Alexander S Payment Was Not an Expense

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Chapter 2

Transaction Analysis

Short Exercises

(5 min.) S 2-1

Alexander’s payment was not an expense.

Alexander acquired an asset, Equipment, because the computer is an economic resource of the business.

(5 min.) S 2-2

a. $19,400 ($15,000 + $4,400 + $7,500 − $7,500)

b. $ 4,400

(5-10 min.) S 2-3

Cash
60,000 / 4,700
4,200
Bal. / 59,500

(5 min.) S 2-4

Increased total assets: July 1 (Cash)

July 1 (Medical Supplies)

July 3 (Cash, Accounts Receivable)

(5-10 min.) S 2-5

a. Purchase of asset on account

Borrow money

b. Payment of dividends to owners

Expense transaction (ex: received and paid utility bill)

c. Pay a liability

Return an asset purchased on account

d. Issuance of stock

Revenue transaction (ex: provided services on account or for cash)

e. Purchase of asset for cash

Sale of asset for cash

Collection of an account receivable

(Answers may vary.)

(10 min.) S 2-6

Journal
DATE / ACCOUNT TITLES AND EXPLANATION / DEBIT / CREDIT
Oct. / 15 /

Cash

/ 64,000
Note Payable / 64,000
Borrowed money from the bank.
22 / Accounts Receivable / 17,100
Service Revenue / 17,100
Performed service on account.
28 /

Cash

/ 10,300
Accounts Receivable / 10,300
Received cash on account.
29 / Utilities Expense / 1,450
Accounts Payable / 1,450
Received utility bill to be paid next month.
31 / Salary Expense / 10,100
Cash / 10,100
Paid salary expense.

(10-15 min.) S 2-7

Req. 1

Journal
DATE / ACCOUNT TITLES AND EXPLANATION / DEBIT / CREDIT

Supplies

/ 4,800
Accounts Payable / 4,800
Purchased supplies on account.
Accounts Payable / 1,350
Cash / 1,350
Paid cash on account.

Req. 2

Accounts Payable

1,350 / 4,800
Bal. / 3,450

Req. 3

The business owes $3,450, as shown in the Accounts Payable account.

(10-15 min.) S 2-8

Req. 1

Journal
DATE / ACCOUNT TITLES AND EXPLANATION / DEBIT / CREDIT

Accounts Receivable

/ 3,900

Service Revenue

/ 3,900
Performed service on account.

Cash

/ 2,000

Accounts Receivable

/ 2,000
Received cash on account.

Req. 2

Cash / Accounts Receivable / Service Revenue
2,000 / 3,900 / 2,000 / 3,900
Bal. / 2,000 / Bal. / 1,900 / Bal. / 3,900

(10 min.) S 2-9

First Mortgage Company
Trial Balance
December 31, 2014
ACCOUNT / DEBIT / CREDIT
Millions
Cash / $ 5
Other assets / 20
Accounts payable / $ 6
Other liabilities / 2
Stockholders’ equity / 6
Revenues / 38
Expenses / 27 / ___
Total / $52 / $52

First Mortgage Company’s net income: $11 million ($38 − $27)

(10 min.) S 2-10

1. Total assets = $88,500 ($5,400 + $18,300 + $2,500 +

$21,700 + $40,600)

2. Total liabilities = $48,900 ($26,000 + $22,900)

3. Net income = $19,900 ($63,600 − $33,000 − $8,000 − $2,700)

(10 min.) S 2-11

1. Total debits = $ 95,660 ($132,200 + $4,060 − $40,600)

Total credits = $132,200

Difference = $ 36,540 ($132,200 − $95,660);

$36,540 / 9 = $4,060 (an integer), which suggests either a transposition or a slide.

2. Total debits = $127,700 ($132,200 + $13,800 − $18,300)

Total credits = $132,200

Difference = $ 4,500 ($127,700 − $132,200);

$4,500 / 9 = $500 (an integer), which suggests either a transposition or a slide.

3. Total debits = $113,900 ($132,200 − $18,300)

Total credits = $150,500 ($132,200 + $18,300)

Difference = $ 36,600 ($150,500 − $113,900)

$36,600 / 2 = $18,300 (original amount of accounts receivable).

(10 min.) S 2-12

G / 1. Debit
A / 2. Expense
F / 3. Net income
C / 4. Ledger
D / 5. Posting
I / 6. Normal balance
J / 7. Payable
E / 8. Journal
H / 9. Receivable
B / 10. Owners’ equity

(5 min.) S 2-13

Cash / Computer Equipment
200,000 / 56,000
Accounts Payable / Common Stock
56,000 / 200,000

Total debits = $256,000 ($200,000 + $56,000)

Total credits = $256,000 ($200,000 + $56,000)

Exercises

(10-15 min.) E 2-14A

TO: Home Office

FROM: Patti Brown, Store Manager

During the first week, I used the store’s beginning cash to purchase equipment and supplies. I signed a note payable to buy land and a building. After all these transactions, the store’s balance sheet appears as follows:

Dresses Unlimited
San Antonio Store
Balance Sheet
Date
ASSETS /

LIABILITIES

Cash / $ 104,900 / Note payable* / $279,000
Supplies / 6,100
Land / 75,000 / STOCKHOLDERS’ EQUITY
Building / 204,000 / Common stock / 150,000
Equipment / 39,000 / Total liabilities and
Total assets / $429,000 / stockholders’ equity / $429,000

*$75,000 + $204,000 = $279,000

Cash
150,000 / 39,000
6,100
104,900

(10-15 min.) E 2-15A

a. Increased assets (cash)

b. No effect (a personal transaction)

c. No effect on total assets. Increase in cash offsets the decrease in land.

d. No effect on total assets. Increase in cash offsets the decrease in accounts receivable.

e. No effect on total assets. Increase in land offsets the decrease in cash.

f. Increased assets (cash)

g. Decreased assets (cash)

h. Increased assets (equipment)

i. Increased assets (office supplies)

j. Decreased assets (cash)

2-1

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(10-20 min.) E 2-16A

Req. 1

Analysis of Transactions

ASSETS

=

/ LIABILITIES + STOCKHOLDERS’
EQUITY
Date / Cash + / Accounts
Receivable + / Medical
Supplies + / Land / = / Accounts
Payable + / Note
Payable + / Common
Stock + / Retained
Earnings / Type of Stockholders’
Equity Transaction
Jan. 6 / 150,000 / 150,000 / Issued stock
9 / (63,000) / 63,000
12 / 1,900 / 1,900
15 / Not a transaction of the business.
15-31 / 4,800 / 4,800 / 9,600 / Service revenue
15-31 / (3,300) / (3,300) / Salary expense
(1,200) / (1,200) / Rent expense
(900) / / (900) / Utilities expense
31 / 700 / (700)
31 / 35,000 / 35,000
31 / (500) / (500)
Bal. / 121,600 / 4,800 / 1,200 / 63,000 / 1,400 / 35,000 / 150,000 / 4,200

$190,600 = $190,600

2-1

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(continued) E 2-16A

Req. 2

a. $190,600

b. $4,800

c. $36,400 ($1,400 + $35,000)

d. $154,200 ($190,600 − $36,400, or $150,000 + $4,200)

e. $4,200 (Revenue, $9,600 minus expenses, $5,400 equals net income, $4,200.)

(10-15 min.) E 2-17A

Journal
DATE / ACCOUNT TITLES AND EXPLANATION / DEBIT / CREDIT

Jan.

6 Cash

150,000

/
/ /

Common Stock

/ /

150,000

/ /

Issued stock to owner.

/ /
/

9

Land

63,000

/
/ /

Cash

/ /

63,000

/ /

Purchased land.

/ /
/

Medical Supplies

1,900

/
/ /

Accounts Payable

/ /

1,900

/ /

Purchased supplies on account.

/ /
/

Not a transaction of the business.

/ /
/

15-31

Cash

4,800

/
/ /

Accounts Receivable

4,800

/
/ /

Service Revenue

/ /

9,600

/ /

Performed service for cash and on account.

/
/

15-31

Salary Expense

3,300

/
/ /

Rent Expense

1,200

/
/ /

Utilities Expense

900

/
/ /

Cash

/ /

5,400

/ /

Paid expenses.

/ /
/

Cash

700

/
/ /

Medical Supplies

/ /

700

/ /

Sold supplies.

/ /
/

Cash

35,000

/
/ /

Note Payable

/ /

35,000

/ /

Borrowed money.

/ /
/

Accounts Payable

500

/
/ /

Cash

/ /

500

/ /

Paid on account.

/ /

(20-30 min.) E 2-18A

Req. 1

Cash / Accounts Receivable
Jan. 6 / 150,000 / Jan. 9 / 63,000 / Jan. 15-31 / 4,800
15-31 / 4,800 / 15-31 / 5,400 / Bal. / 4,800
31 / 700 / 31 / 500
31 / 35,000
Bal. / 121,600
Medical Supplies / Land
Jan. 12 / 1,900 / Jan. 31 / 700 / Jan. 9 / 63,000
Bal. / 1,200 / Bal. / 63,000
Accounts Payable / Note Payable
Jan. 31 / 500 / Jan. 12 / 1,900 / Jan. 31 / 35,000
Bal. / 1,400 / Bal. / 35,000
Common Stock / Service Revenue
Jan. 6 / 150,000 / Jan. 15-31 / 9,600
Bal. / 150,000 / Bal. / 9,600
Salary Expense / Rent Expense
Jan. 15-31 / 3,300 / Jan. 15-31 / 1,200
Bal. / 3,300 / Bal. / 1,200
Utilities Expense
Jan. 15-31 / 900
Bal. / 900

(continued) E 2-18A

Req. 2

Dr. Rebecca Gray, P.C.
Trial Balance
January 31, 2014
ACCOUNT / DEBIT / CREDIT
Cash / $121,600
Accounts receivable / 4,800
Medical supplies / 1,200
Land / 63,000
Accounts payable / $ 1,400
Note payable / 35,000
Common stock / 150,000
Service revenue / 9,600
Salary expense / 3,300
Rent expense / 1,200
Utilities expense / 900
Total / $196,000 / $196,000

Req. 3

Total assets ($121,600 + $4,800 + $1,200 + $63,000) $190,600

Total liabilities ($1,400 + $35,000) (36,400)

Total stockholders’ equity ($150,000 + $4,200*) $154,200

*Net income = $4,200 ($9,600 – $3,300 – $1,200 – $900)

(10-15 min.) E 2-19A

Req. 1

Journal
ACCOUNT TITLES AND EXPLANATION / DEBIT / CREDIT
1. / Cash / 8,700
Common Stock / 8,700
Issued common stock.
2. / Cash / 9,000
Note Payable / 9,000
Borrowed money; signed note payable.
3. / Supplies / 500
Accounts Payable / 500
Purchased supplies on account.
4. / Land / 33,000
Cash / 3,000
Note Payable / 30,000
Purchased land by paying cash and signing
a note payable.
5. / Cash / 65
Supplies / 65
Sold supplies for cash.
6. / Accounts Payable / 270
Cash / 270
Paid cash on account.
7. / Equipment / 3,500
Cash / 3,500
Paid cash for equipment.

Cash balance = $10,995 ($8,700 + $9,000 − $3,000 + $65 − $270 − $3,500)

Company owes $39,230 ($9,000 + $30,000 + $500 − $270)

(10-20 min.) E 2-20A

Req. 1

Lake Oaks Pool Service, Inc.
Trial Balance
April 30, 2014
ACCOUNT / DEBIT / CREDIT
Cash / $19,760
Accounts receivable / 5,300
Equipment / 29,200
Accounts payable / $ 4,800
Note payable / 21,500
Common stock / 16,800
Retained earnings / 4,700
Dividends / 3,500
Service revenue / 20,910
Salary expense / 8,700
Utilities expense / 1,800
Delivery expense / 450
Total / $68,710 / $68,710

Req. 2

Lake Oaks Pool Service, Inc.

Income Statement
For the Month Ended April 30, 2014
Service revenue / $20,910
Salary expense / $8,700
Utilities expense / 1,800
Delivery expense / 450
Total expenses / 10,950
Net income / $ 9,960

(15-25 min.) E 2-21A

Amanda’s Candies, Inc.
Trial Balance
September 30, 2014
ACCOUNT / DEBIT / CREDIT
Cash / $14,400*
Accounts receivable / 12,600*
Inventory / 17,300
Supplies / 400
Land / 41,000
Accounts payable / $13,140*
Common stock / 47,300*
Sales revenue / 33,800
Insurance expense / 3,700*
Salary expense / 2,200
Utilities expense / 1,640*
Rent expense / 1,000 / ______
Total / $94,240 / $94,240

_____

*Computations:

Cash: $14,200 + $200 = $14,400

Accounts Receivable: $12,800 − $200 = $12,600

Accounts Payable: $11,600 + $1,000 − $100 + $640 = $13,140

Common Stock: $47,100 + $200 = $47,300

Insurance Expense: $0 + $3,700 = $3,700

Utilities Expense: $1,000 + $640 = $1,640

(10-15 min.) E 2-22A

Cash / Accounts Receivable
(a) / 25,000 / (b) / 1,800 / (f) / 10,000
(d) / 3,600 / Bal. / 10,000
(e) / 500
(g) / 3,200
Bal. / 15,900
Office Supplies / Office Furniture
(c) / 1,050 / (a) / 10,400
Bal. / 1,050 / Bal. / 10,400
Accounts Payable / Common Stock
(e) / 500 / (c) / 1,050 / (a) / 35,400
Bal. / 550 / Bal. / 35,400
Dividends / Service Revenue
(g) / 3,200 / (f) / 10,000
Bal. / 3,200 / Bal. / 10,000
Salary Expense / Rent Expense
(d) / 3,600 / (b) / 1,800
Bal. / 3,600 / Bal. / 1,800

(10-20 min.) E 2-23A

Req. 1

Stephen Garner, Attorney
Trial Balance
November 30, 2014
ACCOUNT / DEBIT / CREDIT
Cash / $15,900
Accounts receivable / 10,000
Office supplies / 1,050
Office furniture / 10,400
Accounts payable / $ 550
Common stock / 35,400
Dividends / 3,200
Service revenue / 10,000
Salary expense / 3,600
Rent expense / 1,800
Total / $45,950 / $45,950

Req. 2

The business performed well during November. The result of operations was net income of $4,600, as shown by the income statement accounts:

Service revenue $ 10,000

Salary expense $3,600

Rent expense 1,800

Total expenses (5,400)

Net income $ 4,600

(10-15 min.) E 2-24B

TO: Home Office

FROM: Lori Lyons, Store Manager

L. Deveta Fashions
New Orleans Store
Balance Sheet
Date
ASSETS /

LIABILITIES

Cash / $ 49,500 / Note payable* / $211,000
Supplies / 7,500
Land / 86,000 / STOCKHOLDERS’ EQUITY
Building / 125,000 / Common stock / 100,000
Equipment / 43,000 / Total liabilities and
Total assets / $311,000 / stockholders’ equity $324,000 / $311,000

_____

*($86,000 + $125,000) = $211,000

Cash
100,000 / 43,000
7,500
49,500

(10-15 min.) E 2-25B

a. Increased assets (cash)

b. Increased assets (land)

c. Increased assets (supplies)

d. No effect (a personal transaction)

e. No effect on total assets. Increase in equipment offsets the decrease in cash.

f. Increased assets (cash)

g. No effect on total assets. Increase in notes receivable offsets the decrease in land.

h. Increased assets (accounts receivable)

i. Decreased assets (cash)

j. Decreased assets (cash)

2-49