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Chapter 2

Recording Business Transactions

Quick Check

Answers:
1. a
2. c

3. b
4. c

5. d
6. a

7. d
8. a

9. c
10. b

Explanations:
3. b.

Owners equity is $130,000 ($50,000 + $60,000


+ $200,000 $80,000 $100,000).

7. d.

Supplies balance is $1,200 ($500 + $700). The


payment of accounts payable does not affect
supplies.

9. c.

Ending equity is $70,000, computed as follows:


Beginning owners equity..
Add: Net income:
Revenues..
Chapter 2

$ 50,000
$110,000
Recording Business Transactions

63

Less: Expenses.
Net income...
Less: Withdrawals,
Ending owners equity

64

Accounting 7/e Solutions Manual

(30,000)

80,000
(60,000)
$ 70,000

Short Exercises
(5 min.)

S 2-1

Debits are increases for the following types of accounts:


Assets
Withdrawals
Expenses
Debits are decreases for these types of accounts:
Liabilities
Capital
Revenues
Credits are increases for these types of accounts:
Liabilities
Capital
Revenues
Credits are decreases for these types of accounts:
Assets
Withdrawals
Expenses

Chapter 2

Recording Business Transactions

65

(5 min.)

S 2-2

The basic summary device in accounting is the account. The


left side is calld the debit side, and the right side is called the
credit side. We record transactions first in a journal. Then we
post (copy the data) to the ledger. It is helpful to list all the
accounts with their balances on a trial balance.

66

Accounting 7/e Solutions Manual

(10 min.)

S 2-3

1. Capital

A. Record of transactions

2. Debit

B. An asset

3. Expense

C. Left side of an account

4. Net income

D Side of an account where


increases are recorded

5. Ledger

E. Copying data from the journal


to the ledger

6. Posting

F. Using up assets in the course


of operating a business

7. Normal balance G. Always a liability

8. Payable

H. Revenues Expenses

9. Journal

I.

10. Receivable

Book of accounts

J. Owners equity

Chapter 2

Recording Business Transactions

67

(5 min.)

S 2-4

Normal Balance
Assets....

68

Debit

Liabilities..

Credit

Owners Equityoverall...
Capital...
Withdrawal
Revenues..
Expenses..

Credit
Credit

Accounting 7/e Solutions Manual

Debit
Debit

Credit

(10 min.)

S 2-5

Journal
DATE

POST.
REF.

ACCOUNTS AND EXPLANATIONS

June 1 Cash
Mark Brown, Capital
Received investment from owner.
2 Medical Supplies
Accounts Payable
Purchased supplies on account.
2 Rent Expense
Cash
Paid office rent.

DEBIT

CREDIT

25,000
25,000

10,000
10,000

4,000
4,000

3 Accounts Receivable
Service Revenue
Performed service on account.

Chapter 2

12,000
12,000

Recording Business Transactions

69

(10-15 min.)

S 2-6

Req. 1

Journal
DATE

ACCOUNTS AND EXPLANATIONS

POST.
REF.

Supplies
Accounts Payable
Purchased supplies on account.

1,000

500
500

Req. 2
Accounts Payable
500
Bal.

Accounting 7/e Solutions Manual

CREDIT

1,000

Accounts Payable
Cash ($1,000 )
Paid on account.

70

DEBIT

1,000
500

(10 min.)

S 2-7

Journal
DATE

ACCOUNTS AND EXPLANATIONS

POST.
REF.

DEBIT

22 Accounts Receivable
Service Revenue
Performed service on account.

6,000

30 Cash
Accounts Receivable
Received cash on account.

2,000

CREDIT

6,000

2,000

31 Utilities Expense
Accounts Payable
Received utility bill.

200

31 Salary Expense
Cash
Paid salary expense.

3,000

200

3,000

31 Advertising Expense
Cash
Paid advertising expense.

Chapter 2

900
900

Recording Business Transactions

71

(10-15 min.)

S 2-8

Req. 1

Journal
DATE

ACCOUNTS AND EXPLANATIONS

POST.
REF.

DEBIT

Accounts Receivable
Service Revenue
Performed service on account.

5,000

Cash
Accounts Receivable
Received cash on account.

3,500

CREDIT

5,000

3,500

Req. 2
Cash
3,500
Bal. 3,500

Accounts Receivable
5,000
3,500
Bal. 1,500

Service Revenue
5,000
Bal. 5,000

Req. 3
a. Hughes earned
72

$5,000:

Accounting 7/e Solutions Manual

Service Revenue

b. Total assets

$5,000:

Cash
Accounts receivable
Total assets

Chapter 2

$3,500
1,500
$5,000

Recording Business Transactions

73

S 2-9

(10-15 min.)
Reqs. 1 and 2
Cash
Bal.

Accounts Receivable

25,000
21,000

4,000
Bal.

Medical Supplies
Bal.

10,000
10,000

Bal.

25,000
25,000

Rent Expense

74

Accounts Payable
10,000
10,000

Bal.

Mark Brown, Capital

Bal.

12,000
12,000

4,000
4,000

Accounting 7/e Solutions Manual

Service Revenue
Bal.

12,000
12,000

(continued)

S 2-9

Req. 3
Mark Brown, MD
Trial Balance
June 3, 2008
ACCOUNT

DEBIT
$21,000
12,000
10,000

Cash
Accounts receivable
Medical supplies
Accounts payable
Mark Brown, capital
Service revenue
Rent expense
Total

CREDIT

$10,000
25,000
12,000
4,000
$47,000

$47,000

(10 min.)

S 2-10

Redbird Floor Coverings


Trial Balance
December 31, 2007
ACCOUNT

DEBIT
$12,000
40,000

Cash
Equipment
Chapter 2

CREDIT

Recording Business Transactions

75

Accounts payable
Other liabilities
Capital
Revenues
Expenses
Total

76

Accounting 7/e Solutions Manual

$ 1,000
19,000
25,000
29,000
22,000
$74,000

$74,000

(10 min.)

S 2-11

Incorrect Trial Balance


ACCOUNT

DEBIT
$21,000
1,000
500
11,000

Cash
Accounts receivable
Office supplies
Land
Accounts payable
Cookie Lapp, capital
Cookie Lapp, withdrawals
Service revenue
Rent expense, computer
Rent expense, office
Salary expense
Utilities expense
Total

CREDIT

$ 300
30,000*
2,000
8,500
600
1,000
1,200
500
$68,800

$8,800

__________
*Incorrect; should be listed as a credit.

To correct this error,


1. Take the difference between total debits and total credits:
$68,800 $8,800 = $60,000
2. Divide the error by 2:
$60,000 2 = $30,000
Chapter 2

Recording Business Transactions

77

3. Locate $30,000 on the trial balance. Cookie Lapp, capital


should have a credit balance.

78

Accounting 7/e Solutions Manual

(10 min.)

S 2-12

Incorrect Trial Balance


ACCOUNT

DEBIT
$21,000
1,000
500
11,000

Cash
Accounts receivable
Office supplies
Land
Accounts payable
Cookie Lapp, capital
Cookie Lapp, withdrawals
Service revenue
Rent expense, computer
Rent expense, office
Salary expense
Utilities expense
Total

CREDIT

300
30,000

200*
8,500
600
1,000
1,200
500
$37,000

$38,800

*Incorrect; should be listed as $2,000.

To correct this error,


1. Take the difference between total debits and total credits:
$38,800 $37,000 = $1,800
2. Divide the error by 9:
$1,800 9 = $200

Chapter 2

Recording Business Transactions

79

3. Locate $200 on the trial balance. Withdrawals, at $200, holds


the error. Trace Withdrawals balance back to the ledger
account, which shows the correct amount, $2,000.

80

Accounting 7/e Solutions Manual

Exercises
(10 min.)
A
C
C
O
U
N
T

E 2-13

C
R
2
D E B
D
I
3
T R
1

J
O
U
R
N
A
L

L
E
D
G
5
D E
R
6

A
S
S
E
T

Chapter 2

C
R
E
D
I
T

Recording Business Transactions

81

(10-15 min.)
N
E
T
I
N
C
O
M
E

E 2-14

D
E
3
B
I
T
1

82

Accounting 7/e Solutions Manual

E
X
P
E
N
S
E

(10-15 min.)

E 2-15

Req. 1
Debit
ASSETS

Credit
LIABILITIES

Credit
OWNERS EQUITY

$180,000

$100,000

$80,000

Credit
REVENUES

Debit
EXPENSES

Net Credit
NET INCOME

$240,000

$200,000

$40,000

Req. 2

NET INCOME represents a net credit because revenues


(credits) exceed expenses (debits).
NET LOSS represents a net debit because expenses (debits)
exceed revenues (credits).

Chapter 2

Recording Business Transactions

83

(10-15 min.)

E 2-16

Journal
DATE

Dec.

ACCOUNTS AND EXPLANATIONS

2 Utilities Expense
Cash

300
2,000

10 Accounts Receivable
Service Revenue

1,600

12 Cash
Note Payable

7,000

21 Supplies
Cash
27 Accounts Payable
Cash

Accounting 7/e Solutions Manual

CREDIT

300

5 Equipment
Accounts Payable

19 Cash
Land

84

DEBIT

2,000

1,600

7,000
29,000
29,000
600
600
2,000
2,000

(10-15 min.)
Cash

Accounts Receivable

Dec. 1 3,000 Dec. 2


300
12
7,000
21
600
19 29,000
27 2,000
Dec. 31 36,100

Dec. 10

Equipment
Dec. 5

Dec. 1

Supplies

Dec. 27

Notes Payable

2,000 Dec. 5

2,000

Rex Blackwell, Capital


7,000

Dec. 1

Service Revenue
Dec. 10

29,000 Dec. 19 29,000

Accounts Payable

600

Dec. 12

1,600

Land

2,000

Dec. 21

E 2-17

32,000

Utilities Expense
1,600

Dec. 2

Chapter 2

300

Recording Business Transactions

85

Total debits
$40,600

86

Accounting 7/e Solutions Manual

=
=

Total credits
$40,600

(10-20 min.)

E 2-18

Journal
DATE

Aug.

POST.
REF.

ACCOUNTS AND EXPLANATIONS

1 Cash
Ron Woodward, Capital
Investment by owner.

DEBIT

CREDIT

60,000
60,000

2 Supplies
Accounts Payable
Purchased supplies on acct.

200
200

4 Building
Cash
Paid cash for a building.

50,000
50,000

6 Cash
Service Revenue
Performed services for cash.

3,000
3,000

9 Accounts Payable
Cash
Paid cash on account.

100
100

17 Accounts Receivable
Service Revenue
Performed service on account.

2,100

23 Cash

1,200
Chapter 2

2,100

Recording Business Transactions

87

Accounts Receivable
Received cash on account.

1,200

31 Salary Expense
Rent Expense
Cash
Paid expenses.

1,200
500
1,700
(15-20 min.)

E 2-19

Req. 1
Cash

Accounts Receivable

Aug. 1 60,000 Aug. 4 50,000


6 3,000
9
100
23 1,200
31 1,700
Aug. 31 12,400

Aug. 17
Aug. 31

Supplies
Aug. 2
Aug. 31

Building

200
200

Aug. 4
Aug. 31

Accounts Payable
Aug. 9

88

100 Aug. 2
Aug. 31

Accounting 7/e Solutions Manual

2,100 Aug. 23 1,200


900

50,000
50,000

Ron Woodward, Capital


200
100

Aug. 1 60,000
Aug. 31 60,000

Service Revenue
Aug. 6
17
Aug. 31

Salary Expense
3,000
2,100
5,100

Aug. 31
Aug. 31

1,200
1,200

Rent Expense
Aug. 31
Aug. 31

500
500

Chapter 2

Recording Business Transactions

89

(continued)

E 2-19

Req. 2
Woodward Technology Solutions
Trial Balance
August 31, 2007
ACCOUNT
Cash
Accounts receivable
Supplies
Building
Accounts payable
Ron Woodward, capital
Service revenue
Salary expense
Rent expense
Total

DEBIT
$12,400
900
200
50,000

CREDIT

1,200
500
$65,200

100
60,000
5,100

$65,200

(20-30 min.)

E 2-20

Req. 1
May

90

2
9
11
14

Investment of cash by the owner


Purchase of supplies on account (on credit)
Revenue on account
Payment of rent expense

Accounting 7/e Solutions Manual

22
25
27
31

Payment on account
Payment of advertising expense
Collection on account
Receipt of a fuel bill and recording the expense on
account
(continued)

E 2-20

Reqs. 2 and 3
110

Cash
May 2 J.5 20,000 May 14 J.5
27 J.5
Bal.

1,400

22 J.5
25 J.5

Bal.

300
400

May 11 J.5 2,600 May 27 J.5 1,400


Bal.

1,200

17,500

Supplies
May 9

3,200

120

Accounts Receivable

J.5

130

200

210

Accounts Payable
May 22 J.5

300 May 9 J.5

200

31 J.5

100
-0-

200
Bal.

Betty Sawyer, Capital


May 2 J.5
Bal.

310

410

Service Revenue

20,000
20,000

May 11 J.5
Bal.

Chapter 2

2,600
2,600

Recording Business Transactions

91

Rent Expense
May 14 J.5
Bal.

Fuel Expense
May 31 J.5
Bal.

92

100
100

Accounting 7/e Solutions Manual

510
3,200
3,200

530

Advertising Expense
May 25 J.5
Bal.

400
400

520

(continued)

E 2-20

Req. 4
Alert Defensive Driving
Trial Balance
May 31, 2006
ACCOUNT

DEBIT
$17,500
1,200
200

Cash
Accounts receivable
Supplies
Accounts payable
Betty Sawyer, capital
Service revenue
Rent expense
Advertising expense
Fuel expense
Total

CREDIT

$
-020,000
2,600
3,200
400
100
$22,600

Chapter 2

$22,600

Recording Business Transactions

93

(10 min.)

E 2-21

Journal
DATE

ACCOUNTS AND EXPLANATIONS

1. Cash
Harry Reid, Capital
Investment by owner.
2. Supplies
Accounts Payable
Purchased supplies on account.
3. Building
Cash
Paid cash for building.

POST.
REF.

DEBIT

12,000
12,000

400
400

40,000
40,000

4. Cash
37,000
Note Payable
Borrowed money; signed note payable.
5. Equipment
Cash
Paid cash for equipment.

94

Accounting 7/e Solutions Manual

CREDIT

37,000

6,000
6,000

(10 min.)

E 2-22

Reeds Home Care


Trial Balance
October 31, 2007
ACCOUNT

DEBIT
$ 3,000
400
6,000
40,000

Cash
Supplies
Equipment
Building
Accounts payable
Note payable
Harry Reed, capital
Total

CREDIT

$49,400

Chapter 2

400
37,000
12,000
$49,400

Recording Business Transactions

95

(10 min.)

E 2-23

Mayflower Moving Company


Trial Balance
December 31, 2006
ACCOUNT
Cash
Accounts receivable
Supplies
Trucks
Building
Accounts payable
Note payable
Joe Mayflower, capital
Joe Mayflower, withdrawals
Service revenue
Salary expense
Fuel expense
Insurance expense
Utilities expense
Supplies expense
Total

96

Accounting 7/e Solutions Manual

DEBIT
$ 5,000
9,400
200
125,000
44,000

CREDIT

4,300
60,000
48,700

6,000
86,000
6,000
2,000
700
400
300
$199,000

$199,000

(20-25 min.)
ACCOUNT
DATE

ITEM

a.
b.
d.
e.
g.

ACCOUNT
DATE

DATE

DATE

CREDIT

1,500
1,800
400
7,000

ACCOUNTS RECEIVABLE
ITEM

JRNL.
REF.

DEBIT

CREDIT

ITEM

DEBIT

CREDIT

DEBIT

BALANCE
DEBIT
CREDIT

700

OFFICE FURNITURE
ITEM

BALANCE
DEBIT
CREDIT

ACCOUNT NO.

700

JRNL.
REF.

15,000
13,500
11,700
11,300
4,300

5,600

OFFICE SUPPLIES
JRNL.
REF.

BALANCE
DEBIT
CREDIT

ACCOUNT NO.

5,600

c.

ACCOUNT

DEBIT

15,000

f.

ACCOUNT

ACCOUNT NO.

CASH
JRNL.
REF.

E 2-24

ACCOUNT NO.
CREDIT
Chapter 2

BALANCE
DEBIT
CREDIT

Recording Business Transactions

97

a.

98

5,400

Accounting 7/e Solutions Manual

5,400

(continued)
ACCOUNT
DATE

ITEM

c.
e.

ACCOUNT
DATE

DEBIT

DATE

DATE

f.

700
300

400

LEE BIVONA, CAPITAL


ITEM

JRNL.
REF.

DEBIT

ACCOUNT NO.

CREDIT

BALANCE
DEBIT
CREDIT

20,400

20,400

LEE BIVONA, WITHDRAWALS


ITEM

JRNL.
REF.

g.

ACCOUNT

CREDIT

BALANCE
DEBIT
CREDIT

700

a.

ACCOUNT

ACCOUNT NO.

ACCOUNTS PAYABLE
JRNL.
REF.

DEBIT

CREDIT

7,000

ITEM

DEBIT

ACCOUNT NO.
BALANCE
DEBIT
CREDIT

7,000

SERVICE REVENUE
JRNL.
REF.

E 2-24

ACCOUNT NO.
CREDIT

5,600

Chapter 2

BALANCE
DEBIT
CREDIT

5,600

Recording Business Transactions

99

(continued)
ACCOUNT
DATE

ITEM

d.

DEBIT

CREDIT

1,800

ACCOUNT

RENT EXPENSE

DATE

JRNL.
REF.

ITEM

b.

100

ACCOUNT NO.

SALARY EXPENSE
JRNL.
REF.

DEBIT

1,500

Accounting 7/e Solutions Manual

E 2-24

BALANCE
DEBIT
CREDIT

1,800

ACCOUNT NO.
CREDIT

BALANCE
DEBIT
CREDIT

1,500

(continued)

E 2-24

Journal
DATE

a.

b.

c.

d.

e.

f.

ACCOUNTS AND EXPLANATIONS

Cash
Office Furniture
Lee Bivona, Capital
Received investment from owner.
Rent Expense
Cash
Paid monthly rent.

POST.
REF.

DEBIT

CREDIT

15,000
5,400
20,400

1,500
1,500

Office Supplies
Accounts Payable
Purchased supplies on account.
Salary Expense
Cash
Paid salary expense.

700
700

1,800
1,800

Accounts Payable
Cash
Paid on account.

400
400

Accounts Receivable
Service Revenue
Performed service on account.
Chapter 2

5,600
5,600
Recording Business Transactions

101

g.

102

Lee Bivona, Withdrawals


Cash
Withdrawal by owner.

Accounting 7/e Solutions Manual

7,000
7,000

(10 min.)

E 2-25

Lee Bivona, CPA


Trial Balance
December 31, 2007
ACCOUNT

DEBIT
$ 4,300
5,600
700
5,400

Cash
Accounts receivable
Office supplies
Office furniture
Accounts payable
Lee Bivona, capital
Lee Bivona, withdrawals
Service revenue
Salary expense
Rent expense
Total

CREDIT

300
20,400

7,000
5,600
1,800
1,500
$26,300

Chapter 2

$26,300

Recording Business Transactions

103

(15-20 min.)

E 2-26

Joy McDowell Tutoring Service


Trial Balance
March 31, 2009
ACCOUNT
Cash
Accounts receivable
Supplies
Computer equipment
Accounts payable
Joy McDowell, capital
Service revenue
Salary expense
Rent expense
Utilities expense
Total

DEBIT
$ 3,400*
1,600*
600
26,000

CREDIT

$12,600*
12,300*
9,700
1,700
800
500*
$34,600

$34,600

__________
*Explanations:
Cash: $3,000 + $400 = $3,400
Accounts Receivable: $2,000 $400 = $1,600
Accounts Payable: $11,500 + $1,000 $100 + $200 = $12,600
Joy McDowell, Capital: $11,600 + $700 = $12,300
Utilities Expense: $300 + $200 = $500

104

Accounting 7/e Solutions Manual

(20-30 min.)
Effect on Trial Balance

Account(s) Misstated

E 2-27

Journal Entries (Not Required)

a. Total debits > Total credits Note Payable $5,000 too low,
on the trial balance only
b. Total debits < Total credits Utility Expense $630 too low
($700 $70 = $630)
c. Total debits = Total credits Supplies
$400 too high
Accounts Payable
$400 too high

e. Entry
made:
Correct
entry:

Supplies
Cash
Accounts Payable
Cash

d. Total debits < Total credits Cash


$720 too low

a. Entry
made:

Cash
Service Revenue
Service Revenue

made:
Correct
Cash
entry:
Service Revenue
Entry:
Service Revenue
Chapter 2

Recording Business Transactions

400
400

400
400

80
800
800

800

105

e. Total debits = Total credits Supplies


$90 too high
Accounts Payable
$90 too high
($210 $120 = $90)

106

Accounting 7/e Solutions Manual

b. Entry
Supplies
made:
Accounts Payable
made:
Accounts Payable
Correct
Supplies
entry:
Accounts Payable

210

210

120
120

(20-30 min.)

E 2-28

a. Net income for July Given as follows:


Owner, Capital
July
withdrawals

June 30 Bal.
9,000
July
= $17,000
4,000 Net income
X
July 31 Bal. 22,000

$9,000 + X $4,000
X

= $22,000
= $17,000

b. Total cash paid during July:


Cash
June 30 Bal.
July receipts
July 31 Bal.

7,000
50,000 July payments
2,000

= $55,000

$7,000 + $50,000 X = $ 2,000


X = $55,000

Chapter 2

Recording Business Transactions

107

(continued)

E 2-28

c. Cash collections from customers during July:


Accounts Receivable
June 30 Bal.
July revenues
on account
July 31 Bal.

24,000
75,000 July collections
26,000

$24,000 + $75,000 X
X

= $73,000

= $26,000
= $73,000

c. Payments on account during July:


Accounts Payable

X = 31,000

June 30 Bal.
July
July
Purchases on
Payments on acct. X
acct.
July 31 Bal.
$11,000 + $40,000 X
X

108

Accounting 7/e Solutions Manual

= $20,000
= $31,000

11,000

40,000
20,000

(10 min.)

E 2-29

a. Your transaction:

Journal
DATE

ACCOUNTS AND EXPLANATIONS

POST.
REF.

Repair Expense
Cash
Paid repair bill.

DEBIT

CREDIT

484.02
484.02

b. Advanced Automotives transaction:

Journal
DATE

ACCOUNTS AND EXPLANATIONS

Cash
Service Revenue
Performed service and received
cash.

Chapter 2

POST.
REF.

DEBIT

CREDIT

484.02
484.02

Recording Business Transactions

109

Problems

Group A
(15-30 min.)

P 2-30A

Req. 1
Total assets
$74,000 ($12,000 + $27,000 + $4,000 + $31,000)
Total liabilities $35,000
Net income
$62,000 ($121,000 $26,000 $3,000
$23,000 $7,000)

Req. 2

Journal
DATE

ACCOUNTS AND EXPLANATIONS

Accounts Receivable
Service Revenue

Accounts Receivable
121,000

110

Accounting 7/e Solutions Manual

POST.
REF.

DEBIT

CREDIT

121,000
121,000

Service Revenue
121,000

(continued)

P 2-30A

Req. 3
Shea records transactions in the journal, posts to the accounts
in the ledger, computes each account balance, and lists all the
accounts along with their balances on the trial balance. Cash
has an ending balance of $12,000.
Student responses may vary.

Req. 4
The new business will be a partnership.

Chapter 2

Recording Business Transactions

111

(15 min.)

P 2-31A

Journal
DATE

ACCOUNTS AND EXPLANATIONS

July 1 Cash
Darrel Palusky, Capital

DEBIT

350,000
300,000

5 Cash
Notes Payable

220,000

15 Accounts Payable
Cash

300,000

220,000
1,700
1,700
800
800

15 Property Tax Expense


Cash

1,200

16 Salary Expense
Rent Expense
Cash

2,800
1,800

28 Darrel Palusky, Withdrawals


Cash

6,000

Accounting 7/e Solutions Manual

CREDIT

350,000

2 Building
Cash

10 Supplies
Accounts Payable

112

POST.
REF.

1,200

4,600

6,000

31 Cash
Service Revenue

20,000
20,000

Chapter 2

Recording Business Transactions

113

(40-50 min.)

P 2-32A

Req. 1

Journal
DATE

ACCOUNTS AND EXPLANATIONS

Sept. 1 Cash
Doris Higgins, Capital

POST.
REF.

DEBIT

25,000
25,000

4 Supplies
Furniture
Accounts Payable

200
1,800

6 Cash

4,000

2,000

Service Revenue
7 Land
Cash
10 Accounts Receivable
Service Revenue
14 Accounts Payable
Cash
15 Salary Expense
Cash
114

Accounting 7/e Solutions Manual

CREDIT

4,000
20,000
20,000
800
800
1,800
1,800
600
600

17 Cash
Accounts Receivable

500

20 Accounts Receivable
Service Revenue

800

500

800

Chapter 2

Recording Business Transactions

115

(continued)

P 2-32A

Req. 1

Journal
DATE

ACCOUNTS AND EXPLANATIONS

Sept. 28 Cash
Service Revenue

DEBIT

1,500
600

30 Rent Expense
Cash

500

Accounting 7/e Solutions Manual

CREDIT

1,500

30 Salary Expense
Cash

30 Doris Higgins, Withdrawals


Cash

116

POST.
REF.

600

500
2,000
2,000

(continued)

P 2-32A

Req. 2
Cash

Accounts Receivable

Sept. 1 25,000 Sept. 7 20,000 Sept.10


6 4,000
14 1,800
20
17
500
15
600 Bal.
28 1,500
30
600
30
500
30
Bal.

5,500

2,000 Sept. 4
Bal.

Furniture
Sept. 4
Bal.

500

Supplies
200
200
Land

1,800
1,800

Sept. 7
Bal.

Accounts Payable
Sept. 14 1,800 Sept. 4
Bal.

800 Sept. 17
800
1,100

20,000
20,000

Doris Higgins, Capital


2,000
200

Sept. 1
Bal.

Doris Higgins, Withdrawals

25,000
25,000

Service Revenue

Sept. 30 2,000
Bal.
2,000

Sept. 6
10
20
28
Bal.

Salary Expense

4,000
800
800
1,500
7,100

Rent Expense
Chapter 2

Recording Business Transactions

117

Sept. 15
600
30
600
Bal.
1,200

118

Accounting 7/e Solutions Manual

Sept. 30
Bal.

500
500

(continued)

P 2-32A

Req. 3
Doris Higgins, Designer
Trial Balance
September 30, 20XX
ACCOUNT

DEBIT
$ 5,500
1,100
200
1,800
20,000

Cash
Accounts receivable
Supplies
Furniture
Land
Accounts payable
Doris Higgins, capital
Doris Higgins, withdrawals
Service revenue
Salary expense
Rent expense
Total

CREDIT

200
25,000

2,000
7,100
1,200
500
$32,300

Chapter 2

$32,300

Recording Business Transactions

119

(45-60 min.)

P 2-33A

Req. 1

Journal
DATE

Feb.

ACCOUNTS AND EXPLANATIONS

Page 3
POST.
REF.

DEBIT

4 Cash
Accounts Receivable
Received on account.

11
12

3,500

8 Accounts Receivable
Service Revenue
Performed service on account.

12
41

7,000

13 Accounts Payable
Cash
Paid on account.

21
11

1,000

18 Supplies
Accounts Payable
Purchased supplies on account.

13
21

100

20 John Hilton, Withdrawals


Cash
Withdrew cash for personal use.

32
11

1,200

11
41

5,500

CREDIT

3,500

7,000

1,000

100

1,200

21 Paid for deck for residence;


not a transaction of the business.
22 Cash
Service Revenue
Performed service for cash.

120

Accounting 7/e Solutions Manual

5,500

28 Rent Expense
Cash
Paid rent.

52
11

800

28 Salary Expense
Cash
Paid employee salary.

51
11

1,800

Chapter 2

800

1,800

Recording Business Transactions

121

(continued)

P 2-33A

Req. 2
ACCOUNT
DATE

CASH
ITEM

Jan. 31 Bal.
Feb. 4
13
20
22
28
28

ACCOUNT
DATE

DATE
122

DEBIT

CREDIT

J.3
J.3
J.3
J.3
J.3
J.3

3,500
1,000
1,200
5,500
800
1,800

ACCOUNTS RECEIVABLE
JRNL.
ITEM
REF.
DEBIT
CREDIT

Jan. 31 Bal.
Feb. 4
8

ACCOUNT

JRNL.
REF.

J.3
J.3

SUPPLIES
JRNL.
ITEM
REF.

Accounting 7/e Solutions Manual

3,500
7,000

DEBIT

CREDIT

ACCOUNT NO. 11
BALANCE
DEBIT
CREDIT

2,000
5,500
4,500
3,300
8,800
8,000
6,200

ACCOUNT NO. 12
BALANCE
DEBIT
CREDIT

9,500
6,000
13,000

ACCOUNT NO. 13
BALANCE
DEBIT
CREDIT

Jan. 31 Bal.
Feb. 18

800
900

J.3

100

Chapter 2

Recording Business Transactions

123

(continued)

P 2-33A

Req. 2
ACCOUNT
DATE

LAND
ITEM

Jan. 31 Bal.

ACCOUNT
DATE

DATE

DATE
124

CREDIT

18,600

CREDIT

J.3
J.3

1,000

JOHN HILTON, CAPITAL


JRNL.
ITEM
REF.
DEBIT

Jan. 31 Bal.

ACCOUNT

DEBIT

ACCOUNTS PAYABLE
JRNL.
ITEM
REF.
DEBIT

Jan. 31 Bal.
Feb. 13
18

ACCOUNT

JRNL.
REF.

100

CREDIT

JOHN HILTON, WITHDRAWALS


JRNL.
ITEM
REF.
DEBIT
CREDIT

Accounting 7/e Solutions Manual

ACCOUNT NO. 14
BALANCE
DEBIT
CREDIT

ACCOUNT NO. 21
BALANCE
DEBIT
CREDIT

3,000
2,000
2,100

ACCOUNT NO. 31
BALANCE
DEBIT
CREDIT

27,900

ACCOUNT NO. 32
BALANCE
DEBIT
CREDIT

Feb.

20

J.3

1,200

Chapter 2

1,200

Recording Business Transactions

125

(continued)

P 2-33A

Req. 2
ACCOUNT
DATE

Feb.

8
22

ACCOUNT

SERVICE REVENUE
JRNL.
ITEM
REF.
DEBIT

CREDIT

J.3
J.3

7,000
5,500

DATE

SALARY EXPENSE
JRNL.
ITEM
REF.
DEBIT

Feb. 28

J.3

ACCOUNT
DATE

RENT EXPENSE
JRNL.
ITEM
REF.
DEBIT

Feb. 28

J.3

126

Accounting 7/e Solutions Manual

CREDIT

1,800

800

ACCOUNT NO. 41
BALANCE
DEBIT
CREDIT

7,000
12,500

ACCOUNT NO. 51
BALANCE
DEBIT
CREDIT

1,800

CREDIT

ACCOUNT NO. 52
BALANCE
DEBIT
CREDIT

800

(continued)

P 2-33A

Req. 3
John Hilton, CPA
Trial Balance
February 28, 2007
ACCT. NO.

11
12
13
14
21
31
32
41
51
52

ACCOUNT

DEBIT

Cash
Accounts receivable
Supplies
Land
Accounts payable
John Hilton, capital
John Hilton, withdrawals
Service revenue
Salary expense
Rent expense
Total

Chapter 2

CREDIT

$ 6,200
13,000
900
18,600
$ 2,100
27,900
1,200
12,500
1,800
800
$42,500

$42,500

Recording Business Transactions

127

(30 min.)

P 2-34A

Reqs. 1 and 3
ACCOUNT
DATE

ACCOUNT NO.

CASH
ITEM

JRNL.
REF.

a.
c.
d.
f.
h.
i.
j.
k.

DEBIT

25,000
18,000
2,200
800
1,600
1,200
1,100
5,000

ACCOUNT
DATE

ACCOUNTS RECEIVABLE
ITEM

JRNL.
REF.

e.
i.

DEBIT

CREDIT

5,100
1,200

ACCOUNT
DATE

ITEM

JRNL.
REF.

DEBIT

2,100

Accounting 7/e Solutions Manual

25,000
7,000
4,800
4,000
5,600
6,800
5,700
700

ACCOUNT NO.
BALANCE
DEBIT
CREDIT

5,100
3,900

ACCOUNT NO.

OFFICE SUPPLIES

b.

128

CREDIT

BALANCE
DEBIT
CREDIT

CREDIT

BALANCE
DEBIT
CREDIT

2,100

ACCOUNT
DATE

c.

OFFICE FURNITURE
ITEM

JRNL.
REF.

DEBIT

ACCOUNT NO.
CREDIT

18,000

BALANCE
DEBIT
CREDIT

18,000

Chapter 2

Recording Business Transactions

129

(continued)
ACCOUNT
DATE

ACCOUNT NO.

BUILDING
ITEM

JRNL.
REF.

a.

DEBIT

DATE

ITEM

JRNL.
REF.

DEBIT

BALANCE
DEBIT
CREDIT

30,000

ACCOUNTS PAYABLE

b.
f.
g.

ACCOUNT NO.
CREDIT

BALANCE
DEBIT
CREDIT

2,100

2,100
1,300
1,900

800
600

ACCOUNT
DATE

MAURY WILLS, CAPITAL


ITEM

JRNL.
REF.

DEBIT

a.
ACCOUNT
DATE

CREDIT

BALANCE
DEBIT
CREDIT

55,000

55,000

ITEM

JRNL.
REF.

DEBIT

CREDIT

5,000

ACCOUNT
DATE

ACCOUNT NO.

MAURY WILLS, WITHDRAWALS ACCOUNT NO.

k.

130

CREDIT

30,000

ACCOUNT

P 2-34A

5,000

ACCOUNT NO.

SERVICE REVENUE
ITEM

JRNL.
REF.

Accounting 7/e Solutions Manual

DEBIT

BALANCE
DEBIT
CREDIT

CREDIT

BALANCE
DEBIT
CREDIT

e.
h.

5,100
1,600

Chapter 2

5,100
6,700

Recording Business Transactions

131

(continued)
ACCOUNT
DATE

ITEM

d.

DEBIT

CREDIT

2,200

ACCOUNT

RENT EXPENSE

DATE

JRNL.
REF.

ITEM

j.

DEBIT

ACCOUNT NO.
CREDIT

DATE

ITEM

g.

DEBIT

CREDIT

600

ACCOUNT
DATE

ITEM

j.

DEBIT

400

Accounting 7/e Solutions Manual

ACCOUNT NO.
BALANCE
DEBIT
CREDIT

600

UTILITIES EXPENSE
JRNL.
REF.

BALANCE
DEBIT
CREDIT

700

ADVERTISING EXPENSE
JRNL.
REF.

BALANCE
DEBIT
CREDIT

2,200

700

ACCOUNT

132

ACCOUNT NO.

SALARY EXPENSE
JRNL.
REF.

P 2-34A

ACCOUNT NO.
CREDIT

BALANCE
DEBIT
CREDIT

400

(continued)

P 2-34A

Req. 2

Journal
DATE

a.

b.

c.

d.

e.

f.

ACCOUNTS AND EXPLANATIONS

POST.
REF.

DEBIT

Cash
Building
Maury Wills, Capital
Received investment by owner.

25,000
30,000

Office Supplies
Accounts Payable
Purchased supplies on account.

2,100

Office Furniture
Cash
Purchased furniture.

CREDIT

55,000

2,100

18,000
18,000

Salary Expense
Cash
Paid salary.

2,200

Accounts Receivable
Service Revenue
Performed service on account.

5,100

2,200

Accounts Payable

5,100

800
Chapter 2

Recording Business Transactions

133

Cash
Paid on account.
g.

800

Advertising Expense
Accounts Payable
Received advertising bill.

600
600

(continued)

P 2-34A

Req. 2 (continued)

Journal
DATE

h.

i.

j.

k.
134

ACCOUNTS AND EXPLANATIONS

POST.
REF.

DEBIT

Cash
Service Revenue
Performed service and received
cash.

1,600

Cash
Accounts Receivable
Collected cash on account.

1,200

Rent Expense
Utilities Expense
Cash
Paid expenses.
Maury Wills, Withdrawals
Accounting 7/e Solutions Manual

CREDIT

1,600

1,200

700
400
1,100

5,000

Cash
Withdrawal by owner.

5,000

Chapter 2

Recording Business Transactions

135

(continued)

P 2-34A

Req. 4
Wills Environmental Consulting
Trial Balance
June 30, 2008
ACCOUNT
Cash
Accounts receivable
Office supplies
Office furniture
Building
Accounts payable
Maury Wills, capital
Maury Wills, withdrawals
Service revenue
Salary expense
Rent expense
Advertising expense
Utilities expense
Total

136

Accounting 7/e Solutions Manual

DEBIT
$ 700
3,900
2,100
18,000
30,000

CREDIT

$ 1,900
55,000
5,000
6,700
2,200
700
600
400
$63,600

$63,600

(20-30 min.)

P 2-35A

Req. 1
Wills Environmental Consulting
Income Statement
Month Ended June 30, 2008
Revenues:
Service revenue
Expenses:
Salary expense
Rent expense
Advertising expense
Utilities expense
Total expenses
Net income

$6,700
$2,200
700
600
400
3,900
$2,800

Req. 2
Wills Environmental Consulting
Statement of Owners Equity
Month Ended June 30, 2008
Maury Wills, capital, June 1, 2008
Add: Investment by owner
Net income for the month

Chapter 2

-055,000
2,800
57,800

Recording Business Transactions

137

Less: Withdrawals by owner


Maury Wills, capital, June 30, 2008

138

Accounting 7/e Solutions Manual

(5,000)
$52,800

(continued)

P 2-35A

Req. 3
Wills Environmental Consulting
Balance Sheet
June 30, 2008
ASSETS

LIABILITIES
Cash
$ 700 Accounts payable
$ 1,900
Accounts receivable
3,900 Total liabilities
1,900
Office supplies
2,100
Office furniture
18,000
OWNERS EQUITY
Building
30,000 Maury Wills, capital
52,800
Total liabilities and
Total assets
$54,700 owners equity
$54,700

Chapter 2

Recording Business Transactions

139

(15-25 min.)

P 2-36A

DEBIT
$ 4,000*
14,000*
1,900*
75,000

CREDIT

URNO.1 Child Care


Trial Balance
June 30, 20XX
ACCOUNT
Cash
Accounts receivable
Supplies
Equipment
Accounts payable
Mary Hulse, capital
Mary Hulse, withdrawals
Service revenue
Salary expense
Rent expense
Total

$ 56,000*
38,500
2,100
6,500
3,000*
1,000
$101,000

$101,000

*Explanations:
Cash: $3,000 + $1,000 = $4,000
Accounts receivable: $10,000 + $2,000 + $2,000 = $14,000
Supplies: $900 + $1,000 = $1,900
Accounts payable: $55,000 + $1,000 = $56,000
Salary expense: $3,100 $100 = $3,000

140

Accounting 7/e Solutions Manual

Problems

Group B
(15-30 min.)

P 2-37B

Req. 1
Total assets
Total liabilities
Net income

$147,000 ($7,000 + $6,000 + $4,000 + $130,000)


$ 76,000 ($31,000 + $45,000)
$ 59,000 ($112,000 $38,000 $8,000 $7,000)

Req. 2

Journal
DATE

ACCOUNTS AND EXPLANATIONS

Accounts Receivable
Service Revenue

POST.
REF.

DEBIT

CREDIT

112,000
112,000

Accounts Receivable
112,000

Service Revenue
112,000

Chapter 2

Recording Business Transactions

141

(continued)

P 2-37B

Req. 3
A+ records transactions in the journal, posts to the accounts in
the ledger, computes each account balance, and lists all the
accounts along with their balances on the trial balance. Cash
has an ending balance of $7,000.
Student responses may vary.

Req. 4
The new business would be a partnership.

142

Accounting 7/e Solutions Manual

(15 min.)

P 2-38B

Journal
DATE

ACCOUNTS AND EXPLANATIONS

June 1 Cash
Dan Bell, Capital

POST.
REF.

DEBIT

CREDIT

70,000
70,000

5 Rent Expense
Cash

700
700

9 Land
Cash

22,000
22,000

10 Supplies
Accounts Payable

1,200
1,200

19 Cash
Notes Payable

20,000
20,000

22 Accounts Payable
Cash

1,000

30 Cash
Accounts Receivable
Service Revenue

6,000
5,000

30 Salary Expense
Rent Expense

2,400
1,500

1,000

11,000

Chapter 2

Recording Business Transactions

143

Utilities Expense
Cash
30 Dan Bell, Withdrawals
Cash

144

Accounting 7/e Solutions Manual

400
4,300
10,000
10,000

(40-50 min.)

P 2-39B

Req. 1

Journal
DATE

Jan.

ACCOUNTS AND EXPLANATIONS

2 Cash
Laura Knipper, Capital

POST.
REF.

DEBIT

CREDIT

36,000
36,000

3 Supplies
Furniture
Accounts Payable

500
2,600

4 Cash

1,500

3,100

Service Revenue

1,500

7 Land
Cash

22,000
22,000

11 Accounts Receivable
Service Revenue

900

15 Salary Expense
Cash

570

900

570

16 Accounts Payable
Cash

2,600
2,600
Chapter 2

Recording Business Transactions

145

18 Cash
Service Revenue
19 Accounts Receivable
Service Revenue

146

Accounting 7/e Solutions Manual

1,800
1,800
800
800

(continued)

P 2-39B

Req. 1

Journal
DATE

ACCOUNTS AND EXPLANATIONS

Jan. 29 Cash
Accounts Receivable

POST.
REF.

DEBIT

CREDIT

400
400

31 Salary Expense
Cash

570

31 Rent Expense
Cash

700

570

700

31 Laura Knipper, Withdrawals


Cash

Chapter 2

2,200
2,200

Recording Business Transactions

147

(continued)

P 2-39B

Req. 2

Jan. 2
4
18
29

Bal.

Jan. 3
Bal.

Cash
36,000 Jan. 7 22,000
1,500
15
570
1,800
16 2,600
400
31
570
31
700
31 2,200
11,060
Furniture
2,600
2,600

Accounts Payable
Jan. 16 2,600 Jan. 3 3,100
Bal.
500

Accounts Receivable
Jan. 11
900 Jan. 29
400
19
800
Bal.
1,300

Jan. 3
Bal.

Supplies
500
500

Land
Jan. 7 22,000
Bal.
22,000
Laura Knipper, Capital
Jan. 2 36,000
Bal.
36,000
Laura Knipper, Withdrawals
Jan. 31 2,200
Bal.
2,200

Service Revenue
Jan. 4 1,500
11
900
18 1,800
148

Accounting 7/e Solutions Manual

Salary Expense
Jan. 15
570
31
570
Bal.
1,140

19
Bal.

800
5,000

Rent Expense
Jan. 31
700
Bal.
700

Chapter 2

Recording Business Transactions

149

(continued)

P 2-39B

Req. 3
Laura Knipper, Attorney
Trial Balance
January 31, 20XX
ACCOUNT
Cash
Accounts receivable
Supplies
Furniture
Land
Accounts payable
Laura Knipper, capital
Laura Knipper, withdrawals
Service revenue
Salary expense
Rent expense
Total

150

Accounting 7/e Solutions Manual

DEBIT
$11,060
1,300
500
2,600
22,000

CREDIT

500
36,000

2,200
5,000
1,140
700
$41,500

$41,500

(45-60 min.)

P 2-40B

Req. 1

Journal
DATE

Nov.

ACCOUNTS AND EXPLANATIONS

Page 6
POST.
REF.

DEBIT

4 Cash
Accounts Receivable
Received on account.

11
12

6,000

7 Accounts Receivable
Service Revenue
Performed services on account.

12
41

5,700

16 Supplies
Accounts Payable
Purchased supplies on account.

13
21

800

19 Stephanie Stouse, Withdrawals


Cash
Withdrew for personal use.

32
11

2,100

20 Accounts Payable
Cash
Paid on account.

21
11

2,600

24 Cash
Service Revenue
Performed service for cash.

11
41

1,900

CREDIT

6,000

5,700

12 Paid for residence renovation;


not a transaction of the business.

Chapter 2

800

2,100

2,600

1,900

Recording Business Transactions

151

152

30 Rent Expense
Cash
Paid rent.

52
11

700

30 Salary Expense
Cash
Paid employee salary.

51
11

2,000

Accounting 7/e Solutions Manual

700

2,000

(continued)

P 2-40B

Req. 2
ACCOUNT
DATE

Oct.
Nov.

DATE

Oct.
Nov.

JRNL.
REF.

DEBIT

CREDIT

J.6
J.6
J.6
J.6
J.6
J.6

6,000
2,100
2,600
1,900
700
2,000

ITEM

JRNL.
REF.

DEBIT

CREDIT

J.6
J.6

6,000
5,700

ITEM

3,000
9,000
6,900
4,300
6,200
5,500
3,500

BALANCE
DEBIT
CREDIT

8,000
2,000
7,700

ACCOUNT NO. 13

SUPPLIES
JRNL.
REF.

BALANCE
DEBIT
CREDIT

ACCOUNT NO. 12

ACCOUNTS RECEIVABLE

31 Bal.
4
7

ACCOUNT
DATE

ITEM

31 Bal.
4
19
20
24
30
30

ACCOUNT

ACCOUNT NO. 11

CASH

DEBIT

CREDIT

Chapter 2

BALANCE
DEBIT
CREDIT

Recording Business Transactions

153

Oct. 31 Bal.
Nov. 16

154

J.6

Accounting 7/e Solutions Manual

800

600
1,400

(continued)

P 2-40B

Req. 2
ACCOUNT
DATE

ITEM

Oct. 31 Bal.

ACCOUNT
DATE

DATE

JRNL.
REF.

DEBIT

CREDIT

ITEM

JRNL.
REF.

ACCOUNT NO. 21

DEBIT

CREDIT

J.6
J.6

800
2,600

STEPHANIE STOUSE, CAPITAL


ITEM

Oct. 31 Bal.

JRNL.
REF.

BALANCE
DEBIT
CREDIT

15,000

ACCOUNTS PAYABLE

Oct. 31 Bal.
Nov. 16
20

ACCOUNT

ACCOUNT NO. 14

EQUIPMENT

DEBIT

CREDIT

BALANCE
DEBIT
CREDIT

4,600
5,400
2,800

ACCOUNT NO. 31
BALANCE
DEBIT
CREDIT

22,000

ACCOUNT STEPHANIE STOUSE, WITHDRAWALS


JRNL.
Chapter 2

ACCOUNT NO. 32
BALANCE

Recording Business Transactions

155

DATE

Nov. 19

156

ITEM

REF.

DEBIT

J.6

2,100

Accounting 7/e Solutions Manual

CREDIT

DEBIT

2,100

CREDIT

(continued)

P 2-40B

Req. 2
ACCOUNT

SERVICE REVENUE

DATE

JRNL.
REF.

Nov.

ITEM

7
24

ACCOUNT NO. 41

DEBIT

J.6
J.6

5,700
1,900

SALARY EXPENSE

DATE

JRNL.
REF.

DEBIT

J.6

2,000

Nov. 30

ACCOUNT
DATE

Nov. 30

CREDIT

BALANCE
DEBIT
CREDIT

2,000

ACCOUNT NO. 52

RENT EXPENSE
ITEM

7,600

ACCOUNT NO. 51

ACCOUNT

ITEM

CREDIT

BALANCE
DEBIT
CREDIT

JRNL.
REF.

DEBIT

J.6

700

CREDIT

BALANCE
DEBIT
CREDIT

700

Chapter 2

Recording Business Transactions

157

(continued)

P 2-40B

Req. 3
Stephanie Stouse, Registered Dietician
Trial Balance
November 30, 2007
ACCT. NO.

11
12
13
14
21
31
32
41
51
52

158

ACCOUNT

Cash
Accounts receivable
Supplies
Equipment
Accounts payable
Stephanie Stouse, capital
Stephanie Stouse, withdrawals
Service revenue
Salary expense
Rent expense
Total

Accounting 7/e Solutions Manual

DEBIT

CREDIT

$ 3,500
7,700
1,400
15,000
$ 2,800
22,000
2,100
7,600
2,000
700
$32,400

$32,400

(30 min.)

P 2-41B

Reqs. 1 and 3
ACCOUNT
DATE

ITEM

JRNL.
REF.

a.
b.
d.
e.
g.
i.
j.
k.

ACCOUNT
DATE

DATE

c.

DEBIT

CREDIT

40,000
32,000
1,300
800
400
1,100
1,600
2,600

ACCOUNTS RECEIVABLE
ITEM

JRNL.
REF.

h.
i.

ACCOUNT

ACCOUNT NO.

CASH

DEBIT

CREDIT

1,100

BALANCE
DEBIT
CREDIT

3,300
2,200

ACCOUNT NO.

SUPPLIES
ITEM

40,000
8,000
6,700
7,500
7,100
8,200
6,600
4,000

ACCOUNT NO.

3,300

JRNL.
REF.

BALANCE
DEBIT
CREDIT

DEBIT

CREDIT

400

BALANCE
DEBIT
CREDIT

400

Chapter 2

Recording Business Transactions

159

ACCOUNT
DATE

b.

160

EQUIPMENT
ITEM

ACCOUNT NO.

JRNL.
REF.

DEBIT

32,000

Accounting 7/e Solutions Manual

CREDIT

BALANCE
DEBIT
CREDIT

32,000

(continued)
ACCOUNT
DATE

ITEM

a.

ACCOUNT
DATE

DATE

DEBIT

CREDIT

20,000

ITEM

JRNL.
REF.

DEBIT

BALANCE
DEBIT
CREDIT

20,000

ACCOUNTS PAYABLE

c.
f.
g.

ACCOUNT

ACCOUNT NO.

AUTOMOBILE
JRNL.
REF.

P 2-41B

ACCOUNT NO.
CREDIT

BALANCE
DEBIT
CREDIT

400
500

400
900
500

400

ACCOUNT NO.

VINCE SERRANO, CAPITAL


ITEM

JRNL.
REF.

DEBIT

a.

CREDIT

BALANCE
DEBIT
CREDIT

60,000

60,000

ACCOUNT VINCE SERRANO, WITHDRAWALS ACCOUNT NO.


DATE

ITEM

JRNL.
REF.

k.

ACCOUNT
DATE

DEBIT

CREDIT

2,600

2,600

ACCOUNT NO.

SERVICE REVENUE
ITEM

JRNL.

DEBIT

BALANCE
DEBIT
CREDIT

CREDIT
Chapter 2

BALANCE

Recording Business Transactions

161

REF.

e.
h.

162

DEBIT

800
3,300

Accounting 7/e Solutions Manual

CREDIT

800
4,100

(continued)
ACCOUNT
DATE

ITEM

d.

DEBIT

RENT EXPENSE

DATE

JRNL.
REF.

ITEM

j.

DATE

DATE

f.

DEBIT

ACCOUNT NO.
CREDIT

ITEM

DEBIT

ACCOUNT NO.

CREDIT

600

ITEM

DEBIT

BALANCE
DEBIT
CREDIT

600

ADVERTISING EXPENSE
JRNL.
REF.

BALANCE
DEBIT
CREDIT

1,000

INSURANCE EXPENSE
JRNL.
REF.

BALANCE
DEBIT
CREDIT

1,300

1,000

j.

ACCOUNT

CREDIT

1,300

ACCOUNT

ACCOUNT

ACCOUNT NO.

SALARY EXPENSE
JRNL.
REF.

P 2-41B

ACCOUNT NO.

CREDIT

500

BALANCE
DEBIT
CREDIT

500

Chapter 2

Recording Business Transactions

163

(continued)

P 2-41B

Req. 2

Journal
DATE

a.

b.

c.

d.

e.

164

ACCOUNTS AND EXPLANATIONS

POST.
REF.

DEBIT

Cash
Automobile
Vince Serrano, Capital
Received investment by owner.

40,000
20,000

Equipment
Cash
Purchased equipment.

32,000

Supplies
Accounts Payable
Purchased supplies on account.
Salary Expense
Cash
Paid salary.
Cash
Service Revenue
Performed service and received
cash.
Accounting 7/e Solutions Manual

CREDIT

60,000

32,000

400
400

1,300
1,300

800
800

f.

g.

Advertising Expense
Accounts Payable
Received advertising bill.

500

Accounts Payable
Cash
Paid on account.

400

500

400

(continued)

P 2-41B

Req. 2 (continued)

Journal
DATE

h.

ACCOUNTS AND EXPLANATIONS

Accounts Receivable
Service Revenue

POST.
REF.

DEBIT

CREDIT

3,300
3,300

Performed service on account.

i.

Cash
Accounts Receivable

1,100
1,100

Collected cash on account.

j.

Rent Expense
Insurance Expense
Cash

1,000
600
1,600

Paid expenses.

k.

Vince Serrano, Withdrawals


Chapter 2

2,600
Recording Business Transactions

165

Cash
Withdrawal by owner.

166

Accounting 7/e Solutions Manual

2,600

(continued)

P 2-41B

Req. 4
Serrano Carpet Installers
Trial Balance
January 31, 2007
ACCOUNT

DEBIT
$ 4,000
2,200
400
32,000
20,000

Cash
Accounts receivable
Supplies
Equipment
Automobile
Accounts payable
Vince Serrano, capital
Vince Serrano, withdrawals
Service revenue
Salary expense
Rent expense
Insurance expense
Advertising expense
Total

CREDIT

500
60,000

2,600
4,100
1,300
1,000
600
500
$64,600

Chapter 2

$64,600

Recording Business Transactions

167

(20-30 min.)

P 2-42B

Req. 1
Serrano Carpet Installers
Income Statement
Month Ended January 31, 2007
Revenues:
Service revenue
Expenses:
Salary expense
Rent expense
Insurance expense
Advertising expense
Total expenses
Net income

$4,100
$1,300
1,000
600
500
3,400
$ 700

Serrano Carpet Installers


Statement of Owners Equity
Month Ended January 31, 2007
Vince Serrano, capital, January 1, 2007
Add: Investment by owner
Net income for the month
Less: Withdrawals by owner
Vince Serrano, capital, January 31, 2007
168

Accounting 7/e Solutions Manual

-060,000
700
60,700
(2,600)
$58,100

Chapter 2

Recording Business Transactions

169

(continued)

P 2-42B

Serrano Carpet Installers


Balance Sheet
January 31, 2007
ASSETS

LIABILITIES
Cash
$ 4,000 Accounts payable
$ 500
Accounts receivable
2,200 Total liabilities
500
Supplies
400
Equipment
32,000
OWNERS EQUITY
Automobile
20,000 Vince Serrano, capital 58,100
Total liabilities and
Total assets
$58,600 owners equity
$58,600

170

Accounting 7/e Solutions Manual

(15-25 min.)

P 2-43B

Missing Link Exploration Company


Trial Balance
March 31, 2007
ACCOUNT

DEBIT
$ 5,200*
2,540*
600*
21,300
46,000

Cash
Accounts receivable
Supplies
Exploration equipment
Computers
Accounts payable
Note payable
Jack Ballard, capital
Jack Ballard, withdrawals
Service revenue
Salary expense
Rent expense
Advertising expense
Utilities expense
Total

CREDIT

$ 2,800*
18,300
50,800
5,000
11,800*
1,300
1,200*
300
260*
$83,700

$83,700

*Explanations:
Cash: $6,200 $1,000 = $5,200
Accounts receivable: $2,000 $60 + $600 = $2,540
Supplies: $500 + $100 = $600
Accounts payable: $2,700 + $100 = $2,800
Chapter 2

Recording Business Transactions

171

Service revenue: $4,900 + $6,900 = $11,800


Rent expense: $500 + $350 + $350 = $1,200
Utilities expense: $200 + $60 = $260

172

Accounting 7/e Solutions Manual

Continuing Problem

(20-30 min.)

P 2-44

Reqs. 1 and 3
Cash

Accounts Receivable

Dec. 2 10,000 Dec. 2


18
800
3
12
Bal.
8,100

500
2,000
200

Dec. 9
Bal.

Supplies
Dec. 5
Bal.

Equipment

300
300

Dec. 3
Bal.

Furniture
Dec. 4
Bal.

1,700
1,700

2,000
2,000

Accounts Payable

3,600
3,600

Dec. 4 3,600
5
300
Bal.
3,900

Carl Redmon, Capital


Dec. 2
Bal.

Carl Redmon, Withdrawals

10,000
10,000

Service Revenue
Dec. 9
18

Rent Expense
1,700
800

Dec. 2
Bal.
Chapter 2

500
500
Recording Business Transactions

173

Bal.
Utilities Expense
Dec. 12
Bal.

174

200
200

Accounting 7/e Solutions Manual

2,500
Salary Expense

(continued)

P 2-44

Req. 2

Journal
DATE

Dec.

ACCOUNTS AND EXPLANATIONS

2 Cash
Carl Redmon, Capital
2 Rent Expense
Cash

POST.
REF.

DEBIT

CREDIT

10,000
10,000
500
500

3 Equipment
Cash

2,000

4 Furniture
Accounts Payable

3,600

5 Supplies
Accounts Payable

300

2,000

3,600

300

9 Accounts Receivable
Service Revenue

1,700
1,700

12 Utilities Expense
Cash

200

18 Cash

800

200

Chapter 2

Recording Business Transactions

175

Service Revenue

176

Accounting 7/e Solutions Manual

800

(continued)

P 2-44

Req. 4
Redmon Consulting
Trial Balance
December 31, 20XX
ACCOUNT

DEBIT
$ 8,100
1,700
300
2,000
3,600

Cash
Accounts receivable
Supplies
Equipment
Furniture
Accounts payable
Carl Redmon, capital
Carl Redmon, withdrawals
Service revenue
Rent expense
Utilities expense
Salary expense
Total

CREDIT

$ 3,900
10,000

2,500
500
200

$16,400

Chapter 2

$16,400

Recording Business Transactions

177

Decision Cases
(40-50 min.) Decision Case 1

Reqs. 1 and 2
Cash
(a)
(f)
Bal.

Accounts Receivable

10,000 (b)
1,200 (d)
8,400

300
2,500

(e)
Bal.

8,800 (f)
7,600

1,200

Supplies
(b)
Bal.

Accounts Payable

Dean McChesney, Capital

(c)

700

(a)

Service Revenue
(e)

178

10,000

Salary Expense
8,800

(d)

Rent Expense
(d)

300
300

1,100
Accounting 7/e Solutions Manual

1,400

Advertising Expense
(c)

700

(continued) Decision Case 1


Req. 3
A-Plus Travel Planners
Trial Balance
June 30, 2009
ACCOUNT

DEBIT
$ 8,400
7,600
300

Cash
Accounts receivable
Supplies
Accounts payable
Dean McChesney, capital
Service revenue
Salary expense
Rent expense
Advertising expense
Total

CREDIT

1,400
1,100
700
$19,500

Chapter 2

700
10,000
8,800

$19,500

Recording Business Transactions

179

(continued) Decision Case 1


Req. 4
A-Plus Travel Planners
Revenues:
Service revenue
Expenses:
Salary expense
Rent expense
Advertising expense
Total expenses
Net income for month

$8,800
$1,400
1,100
700
3,200
$5,600

Recommendation: Discontinue the business, because net


income falls below the target amount.

180

Accounting 7/e Solutions Manual

(15-20 min.) Decision Case 2


1. Double-entry bookkeeping has the advantage that it records
both sides (the giving side and the receiving side) of a
business transaction. Single-entry records only one side (the
giving side), which makes it harder to keep track of what is
received. Also it is easier to spot errors in a double-entry
system because total debits should always equal total
credits.
2. The bank is not misusing the term credit. When you deposit
money in the bank, the bank debits Cash (received from you)
and credits a payable (to you). It is this payable, a liability
account, that is the source of the term credit. This is why a
bank credit is good for the depositor. It means you have more
money in the bank.

*Students probably will not be this complete.

Chapter 2

Recording Business Transactions

181

Ethical Issue

The ethical issue is whether Better Days Ahead is taking


advantage of the banks generosity.
Students who approve of the Better Days Ahead action can
point out that the bank allows Better Days Ahead to overdraw
its cash balance. In this view, Better Days Ahead is merely
using a privilege the bank has granted. Most banks are civicminded

and

are

relatively

generous

with

charitable

organizations.
Students who disapprove may argue that Better Days Ahead is
using the banks money without adequately compensating the
banka subtle form of stealing. In this view, Better Days Ahead
should curtail its spending until it has the money to cover its
expenditures and maintain a positive balance. Alternatively,
Better Days Ahead could sign a note payable to borrow the
needed

money.

The

compensation.

182

Accounting 7/e Solutions Manual

related

interest

is

the

banks

The bank is the key player in this case. Whether the bank
approves or disapproves of the Better Days Ahead overdrafts is
critical to the ethical decision. Approval by the bank turns the
overdrafts into a gift to Better Days Ahead. Disapproval by the
bank would no doubt be communicated to Mr. Henson.

Chapter 2

Recording Business Transactions

183

Financial Statement Case

(20-30 min.)

Journal
DATE

Dec.

ACCOUNTS AND EXPLANATIONS

1 Cash
Sales Revenue
9 Cash
Note Payable

DEBIT

60,000
200,000
200,000
10,000

22 Accounts Payable
Cash ($10,000 )

5,000

28 Administrative Expense
Cash

3,000

Accounting 7/e Solutions Manual

CREDIT

60,000

12 Equipment
Accounts Payable

31 Note Payable
Interest Expense
Cash

184

POST.
REF.

10,000

5,000

3,000
100,000
1,000
101,000

Team Project

Suggested Answer
Student answers will very widely, as the various groups use the
charts of accounts of different businesses. The financial
statements that the students prepare should be consistent with
the businesss chart of accounts.

Chapter 2

Recording Business Transactions

185