ExErcisEs: sEt BRecognitionE1B. concEpt ▶ Which of the following events would be recognized and recorded in Trattoria Company’s accounting records on the date indicated?Jan. 15 Trattoria offers to purchase a tract of land for $140,000. There is a high like-
lihood that the offer will be accepted.Feb. 2 Trattoria receives notice that its rent will increase from $500 to $600 per
month effective March 1.Mar. 29 Trattoria receives its utility bill for the month of March. The bill is not due
until April 9.June 10 Trattoria places an order for new office equipment costing $21,000.July 6 The office equipment Trattoria ordered on June 10 arrives. Payment is not
due until August 1.
T Accounts, Normal Balance, and the Accounting EquationE2B. You are given the following list of accounts with dollar amounts:
Insert each account name at the top of its corresponding T account and enter the dollar amount as a normal balance in the account. Then show that the accounting equation is in balance.
Owner's Equity
Assets 5 Liabilities 1 M. Powell, 2 M. Powell, 1 Revenues 2 Expenses Capital Withdrawals
Classification of AccountsE3B. The following ledger accounts are for Fossil Service Company: a. Cash b. Wages Expense c. Accounts Receivable d. R. Shuckman, Capital e. Service Revenue f. Prepaid Rent g. Accounts Payable h. Investments in Securities i. Land j. Supplies Expense k. Prepaid Insurance l. Utilities Expense
m. Fees Earned n. R. Shuckman, Withdrawals o. Wages Payable p. Unearned Revenue q. Office Equipment r. Rent Payable s. Notes Receivable t. Interest Expense u. Notes Payable v. Supplies w. Interest Receivable x. Rent Expense
2 Chapter 2: Analyzing and Recording Business Transactions
Complete the following table, using X’s to indicate each account’s classification and normal balance (whether a debit or a credit increases the account).
Type of Account
Owner’s Equity Normal Balance
R. Shuckman, R. Shuckman, (increases balance)
Item Asset Liability Capital Withdrawals Revenue Expense Debit Credit
a. X X
Transaction AnalysisE4B. Analyze transactions a–g, following the example that follows.
a. Christina Wilder invested $2,500 in cash to establish Wilder’s Beauty Parlor. b. Paid two months’ rent in advance, $1,680. c. Purchased supplies on credit, $120. d. Received cash for salon services, $700. e. Paid for supplies purchased in c. f. Paid utility bill, $72. g. Withdrew $100 in cash.
Example
a. The asset account Cash was increased. Increases in assets are recorded by deb-its. Debit Cash $2,500. A component of owner’s equity, C. Wilder, Capital, was increased. Increases in owner’s capital are recorded by credits. Credit C. Wilder, Capital $2,500.
Transaction AnalysisE5B. The following accounts are applicable to Francesca’s Lawn Service, a company that maintains condominium grounds:
a. Received cash from customers billed last month. 1 2 b. Made a payment on accounts payable. ____ ____ c. Purchased supplies on credit. ____ ____ d. Billed a client for lawn services. ____ ____ e. Made a rent payment for the current month. ____ ____ f. Received cash from customers for lawn services not yet billed. ____ ____ g. Paid employee wages. ____ ____ h. Ordered equipment. ____ ____ i. Paid for supplies purchased on credit last month. ____ ____ j. Received and paid for the equipment ordered in h. ____ ____
Analyze each transaction and show the accounts affected by entering the corresponding numbers in the appropriate debit or credit columns as shown in transaction a. Indicate no entry, if appropriate.
Recording Transactions in T AccountsE6B. Open the following T accounts: Cash; Repair Supplies; Repair Equipment; Accounts Payable; D. Stan, Capital; D. Stan, Withdrawals; Repair Fees Earned; Salaries Expense; and Rent Expense. Record the following transactions for the month of June directly in the T accounts; use the letters to identify the transactions in your T accounts. Determine the balance in each account. a. Daniel Stan opened Stan Repair Service by investing $4,300 in cash and $1,600 in
repair equipment. b. Paid $800 for the current month’s rent. c. Purchased repair supplies on credit, $1,100. d. Purchased additional repair equipment for cash, $600. e. Paid salary to an employee, $900. f. Paid $400 of amount purchased on credit in c. g. Accepted cash for repairs completed, $3,720. h. Withdrew $1,000 in cash.
Analysis of TransactionsE7B. Explain each transaction (a–h) entered in the following T accounts:
Cash Accounts Receivable Equipment
a. 20,000 b. 7,500 c. 4,000 g. 750 b. 7,500 h. 450 g. 750 e. 1,800 d. 4,500 h. 450 f. 2,250
Accounts Payable J. Roth, Capital Service Revenue f. 2,250 d. 4,500 a. 20,000 c. 4,000
Wages Expense e. 1,800
Analysis of Unfamiliar TransactionsE8B. Managers and accountants often encounter transactions with which they are unfa-miliar. Use your analytical skills to analyze and prepare journal entries for the following transactions, which have not yet been discussed in the text.May 1 Purchased merchandise inventory on account, $1,400. 2 Purchased marketable securities for cash, $3,000. 3 Returned part of merchandise inventory purchased for full credit, $250. 4 Sold merchandise inventory on account, $800 (record sale only). 5 Purchased land and a building for $300,000. Payment is $60,000 cash, and
there is a 30-year mortgage for the remainder. The purchase price is allocated as follows: $100,000 to the land and $200,000 to the building.
6 Received an order for $12,000 in services to be provided. With the order was a deposit of $3,500.
Trial BalanceE9B. After recording the transactions in E6B, prepare a trial balance in proper sequence for Stan Repair Service as of June 30, 2014.
Preparing a Trial BalanceE10B. The list that follows presents Kremer Company’s accounts (in alphabetical order) of as of March 31, 2014. The list does not include the amount of Accounts Payable.
4 Chapter 2: Analyzing and Recording Business Transactions
Prepare a trial balance with the proper heading (see Exhibit 7) and with the accounts listed in the chart of accounts sequence (see Exhibit 2). Compute the balance of Accounts Payable.
Effects of Errors on a Trial BalanceE11B. Accounting connEction ▶ Which of the following errors would cause a trial balance to have unequal totals? Explain your answers. a. A payment to a creditor was recorded as a debit to Accounts Payable for $129 and as
a credit to Cash for $102. b. A payment of $150 to a creditor for an account payable was debited to Accounts
Receivable and credited to Cash. c. A purchase of office supplies of $420 was recorded as a debit to Office Supplies for
$42 and as a credit to Cash for $42. d. A purchase of equipment for $450 was recorded as a debit to Supplies for $450 and
as a credit to Cash for $450.
Correcting Errors in a Trial BalanceE12B. Sullivan Services’ trial balance at the end of July 2014 follows. It does not balance because of a number of errors. Sullivan’s accountant compared the amounts in the trial balance with the ledger, recomputed the account balances, and compared the postings. He found the following errors: a. The balance of Cash was understated by $800. b. A cash payment of $420 was credited to Cash for $240. c. A debit of $120 to Accounts Receivable was not posted. d. Supplies purchased for $60 were posted as a credit to Supplies. e. A debit of $180 to Prepaid Insurance was not posted. f. The Accounts Payable account had debits of $5,320 and credits of $9,180. g. The Notes Payable account, with a credit balance of $2,400, was not included on the
trial balance. h. The debit balance of M. Sullivan, Withdrawals was listed in the trial balance as a
credit. i. A $200 debit to M. Sullivan, Withdrawals was posted as a credit. j. The actual balance of Utilities Expense, $260, was listed as $26 in the trial balance.
Recording Transactions in the General JournalE13B. Record the transactions in E6B in the general journal.
Recording Transactions in the General Journal and Posting to the Ledger AccountsE14B. Open a general journal form like the one in Exhibit 8, and label it Page 10. Then record the following transactions in the journal:Dec. 14 Purchased equipment for $6,000, paying $2,000 as a cash down payment. 28 Paid $3,000 of the amount owed on the equipment.Prepare three ledger account forms like the one shown in Exhibit 9. Use the following account numbers: Cash, 111; Office Equipment, 146; and Accounts Payable, 212. Then post the two transactions from the general journal to the ledger accounts, being sure to make proper posting references. Assume that the Cash account has a debit balance of $8,000 on the day prior to the first transaction.
Application of Recognition PointE15B. BusinEss ApplicAtion ▶ Hayashi Flower Shop uses a large amount of supplies in its business. The following table summarizes selected transaction data for supplies that Hayashi purchased:
Order Date Shipped Date Received Amount
a June 26 July 5 $300b July 10 July 15 750c July 16 July 22 400d July 23 July 30 600e July 27 Aug. 1 750f Aug. 3 Aug. 7 500
Determine the total purchases of supplies for July alone under each of the following assumptions:
1. Hayashi recognizes purchases when orders are shipped. 2. Hayashi recognizes purchases when orders are received.
Cash Flow AnalysisE16B. BusinEss ApplicAtion ▶ A company engaged in the following transactions:Dec. 1 Performed services for cash, $750. 1 Paid expenses in cash, $550. 2 Performed services on credit, $900. 3 Collected on account, $600. 4 Incurred expenses on credit, $650. 5 Paid on account, $350.Enter the correct titles on the following T accounts and enter the above transactions in the accounts. Determine the cash balance after these transactions, the amount still to be received, and the amount still to be paid.
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