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Chapter 02 - The Accounting Cycle: During the Period

1. d.2. b.3. a.4. e.5. c.

Assets = Liabilities + Stockholders’ Equity1. Increase = No effect + Increase2. Decrease = No effect + Decrease3. Increase = Increase + No effect4. Decrease = No effect + Decrease5. Decrease = No effect + Decrease6. Increase = Increase + No effect

© The McGraw-Hill Companies, Inc., 2014Solutions for Exercises Set B, Chapter 2

2-1

© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 2 The Accounting Cycle: During the Period

EXERCISESExercise 2-1

Exercise 2-2


1. Pay for rent in the current month, $1,500.

Assets decrease Stockholders’ equity decreases

2. Purchase equipment for $40,000 cash.

One asset (equipment) increases and another asset (cash) decreases

3. Purchase office supplies on account for $1,000.

Assets increase Liabilities increases

4. Provide services for $20,000 on account.

Assets increase Stockholders’ equity increases

5. Pay workers’ salaries of $5,000 for the current month.

Assets decrease Stockholders’ equity decreases

6. Receive $15,000 from customers in (4) above.

One asset (cash) increases and another asset (accounts receivable) decreases

7. Receive cash of $5,000 in advance from a customer.

Assets increase Liabilities increase

1. Pay dividends of $2,000 to stockholders.

Assets decrease

Stockholders’ equity decreases

2. Purchase a building for $60,000 cash. One asset (building) increases and another asset (cash) decreases

© The McGraw-Hill Companies, Inc., 20142-2 Financial Accounting, 3e


Exercise 2-3

Dual Effect

Exercise 2-4

Dual Effect


3. Pay advertising of $1,000 for the current month.

Assets decrease

Stockholders’ equity decreases

4. Purchase land for $25,000 by issuing note payable.

Assets increase

Liabilities increase

5. Provide services to customers for $19,000.

Assets increase

Stockholders’ equity increases

6. Issue common stock for $50,000. Assets increase

Stockholders’ equity increases

Transaction BalanceRetained earnings, April 1 $15,200

1. Issue common stock for cash, $12,000 02. Provide services to customers on account, $9,800. +9,8003. Provide services to customers in exchange for cash, $4,500. +4,5004. Purchase equipment and pay cash, $7,500. 05. Pay rent for April, $2,000. −2,0006. Pay workers’ salaries for April, $3,600. −3,6007. Pay dividends to stockholders, $2,400. −2,400

Retained earnings, April 30 $21,500


2-3


Exercise 2-5


Debit or Credit Account1. Debit Cash2. Credit Service Revenue3. Debit Salaries Expense4. Credit Accounts Payable5. Debit Equipment6. Credit Retained Earnings7. Debit Utilities Expense8. Debit Accounts Receivable9. Debit Dividends

10. Credit Common Stock

AccountDebited

AccountCredited

Example: Purchase equipment in exchange for cash.

Equipment Cash

1. Provide services to customers on account. Accounts Receivable

Service Revenue

2. Purchase land for cash. Land Cash3. Purchase supplies on account. Supplies Accounts

Payable4. Pay workers’ salaries for the current month. Salaries

ExpenseCash

5. Purchase advertising for the current month. Advertising Expense

Cash



Exercise 2-6

Exercise 2-7


6. Pay rent for the current month. Rent Expense

Cash

7. Receive cash in advance from customers. Cash Unearned Revenue

8. Issue common stock in exchange for cash. Cash Common Stock

9. Pay dividends to stockholders. Dividends Cash10. Issue a note payable in exchange for cash. Cash Notes

Payable

(1) Debit CreditPrepaid Insurance 1,800

Cash 1,800(Pay for insurance in advance)

(2)Buildings 50,000

Notes Payable 50,000(Purchase building and issue note payable)

(3)Utilities Expense 1,200

Cash 1,200(Pay current month’s utilities)

(4)Accounts Payable 2,400

Cash 2,400(Pay cash on account)


2-5


Exercise 2-8


(5)Accounts Receivable 16,600

Service Revenue 16,600(Provide services on account)

February 2 Debit CreditAccounts Receivable 4,500

Service Revenue 4,500(Provide services to customers on account)

February 7Cash 4,200

Accounts Receivable 4,200(Receive cash on account)

February 14Cash 10,000

Common Stock 10,000(Issue common stock for cash)

February 15Salaries Expense 2,750

Cash 2,750(Pay salaries for current month)



Exercise 2-91. Receive cash by issuing a note payable, $8,600.

2. Receive cash from customers on account, $1,900.

3. Pay for advertising in the current month, $3,000.

4. Provide services to customers for cash, $14,500.

5. Issue common stock, $25,000.

Exercise 2-10


February 25Repairs and Maintenance Expense 2,200

Cash 2,200(Pay for repairs and maintenance)

February 28Equipment 5,200

Cash 5,200(Purchase equipment with cash)

March 1 Debit CreditCash 21,300

Service Revenue 21,300(Provide services to customers for cash)

March 5Cash 11,000

Common stock 11,000(Issue common stock for cash)

March 10Cash 14,600

Accounts Receivable 14,600(Receive cash from customers on account)

March 15Salaries Expense 1,190

Cash 1,190(Pay salaries for current month)

March 22Prepaid Rent 15,700

Cash 15,700(Pay for rent in advance)


2-7


Exercise 2-11


March 27Dividends 9,000

Cash 9,000(Pay dividends to stockholders)

March 28Supplies 3,800

Cash 3,800(Purchase office supplies with cash)

Corrections

External Transaction Account Titles Debit Credit1. Provider services to customers on

account, $1,300.Accounts Receivable 1,300

Service Revenue 1,300

2. Pay advertising for the current period, $1,100.

Advertising Expense 1,100Cash 1,100

3. Receive cash of $2,500 from a bank loan.

Cash 2,500Bank Loan Payable 2,500

4. Pay cash dividend of $1,000 to stockholders.

Dividend 1,000Cash 1,000

5. Pay for workers salaries in the current period, $1,800.

Salaries Expense 1,800Cash 1,800



Exercise 2-12


Exercise 2-13Corrections

External Transaction Account Titles Debit Credit1. Provider services to customers for

cash, $1,300.Cash 1,300

Service Revenue 1,300

2. Pay advertising for the current period, $1,100.

Advertising Expense 1,100Cash 1,100

3. Receive cash of $2,500 from customers in advance.

Cash 2,500Unearned Revenue 2,500

4. Pay cash dividend of $1,000 to stockholders.

Dividend 1,000Cash 1,000

5. Pay for rent in the current period, $1,800.

Rent Expense 1,800Cash 1,800

Cash

(1)(4)(6)

4,00016,0008,0003,000

9,0004,0001,0007,000

(2)(3)(5)(7)

10,000

Transaction (8) is not posted to the Cash T-account because a purchase on account does not involve cash.

Cash Accounts Receivable© The McGraw-Hill Companies, Inc., 2014

Solutions for Exercises Set B, Chapter 22-9


Exercise 2-14

Exercise 2-15


(3)(6)

3,2007,5002,540

1,1003,500

(4)(5)

(1)3,9009,800 7,500 (3)

8,640 6,200

Supplies Accounts Payable

(2)480

2,200 (5) 3,5001,7202,200 (2)

2,680 420

Unearned Revenue Service Revenue410

2,540 (6)0

9,800 (1)2,950 9,800

Advertising Expense

(4)0

1,1001,100



Exercise 2-161. Provide services on account.2. Purchase supplies on account.3. Receive cash from customers on account.4. Pay for advertising for the current period.5. Pay cash on account payable.6. Receive cash from customers in advance.

Exercise 2-17


Sooner CompanyTrial Balance

April 30Accounts Debit Credit

Cash $ 3,100Accounts receivable 4,500Supplies 1,700Prepaid insurance 2,000Buildings 44,200Accounts payable $ 2,600Salaries payable 3,200Common stock 36,500Retained earnings 5,400Service revenue 20,900Salaries expense 7,900Utilities expense 5,200

Totals $68,600 $68,600

Fightin’ Blue Hens IncorporatedTrial Balance

March 31Accounts Debit Credit

Cash $ 3,200Accounts Receivable 6,900Prepaid Rent 4,500Land 48,200Accounts Payable $ 6,300Unearned Revenue 3,800Common Stock 25,900Retained Earnings 11,600Service Revenue 30,100Supplies Expense 8,200Salaries Expense 6,700

Totals $77,700 $77,700


2-11


Exercise 2-18

Exercise 2-19Requirement 1


(1) Debit CreditCash 45,000

Common Stock 45,000(Issue common stock)

(2)Land 27,700

Notes Payable 27,700(Purchase land with note payable)

(3)Equipment 11,500

Cash 11,500(Purchase storage containers)

(4)No entry

(5)Cash 38,000

Service Revenue 38,000(Receive cash for current month’s rent)

(6)Supplies 4,500

Accounts Payable 4,500(Purchase office supplies on account)

(7)Salaries Expense 6,900

Cash 6,900(Pay salaries for the current month)



Exercise 2-19 (continued)Requirement 2


Cash Common Stock

(1)

(5)

045,000

38,00011,500

6,900

(3)

(7)

045,000 (1)

64,600 45,000

Land Notes Payable

(2)0

27,7000

27,700 (2)27,700 27,700

Equipment Service Revenue

(3)0

11,5000

38,000 (5)11,500 38,000

Supplies Accounts Payable

(6)0

4,5000

4,500 (6)4,500 4,500

Salaries Expense

(7)0

6,9006,900


2-13


Exercise 2-19 (concluded)Requirement 3


Green Wave CompanyTrial Balance

Accounts Debit CreditCash $64,600Supplies 4,500Land 27,700Equipment 11,500Accounts Payable $ 4,500Notes Payable 27,700Common Stock 45,000Service Revenue 38,000Salaries Expense 6,900

Totals $115,200 $115,200

(1) Debit CreditAccounts Receivable 25,300

Service Revenue 25,300(Provide painting on account)

(2)Equipment 12,600

Cash 12,600(Purchase painting equipment)

(3)Supplies 1,200

Accounts Payable 1,200(Purchase office supplies on account)

(4)Salaries Expense 3,700

Cash 3,700(Pay salaries for the current month)

(5)Advertising Expense 2,050

Cash 2,050© The McGraw-Hill Companies, Inc., 20142-14 Financial Accounting, 3e


Exercise 2-20Requirement 1


(Pay advertising for the current month)(6)Rent Expense 3,900

Cash 3,900(Pay rent for the current month)

(7)Cash 22,800

Accounts Receivable 22,800(Receive cash on account)

(8)Cash 9,400

Unearned Revenue 9,400(Receive cash in advance for painting)

Accounts Receivable Service RevenueBeg

.(1)

3,00025,300

22,800 (7)

025,300

Beg.(1)

5,500 25,300

Equipment CashBeg.(2)

5,10012,600

Beg.

(7)(8)

19,000

22,8009,400

12,6003,7002,0503,900

(2)(4)(5)(6)

17,700 28,950

Supplies Accounts PayableBeg

.(3)

3001,200

3,6001,200

Beg.(3)


2-15


Exercise 2-20 (continued)Requirement 2


1,500 4,800

Salaries Expense Advertising ExpenseBeg

.(4)

03,700

Beg.(5)

02,050

3,700 2,050

Rent ExpenseUnearned Revenue

Beg.

(6)

03,900

09,400

Beg.(8)

3,900 9,400

Common Stock Retained Earnings15,000 Beg. 8,800 Beg

.15,000 8,800



Exercise 2-20 (concluded)Requirement 3


Boilermaker House Painting CompanyTrial Balance

Accounts Debit CreditCash $28,950Accounts Receivable 5,500Supplies 1,500Equipment 17,700Accounts Payable $ 4,800Unearned Revenue 9,400Common Stock 15,000Retained Earnings 8,800Service Revenue 25,300Salaries Expense 3,700Advertising Expense 2,050Rent Expense 3,900

Totals $63,300 $63,300


2-17


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