Chapter 02 - the Accounting Cycle: During the Period

Chapter 02 - The Accounting Cycle: During the Period

Chapter 2

The Accounting Cycle: During the Period

Identify terms associated with the measurement process(LO2-1)

E2-1 Listed below are several terms and phrases associated with the measurement process for external transactions.

List A / List B
_____1. Account / a. Record of all transactions affecting a firm.
b. Determine the dual effect of economic events on the accounting equation.
c. List of accounts and their balances.
d. Summary of the effects of all transactions related to a particular item over a period of time.
e. Transfer balances from the journal to the ledger.
_____2. Analyze transactions
_____3. Journal
_____4. Post
_____5. Trial balance

Required:

Pair each item from List A with the item from List B to which it is most appropriately associated.

Analyze the impact of transactions on the accounting equation(LO2-2)

E2-2Below are the external transactions for Shockers Incorporated.

1. Provide services to customers for cash.

2. Pay salaries for the current month.

3. Purchase a building by signing a note payable.

4. Pay utilities for the current month.

5. Pay dividends to stockholders.

6. Borrow cash from the bank.

Assets / = / Liabilities / + / Stockholders’ Equity
1. / Increase / = / No effect / + / Increase
2.
3.
4.
5.
6.

Required:

Analyze each transaction. Under each category in the accounting equation, indicate whether the transaction increases, decreases, or has no effect. The first item is provided as an example.

Analyze the impact of transactions on the accounting equation(LO2-2)

E2-3Green Wave Company has the following transactions.

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

2. Purchase equipment for $40,000 cash.

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

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

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

6. Receive $15,000 from customers in (3) above.

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

Required:

For each transaction, describe the dual effect on the accounting equation. For example, in the first transaction, (1) assets increase and (2) stockholders’ equity increases.

Analyze the impact of transactions on the accounting equation(LO2-2)

E2-4Boilermaker House Painting Company incurs the following transactions for September.

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

2. Purchase a building for $60,000 cash.

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

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

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

6. Issue common stock for $50,000.

Required:

For each transaction, describe the dual effect on the accounting equation. For example, for the first transaction, (1) assets increase and (2) stockholders’ equity increases.

Understand the components of retained earnings(LO2-2)

E2-5At the beginning of April, Owl Corporation has a balance of $15,200 in the Retained Earnings account. During the month of April, Owl had the following external transactions.

1. Issue common stock for cash, $12,000.

2. Provide services to customers on account, $9,800.

3. Provide services to customers in exchange for cash, $4,500.

4. Purchase equipment and pay cash, $7,500.

5. Pay rent for April, $2,000.

6. Pay workers’ salaries for April, $3,600.

7. Pay dividends to stockholders, $2,400.

Required:

Using the external transactions above, compute the balance of Retained Earnings at April 30.

Indicate the debit or credit balance of accounts(LO2-3)

E2-6Below is a list of common accounts.

Accounts / Debit or Credit
Supplies / 1.______
Service Revenue / 2.______
Dividends / 3.______
Unearned Revenue / 4.______
Buildings / 5.______
Common Stock / 6.______
Advertising Expense / 7.______
Prepaid Rent / 8.______
Interest Expense / 9.______
Notes Payable / 10.______

Required:

Indicate whether the normal balance of each account is a debit or a credit.

Associate debits and credits with external transactions(LO2-3)

E2-7Below are several external transactions for Hokies Company.

Account Debited / Account Credited
Example: Purchase equipment in exchange for cash. / Equipment / Cash
1. Provide services to customers on account.
2. Purchase equipment for cash.
3. Purchase supplies on account.
4. Pay workers’ salaries for the current month.
5. Purchase advertising for the current month.
6. Pay rent for the current month.
7. Receive cash in advance from customers.
8. Issue common stock in exchange for cash.
9. Pay dividends to stockholders.
10. Issue a note payable in exchange for cash.

Hokies uses the following accounts:

Accounts Payable / Equipment / Accounts Receivable
Cash / Supplies / Advertising Expense
Land / Rent Expense / Service Revenue
Common Stock / Notes Payable / Retained Earnings
Unearned Revenue / Salaries Expense / Dividends

Required:

Indicate which accounts should be debited and which should be credited.

Record transactions(LO2-4)

E2-8Terapin Company engages in the following external transactions for November.

1. Pay insurance in advance for the next year, $1,800.

2. Purchase a building by issuing a note payable, $50,000.

3. Pay utility bill for the current month, $1,200.

4. Pay cash to reduce an account payable, $2,400.

5. Provide services to customers on account, $16,600.

Required:

Record the transactions. Terapin uses the following accounts: Cash, Accounts Receivable, Prepaid Insurance, Buildings, Accounts Payable, Service Revenue, and Utilities Expense.

Identify transactions(LO2-4)

E2-9Below are recorded transactions of Yellow Jacket Corporation for August.

Debit / Credit
1. Cash
Notes Payable / 8,600 / 8,600
2. Cash
Accounts Receivable / 1,900 / 1,900
3. Advertising Expense
Cash / 3,000 / 3,000
4. Cash
Service Revenue / 14,500 / 14,500
5. Cash
Common Stock / 25,000 / 25,000

Required:

Provide an explanation for each transaction.

Record transactions(LO2-4)

E2-10Sun Devil Hair Design has the following transactions during the month of February.

February 2 / Provide services to customers on account, $4,500.
February 7 / Receivable cash from customers on account, $4,200.
February 14 / Issue common stock in exchange for cash, $10,000.
February 15 / Pay employee salaries for the current month of $2,750.
February 25 / Pay repairs and maintenance expenses, $2,200.
February 28 / Purchase equipment with cash, $5,200.

Required:

Record each transaction. Sun Devil uses the following accounts: Cash, Accounts Receivable, Equipment, Common Stock, Service Revenue, Repairs and Maintenance Expense, and Salaries Expense.

Record transactions(LO2-4)

E2-11Bearcat Construction begins operations in March and has the following transactions.

March 1 / Receive cash from customers for services provided, $21,300.
March 5 / Issue common stock for cash, $11,000.
March 10 / Receive cash from customers who were previously billed, $14,600.
March 15 / Pay salaries for the current month of $3,800.
March 22 / Pay rent for one year in advance, $15,700.
March 27 / Pay dividends to stockholders, $9,000.
March 28 / Purchase office supplies with cash, $3,800.

Required:

Record each transaction. Bearcat uses the following accounts: Cash, Accounts Receivable, Supplies, Prepaid Rent, Common Stock, Service Revenue, and Salaries Expense.

Correct recorded transactions(LO2-4)

E2-12Below are several transactions for Scarlet Knight Corporation. A junior accountant, recently employed by the company, proposes to record the following transactions.

External Transaction / Account Titles / Debit / Credit
1. / Provide services to customers on account, $1,300. / Cash / 1,300
Service Revenue / 1,300
2. / Pay advertising for the current period, $1,100. / Cash / 1,100
Advertising Expense / 1,100
3. / Receive cash of $2,500 from a bank loan. / Cash / 2,500
Bank Loan Payable / 2,500
4. / Pay cash dividend of $1,000 to stockholders. / Common Stock / 1,000
Cash / 1,000
5. / Pay for employee salaries in the current period, $1,800. / Salaries Expense / 1,800
Cash / 1,800

Required:

Assess whether the junior accountant correctly proposes how to record each transaction. If incorrect, provide the correction.

Correct recorded transactions(LO2-4)

E2-13Below are several transactions for Scarlet Knight Corporation. A junior accountant, recently employed by the company, proposes to record the following transactions.

External Transaction / Account Titles / Debit / Credit
1. / Provider services to customers for cash, $1,300. / Cash / 1,300
Service Revenue / 1,300
2. / Pay advertising for the current period, $1,100. / Accounts Payable / 1,100
Advertising Expense / 1,100
3. / Receive cash of $2,500 from customers in advance. / Cash / 2,500
Service Revenue / 2,500
4. / Pay cash dividend of $1,000 to stockholders. / Cash / 1,000
Dividends / 1,000
5. / Pay for rent in the current period, $1,800. / Rent Expense / 1,800
Cash / 1,800

Required:

Assess whether the junior accountant correctly proposes how to record each transaction. If incorrect, provide the correction.

Post transactions to Cash T-account(LO2-5)

E2-14Consider the following transactions.

1. Receive cash from customers, $16,000.

2. Pay cash for employee salaries, $9,000.

3. Pay cash for rent, $4,000.

4. Receive cash from sale of equipment, $8,000.

5. Pay cash for utilities, $1,000.

6. Receive cash from a bank loan, $3,000.

7. Pay cash for advertising, $7,000.

8. Purchase supplies on account, $1,000.

Required:

Post transactions to the Cash T-account and calculate the ending balance. The beginning balance

in the Cash T-account is $4,000.
Post transactions to T-accounts(LO2-5)

E2-15Consider the recorded transactions below.

Debit / Credit
1. Accounts Receivable
Service Revenue / 9,800 / 9,800
2. Supplies
Accounts Payable / 2,200 / 2,200
3. Cash
Accounts Receivable / 7,500 / 7,500
4. Advertising Expense
Cash / 1,100 / 1,100
5. Accounts Payable
Cash / 3,500 / 3,500
6. Cash
Unearned Revenue / 2,540 / 2,540

Required:

Post each transaction to T-accounts and compute the ending balance of each account. The beginning balance of each account before the transactions is: Cash, $3,200; Accounts Receivable, 3,900; Supplies, $480; Accounts Payable, $1,720; Unearned Revenue, $410. Service Revenue and Advertising Expense each have a beginning balance of zero.

Identify transactions(LO2-5)

E2-16Below are T-accounts. The first row in each is the beginning balance, and the numbers in parentheses are transaction numbers.

Cash / Accounts Receivable
(3)
(6) / 3,200
7,500
2,540 / 1,100
3,500 / (4)
(5) / (1) / 3,900
9,800 / 7,500 / (3)
8,640 / 6,200
Supplies / Accounts Payable
(2) / 480
2,200 / (5) / 3,500 / 1,720
2,200 / (2)
2,680 / 420
Unearned Revenue / Service Revenue
410
2,540 / (6) / 0
9,800 / (1)
2,950 / 9,800
Advertising Expense
(4) / 0
1,100
1,100

Required:

Provide an explanation for each transaction.

Prepare a trial balance(LO2-6)

E2-17Below is the complete list of accounts of Sooner Company and the related balance at the end of April. All accounts have their normal debit or credit balance. Supplies, $1,700; Buildings, $44,200; Salaries Payable, $3,200; Common Stock, $36,500; Accounts Payable, $2,600; Utilities Expense, $5,200; Prepaid Insurance, $2,000; Service Revenue, $20,900; Accounts Receivable, $4,500; Cash, $3,100; Salaries Expense, $7,900; Retained Earnings, $5,400.

Required:

Prepare a trial balance with the list of accounts in the following order: assets, liabilities, stockholders’ equity, revenues, and expenses.

Prepare a trial balance(LO2-6)

E2-18Below is the complete list of accounts of Fightin’ Blue Hens Incorporated and the related balance at the end of March. All accounts have their normal debit or credit balance. Cash, $3,200; Prepaid Rent, $4,500; Accounts Payable $6,300; Common Stock, $25,900; Service Revenue, $30,100; Salaries Expense, $6,700; Accounts Receivable, $6,900; Land, $48,200; Unearned Revenue, $3,800; Retained Earnings, $11,600; Supplies Expense, $8,200.

Required:

Prepare a trial balance with the list of accounts in the following order: assets, liabilities, stockholders’ equity, revenues, and expenses.

Record transactions, post to T-accounts, and prepare a trial balance(LO2-4, 2-5, 2-6)

E2-19Golden Hurricane Company plans to own and operate a storage rental facility. For the first month of operations, the company has the following transactions.

1. Issue 10,000 shares of common stock in exchange for $45,000 in cash.

2. Purchase land for $27,700. A note payable is signed for the full amount.

3. Purchase storage container equipment for $11,500 cash.

4. Hire three employees for $3,600 per month.

5. Receive cash of $38,000 in rental fees for the current month.

6. Purchase office supplies for $4,500 on account.

7. Pay employees $6,900 for the first month’s salaries.

Required:

1. Record each transaction. Golden Hurricane uses the following accounts: Cash, Supplies, Land, Equipment, Common Stock, Accounts Payable, Notes Payable, Service Revenue, and Salaries Expense.

2. Post each transaction to T-accounts and compute the ending balance of each account. Since this is the first month of operations, all T-accounts have a beginning balance of zero.

3. After calculating the ending balance of each account, prepare a trial balance.

Record transactions, post to T-accounts, and prepare a trial balance(LO2-4, 2-5, 2-6)

E2-20Boilermaker House Painting Company incurs the following transactions for September.

1. Paint houses in the current month for $25,300 on account.

2. Purchase painting equipment for $12,600 cash.

3. Purchase office supplies on account for $1,200.

4. Pay workers’ salaries of $3,700 for the current month.

5. Purchase advertising to appear in the current month for $2,050 cash.

6. Pay office rent of $3,900 for the current month.

7. Receive $22,800 from customers in (1) above.

8. Receive cash of $9,400 in advance from a customer that plans to have his house painted in the following month.

Required:

1. Record each transaction. Boilermaker uses the following accounts: Cash, Accounts Receivable, Supplies, Equipment, Accounts Payable, Unearned Revenue, Common Stock, Retained Earnings, Service Revenue, Salaries Expense, Advertising Expense, and Rent Expense.

2. Post each transaction to T-accounts and compute the ending balance of each account. At the beginning of September, the company had the following account balances: Cash, $19,000; Accounts Receivable, 3,000; Supplies, $300; Equipment, $5,100; Accounts Payable, $3,600; Common Stock, $15,000; Retained Earnings, $8,800. All other accounts had a beginning balance of zero.

3. After calculating the ending balance of each account, prepare a trial balance.

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Chapter 2 2-XXX