3,965 ............
31 ................................................ 2 1,000 ............ 4,965 ............
31 ................................................ 2 ............ 300 4,665 ............
31 ................................................ 2 ............ 1,000 3,665 ............
2002
Dec. 1 Balance.................................  ............ ............ 600 ............
2 ................................................ 1 ............ 600 — —
23 ................................................ 2 580 ............ 580 ............
30 ................................................ 2 300 ............ 880 ............
Supplies 14
2002
Dec. 1 Balance.................................  ............ ............ 85 ............
18 ................................................ 2 375 ............ 460 ............
2002
Dec. 1 ................................................ 1 1,680 ............ 1,680 ............
85
Office Equipment 17
Post. Balance
2002
Dec. 5 ................................................ 1 2,500 ............ 2,500 ............
Accumulated Depreciation—Office Equipment 18

This account is not used in Chapter 2.
Accounts Payable 21
2002
Dec. 1 Balance.................................  ............ ............ ............ 125
3 ................................................ 1 125 ............ — —
5 ................................................ 1 ............ 2,500 ............ 2,500
18 ................................................ 2 ............ 375 ............ 2,875
Wages Payable 22
Unearned Revenue 23
2002
Dec. 3 ................................................ 1 ............ 2,400 ............ 2,400
Lynn Kwan, Capital 31

2002
Dec. 1 Balance.................................  ............ ............ ............ 3,500
1 ................................................ 1 ............ 1,500 ............ 5,000
Lynn Kwan, Drawing 32

2002
Dec. 1 Balance.................................  ............ ............ 125 ............
31 ................................................ 2 1,000 ............ 1,125 ............
Income Summary 33
Fees Earned 41
2002
Dec. 1 Balance.................................  ............ ............ ............ 2,375
11 ................................................ 1 ............ 300 ............ 2,675
16 ................................................ 2 ............ 550 ............ 3,225
23 ................................................ 2 ............ 780 ............ 4,005
30 ................................................ 2 ............ 600 ............ 4,605
31 ................................................ 2 ............ 1,000 ............ 5,605
86
Wages Expense 50
Post. Balance
2002
Dec. 1 Balance.................................  ............ ............ 200 ............
14 ................................................ 1 600 ............ 800 ............
28 ................................................ 2 600 ............ 1,400 ............
Office Rent Expense 51

2002
Dec. 1 Balance.................................  ............ ............ 500 ............
1 ................................................ 1 800 ............ 1,300 ............
Equipment Rent Expense 52

2002
Dec. 1 Balance.................................  ............ ............ 325 ............
13 ................................................ 1 250 ............ 575 ............
2002
Dec. 1 Balance.................................  ............ ............ 150 ............
27 ................................................ 2 280 ............ 430 ............
Music Expense 54
2002
Dec. 1 Balance.................................  ............ ............ 470 ............
21 ................................................ 2 120 ............ 590 ............
31 ................................................ 2 300 ............ 890 ............
2002
Dec. 1 Balance.................................  ............ ............ 300 ............
8 ................................................ 1 100 ............ 400 ............
22 ................................................ 2 250 ............ 650 ............
Supplies Expense 56
2002
Dec. 1 Balance.................................  ............ ............ 90 ............
Insurance Expense 57
87
Continuing Problem Concluded
Depreciation Expense 58
Post. Balance
2002
Dec. 1 Balance.................................  ............ ............ 75 ............
4 ................................................ 1 75 ............ 150 ............
29 ................................................ 2 85 ............ 235 ............
4.
DANCIN MUSIC
Trial Balance
December 31, 2002
Cash...................................................................................... 3,665
Accounts Receivable.......................................................... 880
Supplies................................................................................ 460
Office Equipment................................................................. 2,500
Unearned Revenue.............................................................. 2,400
Lynn Kwan, Capital............................................................. 5,000
Lynn Kwan, Drawing........................................................... 1,125
Fees Earned......................................................................... 5,605
Wages Expense................................................................... 1,400
Office Rent Expense........................................................... 1,300
Equipment Rent Expense................................................... 575
Utilities Expense.................................................................. 430
Music Expense.................................................................... 890
Advertising Expense........................................................... 650
15,880 15,880
88
SPECIAL ACTIVITIES
Activity 2–1
Acceptable ethical conduct requires that Dana look for the difference. If Dana
cannot find the difference within a reasonable amount of time, she should confer
with her supervisor as to what action should be taken so that the financial
statements can be prepared by the 5 o'clock deadline. Dana's responsibility to
her employer is to act with integrity, objectivity, and due care, so that users of
the financial statements will not be misled.
Activity 2–2
The following general journal entry should be used to record the receipt of
tuition payments received in advance of classes:
Cash....................................................................... XXXX
Unearned Tuition Deposits............................ XXXX
Cash is an asset account, and Unearned Tuition Deposits is a liability account.

As the classes are taught throughout the term, the unearned tuition deposits
become earned revenue.
Activity 2–3
The journal is called the book of original entry. It provides a time-ordered history
of the transactions that have occurred for the firm. This time-ordered history is
very important because it allows one to trace ledger account balances back to
the original transactions that created those balances. This is called an “audit
trail.” If the firm recorded transactions by posting ledgers directly, it would be
nearly impossible to reconstruct actual transactions. The debits and credits
would all be separated and accumulated into the ledger balances. Once the
transactions became part of the ledger balances, the original transactions would
be lost. In other words, there would be no audit trail, and any errors that might
occur in recording transactions would be almost impossible to trace. Thus, firms
first record transaction debits and credits in a journal. These transactions are
then posted to the ledger to update the account balances. The journal and ledger
are linked using posting references. This allows an analyst to trace the
transaction flow forward or backward, depending upon the need.
89
Activity 2–4
1. The rules of debit and credit must be memorized. Sean is correct in that the
rules of debit and credit could be reversed as long as everyone accepted and
abided by the rules. However, the important point is that everyone accepts
the rules as the way in which transactions should be recorded. This
generates uniformity across the accounting profession and reduces errors
and confusion. Since the current rules of debit and credit have been used for
centuries, Sean should adapt to the current rules of debit and credit, rather
than devise his own.
The primary reason that all accounts do not have the same rules for
increases and decreases is for control of the recording process. The double-
entry accounting system, which includes both (1) the rules of debit and
credit and (2) the accounting equation, guarantees that (1) debits always
equals credits and (2) assets always equals liabilities plus owner’s equity. If
all increases in the account were recorded by debits, then the control that
debits always equals credits would be removed. In addition, the control that
the normal balance of assets is a debit would also be removed. The
accounting equation would still hold, but the control over recording
transactions would be weakened.
Sean is correct that we could call the left and right sides of an account
different terms, such as “LE” or “RE.” Again, centuries of tradition dictate the
current terminology used. One might note, however, that in Latin, debere
(debit) means left and credere (credit) means right.
2. The accounting system may be designed to capture information about the

buying habits of various customers or vendors, such as the quantity
normally ordered, average amount ordered, number of returns, etc. Thus, in a
sense, there can be other “sides” of (information about) a transaction that
are recorded by the accounting system. Such information would be viewed
as supplemental to the basic double-entry accounting system.
90
Activity 2–5
a. Although the titles and numbers of accounts may differ, depending on how
expenses are classified, the following accounts would be adequate for
recording transaction data for Fairway Caddy Service:

1. Assets 4. Revenue
11 Cash 41 Service Revenue
12 Accounts Receivable
13 Supplies 5. Expenses
51 Rent Expense
2. Liabilities 52 Supplies Expense
21 Accounts Payable 53 Salary Expense
54 Utilities Expense
3. Owner's Equity 55 Miscellaneous Expense
31 Shelley Dolvin, Capital
32 Shelley Dolvin, Drawing
b.
FAIRWAY CADDY SERVICE
Income Statement
For Month Ended June 30, 20—
Service revenue................................................................... $2,975

Operating expenses:
Rent expense................................................................ $1,200
Supplies expense......................................................... 402
Salary expense............................................................. 260
Utilities expense........................................................... 105
Miscellaneous expense............................................... 125
Total operating expenses..................................... 2,092
Net income........................................................................... $ 883
Note to Instructors: Students may have prepared slightly different income
statements, depending upon the titles of the major expense classifications
chosen. Regardless of the classification of expenses, however, the total sales,
total operating expenses, and net income should be as presented above.
T accounts are not required for the preparation of the income statement of
Fairway Caddy Service. The following presentation illustrates one solution using
T accounts. Alternative solutions are possible if students used different
accounts. In presenting the following T account solution, instructors may wish to
emphasize the advantages of using T accounts (or a journal and four-column
accounts) when a large number of transactions must be recorded.
91
Activity 2–5 Continued
Cash 11 Service Revenue 41

20— 20— 20—
June 1 1,500 June 1 200 June 15 1,120
15 1,120 2 150 25 380
30 1,475 3 750 30 1,475
30 175 17 180 2,975
2,250 4,270 20 250
28 125 Rent Expense 51
30 105 20—
30 260 June 1 200
2,020 3 1,000
1,200
Accounts Receivable 12 Supplies Expense 52

20— 20— 20—
June 25 380 June 30 175 June 30 402
205
Supplies 13 Salary Expense 53

20— 20— 20—
June 2 150 June 30 402 June 30 260
7 180
22 170 Utilities Expense 54
98 500 20—
June 30 105
Accounts Payable 21
20— 20— Miscellaneous Expense 55
June 17 180 June 3 250 20—
20 250 7 180 June 28 125
430 22 170
170 600
Shelley Dolvin, Capital 31

20—
June 1 1,500
92
Activity 2–5 Concluded
c. $2,250, computed in the following manner:
Cash receipts:
Initial investment................................................... $1,500
Cash sales.............................................................. 2,595
Collections on accounts....................................... 175
Total cash receipts during June.................. $4,270
Cash disbursements:
Rent expense......................................................... $1,200
Supplies purchased for cash............................... 150
Salary expense....................................................... 260
Payment for supplies on account........................ 180
Utilities expense.................................................... 105
Miscellaneous expense......................................... 125
Total cash disbursements during June...... 2,020
Cash on hand according to records.......................... $2,250*
*If the student used T accounts in completing part (b), or this part, this
amount ($2,250) should agree with the balance of the cash account.
d. The difference of $130 between the cash on hand according to records

($2,250) and the cash on hand according to the count ($2,120) could be due
to many factors, including errors in the record keeping and withdrawals
made by Shelley.
Activity 2–6
Note to Instructors: The purpose of this activity is to familiarize students with the
job opportunities available in accounting or in fields that require (or prefer) the
employee to have some knowledge of accounting.
93

Analyzing Transactions: Class Discussion Questions

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CHAPTER 2

1. An account is a form designed to record c. The account number, 41, is recorded in

Balance Sheet Accounts Income Statement Accounts

* Advance payments on aircraft purchases

Transaction Type Effect Type Effect

(1) asset + owner's equity +

(1) Cash....................................................................... 30,000

1. debit and credit (c)

a. Debit (negative) balance of $3,500 ($7,500 – $5,000 – $6,000). Such a

a. $11,550 ($3,850 + $11,850 – $4,150)

Cash Accounts Payable

Supplies Fees Earned

BOGART PARK CO.

(a) (b) (c)

A corrected trial balance would be as follows:

a. Julie Snyder, Drawing.......................................... 20,000

2. Sales and marketing

Accounts Receivable Sherry Lundin, Capital

Prepaid Insurance Rent Expense

Automobiles Salary Expense

Jim Lindley, Drawing Miscellaneous Expense

JOURNAL Pages 1 and 2

John Bike, Capital 31

John Bike, Drawing 32

JOURNAL Pages 18 and 19

Reba Heflin, Capital 31

Reba Heflin, Drawing 32

Salary and Commission Expense 51

Cash Accounts Payable

Accounts Receivable Rent Expense

Supplies Salary Expense

Prepaid Insurance Blueprint Expense

Automobiles Automobile Expense

Equipment Miscellaneous Expense

JOURNAL Pages 1 and 2

Kirk Hurwitz, Capital 31

Kirk Hurwitz, Drawing 32

Katie Chaney, Capital 31

Katie Chaney, Drawing 32

Salary and Commission Expense 51

Accumulated Depreciation—Office Equipment 18

Lynn Kwan, Capital 31

Lynn Kwan, Drawing 32

Office Rent Expense 51

Equipment Rent Expense 52

Cash is an asset account, and Unearned Tuition Deposits is a liability account.

2. The accounting system may be designed to capture information about the

Balance Sheet Accounts Income Statement Accounts

Service revenue................................................................... $2,975

Cash 11 Service Revenue 41

Accounts Receivable 12 Supplies Expense 52

Supplies 13 Salary Expense 53

Shelley Dolvin, Capital 31

c. $2,250, computed in the following manner:

d. The difference of $130 between the cash on hand according to records

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