The following data were adapted from the financial statements of Kmart Corporation, prior
to its filing for bankruptcy:
In millions
For years ending January 31 2000 1999
Sales $ 37,028 $ 35,925
Cost of sales (expense) (29,658) (28,111)
Selling, general, and administrative expenses (7,415) (6,514)
Operating income (loss) $ (45) $ 1,300
a. Prepare a horizontal analysis for the income statement showing the amount and percent
of change in each of the following:
1. Sales
2. Cost of sales
3. Selling, general, and administrative expenses
4. Operating income (loss)
b. Comment on the results of your horizontal analysis in part (a).
Answer:
a.
KMART CORPORATION
Income Statement
For the Years Ended January 31, 2000 and 1999
(in millions)
Increase (Decrease)
2000 1999 Amount Percent
1. Sales..................................... $ 37,028 $ 35,925 $ 1,103 3.1%
2. Cost of sales........................ (29,658) (28,111) 1,547 5.5
3. Selling, general, and
administrative expenses..... (7,415) (6,514) 901 13.8
4. Operating income (loss)
before taxes......................... $ (45) $ 1,300 $(1,345) (103.5)
b. The horizontal analysis of Kmart Corporation reveals deteriorating operating
results from 1999 to 2000. While sales increased by $1,103 million, a 3.1% increase, cost of sales increased by $1,547 million, a 5.5% increase. Selling, general, and administrative expenses also increased by $901 million, a 13.8% increase. The end result was that operating income decreased by $1,345 million, over a 100% decrease, and created a $45 million loss in 2000. Little over a year later, Kmart filed for bankruptcy protection. It has now emerged from bankruptcy and was merged into Sears to form the company Sears Holding Corporation.
Saturday, October 26, 2013
EX 2-23 Horizontal analysis of income statement
The following data (in millions) is taken from the financial statements of Target
Corporation.
2009 2008
Net sales (revenues) $64,948 $63,367
Total operating expenses 60,546 58,095
a. For Target Corporation, comparing 2009 with 2008, determine the amount of change
in millions and the percent of change for:
1. Net sales (revenues)
2. Total operating expenses
b. What conclusions can you draw from your analysis of the net sales and the
total operating expenses?
Answer:
a. 1. Net sales: $1,581 million increase ($64,948 – $63,367)
2.5% increase ($1,581 ÷ $63,367)
2. Total operating
expenses: $2,451 million increase ($60,546 – $58,095)
4.2% increase ($2,451 ÷ $58,095)
b. During 2009, the percentage increase in total operating expenses (4.2%) is
more than the percentage increase in net sales (2.5%), an unfavorable trend.
Corporation.
2009 2008
Net sales (revenues) $64,948 $63,367
Total operating expenses 60,546 58,095
a. For Target Corporation, comparing 2009 with 2008, determine the amount of change
in millions and the percent of change for:
1. Net sales (revenues)
2. Total operating expenses
b. What conclusions can you draw from your analysis of the net sales and the
total operating expenses?
Answer:
a. 1. Net sales: $1,581 million increase ($64,948 – $63,367)
2.5% increase ($1,581 ÷ $63,367)
2. Total operating
expenses: $2,451 million increase ($60,546 – $58,095)
4.2% increase ($2,451 ÷ $58,095)
b. During 2009, the percentage increase in total operating expenses (4.2%) is
more than the percentage increase in net sales (2.5%), an unfavorable trend.
EX 2-22 Entries to correct errors
The following errors took place in journalizing and posting transactions:
a. Cash of $12,975 received on account was recorded as a debit to Fees Earned and a
credit to Cash.
b. A $3,200 purchase of supplies for cash was recorded as a debit to Supplies Expense
and a credit to Accounts Payable.
Journalize the entries to correct the errors. Omit explanations.
Answer:
a. Cash................................................................................ 25,950
Fees Earned ............................................................ 12,975
Accounts Receivable.............................................. 12,975
b. Accounts Payable.......................................................... 3,200*
Supplies Expense ................................................... 3,200
Supplies.......................................................................... 3,200
Cash......................................................................... 3,200
*The first entry reverses the original entry. The second entry is the entry that
should have been made initially.
a. Cash of $12,975 received on account was recorded as a debit to Fees Earned and a
credit to Cash.
b. A $3,200 purchase of supplies for cash was recorded as a debit to Supplies Expense
and a credit to Accounts Payable.
Journalize the entries to correct the errors. Omit explanations.
Answer:
a. Cash................................................................................ 25,950
Fees Earned ............................................................ 12,975
Accounts Receivable.............................................. 12,975
b. Accounts Payable.......................................................... 3,200*
Supplies Expense ................................................... 3,200
Supplies.......................................................................... 3,200
Cash......................................................................... 3,200
*The first entry reverses the original entry. The second entry is the entry that
should have been made initially.
EX 2-21 Entries to correct errors
The following errors took place in journalizing and posting transactions:
a. Rent of $12,500 paid for the current month was recorded as a debit to Rent Expense
and a credit to Prepaid Rent.
b. A withdrawal of $7,500 by Trent Benedict, owner of the business, was recorded as a
debit to Wages Expense and a credit to Cash.
Journalize the entries to correct the errors. Omit explanations.
Answer:
a. Prepaid Rent .................................................................. 12,500
Cash......................................................................... 12,500
b. Trent Benedict, Drawing............................................... 7,500
Wages Expense....................................................... 7,500
a. Rent of $12,500 paid for the current month was recorded as a debit to Rent Expense
and a credit to Prepaid Rent.
b. A withdrawal of $7,500 by Trent Benedict, owner of the business, was recorded as a
debit to Wages Expense and a credit to Cash.
Journalize the entries to correct the errors. Omit explanations.
Answer:
a. Prepaid Rent .................................................................. 12,500
Cash......................................................................... 12,500
b. Trent Benedict, Drawing............................................... 7,500
Wages Expense....................................................... 7,500
EX 2-20 Errors in trial balance
Identify the errors in the following trial balance. All accounts have normal balances.
Bluefin Co.
Unadjusted Trial Balance
For the Month Ending August 31, 2012
Debit Credit
Balances Balances
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .. . . 45,000
Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,400
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,600
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 300,000
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,100
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 7,500
Ken Frye, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259,200
Ken Frye, Drawing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000
Service Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472,200
Salary Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196,860
Advertising Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,200
Miscellaneous Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,940
916,500 916,500
Answer:
1. The Debit column total is added incorrectly. The sum is $583,500 rather than
$916,500.
2. The trial balance should be dated “August 31, 2012,” not “For the Month Ending August 31, 2012.”
Bluefin Co.
Unadjusted Trial Balance
For the Month Ending August 31, 2012
Debit Credit
Balances Balances
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .. . . 45,000
Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,400
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,600
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 300,000
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,100
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 7,500
Ken Frye, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259,200
Ken Frye, Drawing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000
Service Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472,200
Salary Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196,860
Advertising Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,200
Miscellaneous Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,940
916,500 916,500
Answer:
1. The Debit column total is added incorrectly. The sum is $583,500 rather than
$916,500.
2. The trial balance should be dated “August 31, 2012,” not “For the Month Ending August 31, 2012.”
3. The Accounts Receivable balance should be in the Debit column.
4. The Accounts Payable balance should be in the Credit column.
5. The Ken Frye, Drawing, balance should be in the Debit column.
6. The Advertising Expense balance should be in the Debit column.
A corrected trial balance would be as follows:
BLUEFIN CO.
Unadjusted Trial Balance
August 31, 2012
Debit Credit
Balances Balances
Cash .................................................................................... 45,000
Accounts Receivable ......................................................... 98,400
Prepaid Insurance .............................................................. 21,600
Equipment........................................................................... 300,000
Accounts Payable .............................................................. 11,100
Salaries Payable................................................................. 7,500
Ken Frye, Capital................................................................ 259,200
Ken Frye, Drawing.............................................................. 36,000
Service Revenue................................................................. 472,200
Salary Expense................................................................... 196,860
Advertising Expense.......................................................... 43,200
Miscellaneous Expense..................................................... 8,940
750,000 750,000
EX 2-19 Effect of errors on trial balance
The following errors occurred in posting from a two-column journal:
1. A credit of $7,150 to Accounts Payable was not posted.
2. An entry debiting Accounts Receivable and crediting Fees Earned for $11,000 was not
posted.
3. A debit of $1,000 to Accounts Payable was posted as a credit.
4. A debit of $800 to Supplies was posted twice.
5. A debit of $900 to Cash was posted to Miscellaneous Expense.
6. A credit of $360 to Cash was posted as $630.
7. A debit of $9,420 to Wages Expense was posted as $9,240.
Considering each case individually (i.e., assuming that no other errors had occurred),
indicate: (a) by “yes” or “no” whether the trial balance would be out of balance; (b) if
answer to (a) is “yes,” the amount by which the trial balance totals would differ; and
(c) whether the Debit or Credit column of the trial balance would have the larger total.
Answers should be presented in the following form, with error (1) given as an example:
(a) (b) (c)
Error Out of Balance Difference Larger Total
1. yes $7,150 debit
Answer:
(a) (b) (c)
Error Out of Balance Difference Larger Total
1. yes $7,150 debit
2. no — —
3. yes 2,000 credit
4. yes 800 debit
5 . no — —
6. yes 270 credit
7. yes 180 credit
1. A credit of $7,150 to Accounts Payable was not posted.
2. An entry debiting Accounts Receivable and crediting Fees Earned for $11,000 was not
posted.
3. A debit of $1,000 to Accounts Payable was posted as a credit.
4. A debit of $800 to Supplies was posted twice.
5. A debit of $900 to Cash was posted to Miscellaneous Expense.
6. A credit of $360 to Cash was posted as $630.
7. A debit of $9,420 to Wages Expense was posted as $9,240.
Considering each case individually (i.e., assuming that no other errors had occurred),
indicate: (a) by “yes” or “no” whether the trial balance would be out of balance; (b) if
answer to (a) is “yes,” the amount by which the trial balance totals would differ; and
(c) whether the Debit or Credit column of the trial balance would have the larger total.
Answers should be presented in the following form, with error (1) given as an example:
(a) (b) (c)
Error Out of Balance Difference Larger Total
1. yes $7,150 debit
Answer:
(a) (b) (c)
Error Out of Balance Difference Larger Total
1. yes $7,150 debit
2. no — —
3. yes 2,000 credit
4. yes 800 debit
5 . no — —
6. yes 270 credit
7. yes 180 credit
EX 2-18 Errors in trial balance
The following preliminary unadjusted trial balance of Seats-For-You Co., a sports ticket
agency, does not balance:
Seats-For-You Co.
Unadjusted Trial Balance
March 31, 2012
Debit Credit
Balances Balances
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,000
Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,800
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500
Accounts Payable . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . 16,500
Unearned Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,600
Gina Ness, Capital . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 81,700
Gina Ness, Drawing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,000
Service Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000
Wages Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Advertising Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,300
Miscellaneous Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,400
229,300 237,500
When the ledger and other records are reviewed, you discover the following: (1) the
debits and credits in the cash account total $98,000 and $82,500, respectively; (2) a billing
of $8,000 to a customer on account was not posted to the accounts receivable account;
(3) a payment of $3,600 made to a creditor on account was not posted to the accounts
payable account; (4) the balance of the unearned rent account is $5,400; (5) the correct
balance of the equipment account is $75,000; and (6) each account has a normal balance.
Prepare a corrected unadjusted trial balance.
Answer:
SEATS-FOR-YOU CO.
Unadjusted Trial Balance
March 31, 2012
Debit Credit
Balances Balances
Cash .................................................................................... 15,500
Accounts Receivable ......................................................... 25,800
Prepaid Insurance .............................................................. 9,000
Equipment........................................................................... 75,000
Accounts Payable .............................................................. 12,900
Unearned Rent.................................................................... 5,400
Gina Ness, Capital.............................................................. 81,700
Gina Ness, Drawing ........................................................... 13,000
Service Revenue................................................................. 125,000
Wages Expense.................................................................. 60,000
Advertising Expense.......................................................... 11,300
Miscellaneous Expense..................................................... 15,400
225,000 225,000
agency, does not balance:
Seats-For-You Co.
Unadjusted Trial Balance
March 31, 2012
Debit Credit
Balances Balances
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,000
Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,800
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500
Accounts Payable . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . 16,500
Unearned Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,600
Gina Ness, Capital . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 81,700
Gina Ness, Drawing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,000
Service Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000
Wages Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Advertising Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,300
Miscellaneous Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,400
229,300 237,500
When the ledger and other records are reviewed, you discover the following: (1) the
debits and credits in the cash account total $98,000 and $82,500, respectively; (2) a billing
of $8,000 to a customer on account was not posted to the accounts receivable account;
(3) a payment of $3,600 made to a creditor on account was not posted to the accounts
payable account; (4) the balance of the unearned rent account is $5,400; (5) the correct
balance of the equipment account is $75,000; and (6) each account has a normal balance.
Prepare a corrected unadjusted trial balance.
Answer:
SEATS-FOR-YOU CO.
Unadjusted Trial Balance
March 31, 2012
Debit Credit
Balances Balances
Cash .................................................................................... 15,500
Accounts Receivable ......................................................... 25,800
Prepaid Insurance .............................................................. 9,000
Equipment........................................................................... 75,000
Accounts Payable .............................................................. 12,900
Unearned Rent.................................................................... 5,400
Gina Ness, Capital.............................................................. 81,700
Gina Ness, Drawing ........................................................... 13,000
Service Revenue................................................................. 125,000
Wages Expense.................................................................. 60,000
Advertising Expense.......................................................... 11,300
Miscellaneous Expense..................................................... 15,400
225,000 225,000
EX 2-17 Effect of errors on trial balance
Indicate which of the following errors, each considered individually, would cause the
trial balance totals to be unequal:
a. A fee of $15,000 earned and due from a client was not debited to Accounts Receivable
or credited to a revenue account, because the cash had not been received.
b. A receipt of $6,000 from an account receivable was journalized and posted as a debit
of $6,000 to Cash and a credit of $6,000 to Fees Earned.
c. A payment of $1,200 to a creditor was posted as a debit of $1,200 to Accounts Payable
and a debit of $1,200 to Cash.
d. A payment of $10,000 for equipment purchased was posted as a debit of $1,000 to
Equipment and a credit of $1,000 to Cash.
e. Payment of a cash withdrawal of $10,000 was journalized and posted as a debit of
$1,000 to Salary Expense and a credit of $10,000 to Cash.
Indicate which of the preceding errors would require a correcting entry.
Answer:
Inequality of trial balance totals would be caused by errors described in (c) and
(e). For (c), the debit total would exceed the credit total by $2,400 ($1,200 +
$1,200). For (e), the credit total would exceed the debit total by $9,000 ($10,000 –
$1,000).
Errors (b), (d), and (e) would require correcting entries.
trial balance totals to be unequal:
a. A fee of $15,000 earned and due from a client was not debited to Accounts Receivable
or credited to a revenue account, because the cash had not been received.
b. A receipt of $6,000 from an account receivable was journalized and posted as a debit
of $6,000 to Cash and a credit of $6,000 to Fees Earned.
c. A payment of $1,200 to a creditor was posted as a debit of $1,200 to Accounts Payable
and a debit of $1,200 to Cash.
d. A payment of $10,000 for equipment purchased was posted as a debit of $1,000 to
Equipment and a credit of $1,000 to Cash.
e. Payment of a cash withdrawal of $10,000 was journalized and posted as a debit of
$1,000 to Salary Expense and a credit of $10,000 to Cash.
Indicate which of the preceding errors would require a correcting entry.
Answer:
Inequality of trial balance totals would be caused by errors described in (c) and
(e). For (c), the debit total would exceed the credit total by $2,400 ($1,200 +
$1,200). For (e), the credit total would exceed the debit total by $9,000 ($10,000 –
$1,000).
Errors (b), (d), and (e) would require correcting entries.
EX 2-16 Trial balance
The accounts in the ledger of Diva Co. as of July 31, 2012, are listed in alphabetical
order as follows. All accounts have normal balances. The balance of the cash account has
been intentionally omitted.
Accounts Payable $ 28,000 Notes Payable $ 50,000
Accounts Receivable 40,000 Prepaid Insurance 6,400
Cash ? Rent Expense 36,000
Cheryl Sievert, Capital 49,900 Supplies 4,000
Cheryl Sievert, Drawing 25,000 Supplies Expense 9,000
Fees Earned 350,000 Unearned Rent 13,500
Insurance Expense 6,000 Utilities Expense 18,000
Land 125,000 Wages Expense 195,000
Miscellaneous Expense 12,000
Prepare an unadjusted trial balance, listing the accounts in their normal order and inserting
the missing figure for cash.
Answer:
DIVA CO.
Unadjusted Trial Balance
July 31, 2012
Debit Credit
Balances Balances
Cash .................................................................................... 15,000
Accounts Receivable ......................................................... 40,000
Supplies .............................................................................. 4,000
Prepaid Insurance .............................................................. 6,400
Land.................................................................................. 125,000
Accounts Payable .............................................................. 28,000
Unearned Rent.................................................................... 13,500
Notes Payable..................................................................... 50,000
Cheryl Sievert, Capital ....................................................... 49,900
Cheryl Sievert, Drawing..................................................... 25,000
Fees Earned........................................................................ 350,000
Wages Expense.................................................................. 195,000
Rent Expense ..................................................................... 36,000
Utilities Expense ................................................................ 18,000
Supplies Expense............................................................... 9,000
Insurance Expense............................................................. 6,000
Miscellaneous Expense..................................................... 12,000
491,400 491,400
order as follows. All accounts have normal balances. The balance of the cash account has
been intentionally omitted.
Accounts Payable $ 28,000 Notes Payable $ 50,000
Accounts Receivable 40,000 Prepaid Insurance 6,400
Cash ? Rent Expense 36,000
Cheryl Sievert, Capital 49,900 Supplies 4,000
Cheryl Sievert, Drawing 25,000 Supplies Expense 9,000
Fees Earned 350,000 Unearned Rent 13,500
Insurance Expense 6,000 Utilities Expense 18,000
Land 125,000 Wages Expense 195,000
Miscellaneous Expense 12,000
Prepare an unadjusted trial balance, listing the accounts in their normal order and inserting
the missing figure for cash.
Answer:
DIVA CO.
Unadjusted Trial Balance
July 31, 2012
Debit Credit
Balances Balances
Cash .................................................................................... 15,000
Accounts Receivable ......................................................... 40,000
Supplies .............................................................................. 4,000
Prepaid Insurance .............................................................. 6,400
Land.................................................................................. 125,000
Accounts Payable .............................................................. 28,000
Unearned Rent.................................................................... 13,500
Notes Payable..................................................................... 50,000
Cheryl Sievert, Capital ....................................................... 49,900
Cheryl Sievert, Drawing..................................................... 25,000
Fees Earned........................................................................ 350,000
Wages Expense.................................................................. 195,000
Rent Expense ..................................................................... 36,000
Utilities Expense ................................................................ 18,000
Supplies Expense............................................................... 9,000
Insurance Expense............................................................. 6,000
Miscellaneous Expense..................................................... 12,000
491,400 491,400
EX 2-15 Trial balance
Based upon the data presented in Exercise 2-13, (a) prepare an unadjusted trial balance,
listing the accounts in their proper order. (b) Based upon the unadjusted trial balance,
determine the net income or net loss.
Answer:
a.
SOUTHWEST TOURS CO.
Unadjusted Trial Balance
May 31, 2012
Debit Credit
Balances Balances
Cash ................................................................................28,700
Accounts Receivable ........................................................8,500
Supplies.............................................................................950
Equipment.........................................................................18,000
Accounts Payable .............................................................. 5,400
Mickey O’Dell, Capital........................................................ 40,000
Mickey O’Dell, Drawing....................................................4,000
Service Revenue................................................................. 18,500
Operating Expenses........................................................... 3,750
63,900 63,900
b. Net income, $14,750 ($18,500 – $3,750)
listing the accounts in their proper order. (b) Based upon the unadjusted trial balance,
determine the net income or net loss.
Answer:
a.
SOUTHWEST TOURS CO.
Unadjusted Trial Balance
May 31, 2012
Debit Credit
Balances Balances
Cash ................................................................................28,700
Accounts Receivable ........................................................8,500
Supplies.............................................................................950
Equipment.........................................................................18,000
Accounts Payable .............................................................. 5,400
Mickey O’Dell, Capital........................................................ 40,000
Mickey O’Dell, Drawing....................................................4,000
Service Revenue................................................................. 18,500
Operating Expenses........................................................... 3,750
63,900 63,900
b. Net income, $14,750 ($18,500 – $3,750)
EX 2-14 Journal entries
Based upon the T accounts in Exercise 2-13, prepare the nine journal entries from which
the postings were made. Journal entry explanations may be omitted.
Answer:
(1) Cash..................................................................... 40,000
Mickey O’Dell, Capital ................................... 40,000
(2) Supplies............................................................... 2,000
Cash................................................................ 2,000
(3) Equipment ........................................................... 18,000
Accounts Payable.......................................... 14,400
Cash................................................................ 3,600
(4) Operating Expenses........................................... 2,700
Cash................................................................ 2,700
(5) Accounts Receivable.......................................... 18,500
Service Revenue............................................ 18,500
(6) Accounts Payable............................................... 9,000
Cash................................................................ 9,000
(7) Cash..................................................................... 10,000
Accounts Receivable .................................... 10,000
(8) Operating Expenses........................................... 1,050
Supplies ......................................................... 1,050
(9) Mickey O’Dell, Drawing ...................................... 4,000
Cash................................................................ 4,000
the postings were made. Journal entry explanations may be omitted.
Answer:
(1) Cash..................................................................... 40,000
Mickey O’Dell, Capital ................................... 40,000
(2) Supplies............................................................... 2,000
Cash................................................................ 2,000
(3) Equipment ........................................................... 18,000
Accounts Payable.......................................... 14,400
Cash................................................................ 3,600
(4) Operating Expenses........................................... 2,700
Cash................................................................ 2,700
(5) Accounts Receivable.......................................... 18,500
Service Revenue............................................ 18,500
(6) Accounts Payable............................................... 9,000
Cash................................................................ 9,000
(7) Cash..................................................................... 10,000
Accounts Receivable .................................... 10,000
(8) Operating Expenses........................................... 1,050
Supplies ......................................................... 1,050
(9) Mickey O’Dell, Drawing ...................................... 4,000
Cash................................................................ 4,000
EX 2-13 Identifying transactions
Southwest Tours Co. is a travel agency. The nine transactions recorded by Southwest Tours
during May 2012, its first month of operations, are indicated in the following T accounts:
Cash Equipment Mickey O’Dell, Drawing
(1) 40,000 (2) 2,000 (3) 18,000 (9) 4,000
(7) 10,000 (3) 3,600
(4) 2,700
(6) 9,000
(9) 4,000
Accounts Receivable Accounts Payable Service Revenue
(5) 18,500 (7) 10,000 (6) 9,000 (3) 14,400 (5) 18,500
Supplies Mickey O’Dell, Capital Operating Expenses
(2) 2,000 (8) 1,050 (1) 40,000 (4) 2,700
(8) 1,050
Indicate for each debit and each credit: (a) whether an asset, liability, owner’s equity,
drawing, revenue, or expense account was affected and (b) whether the account was
increased (+) or decreased (–). Present your answers in the following form, with transaction
(1) given as an example:
Account Debited Account Credited
Transaction Type Effect Type Effect
(1) asset + owner’s equity +
Answer:
a. and b.
Account Debited Account Credited
Transaction Type Effect Type Effect
(1) asset + owner’s equity +
(2) asset + asset –
(3) asset + asset –
liability +
(4) expense + asset –
(5) asset + revenue +
(6) liability – asset –
(7) asset + asset –
(8) expense + asset –
(9) drawing + asset –
during May 2012, its first month of operations, are indicated in the following T accounts:
Cash Equipment Mickey O’Dell, Drawing
(1) 40,000 (2) 2,000 (3) 18,000 (9) 4,000
(7) 10,000 (3) 3,600
(4) 2,700
(6) 9,000
(9) 4,000
Accounts Receivable Accounts Payable Service Revenue
(5) 18,500 (7) 10,000 (6) 9,000 (3) 14,400 (5) 18,500
Supplies Mickey O’Dell, Capital Operating Expenses
(2) 2,000 (8) 1,050 (1) 40,000 (4) 2,700
(8) 1,050
Indicate for each debit and each credit: (a) whether an asset, liability, owner’s equity,
drawing, revenue, or expense account was affected and (b) whether the account was
increased (+) or decreased (–). Present your answers in the following form, with transaction
(1) given as an example:
Account Debited Account Credited
Transaction Type Effect Type Effect
(1) asset + owner’s equity +
Answer:
a. and b.
Account Debited Account Credited
Transaction Type Effect Type Effect
(1) asset + owner’s equity +
(2) asset + asset –
(3) asset + asset –
liability +
(4) expense + asset –
(5) asset + revenue +
(6) liability – asset –
(7) asset + asset –
(8) expense + asset –
(9) drawing + asset –
EX 2-12 Capital account balance
As of January 1, Brenda Cikan, Capital, had a credit balance of $125,000. During the year,
withdrawals totaled $7,000, and the business incurred a net loss of $130,000.
a. Compute the balance of Brenda Cikan, Capital, as of the end of the year.
b. Assuming that there have been no recording errors, will the balance sheet prepared
at December 31 balance? Explain.
Answer:
a. Debit (negative) balance of $12,000 ($125,000-$7,000-$130,000). This negative balance means that the liabilities of Cikan's business exceed the assets.
b. Yes. The balance sheet prepared at December 31 will balance, with Brenda
Cikan, Capital, being reported in the owner’s equity section as a negative
$12,000.
withdrawals totaled $7,000, and the business incurred a net loss of $130,000.
a. Compute the balance of Brenda Cikan, Capital, as of the end of the year.
b. Assuming that there have been no recording errors, will the balance sheet prepared
at December 31 balance? Explain.
Answer:
a. Debit (negative) balance of $12,000 ($125,000-$7,000-$130,000). This negative balance means that the liabilities of Cikan's business exceed the assets.
b. Yes. The balance sheet prepared at December 31 will balance, with Brenda
Cikan, Capital, being reported in the owner’s equity section as a negative
$12,000.
EX 2-11 Account balances
a. During October, $90,000 was paid to creditors on account, and purchases on account
were $125,000. Assuming the October 31 balance of Accounts Payable was $40,000,
determine the account balance on October 1.
b. On May 1, the accounts receivable account balance was $25,000. During May, $240,000
was collected from customers on account. Assuming the May 31 balance was $36,000,
determine the fees billed to customers on account during May.
c. On November 1, the cash account balance was $18,275. During November, cash
receipts totaled $279,100 and the November 30 balance was $13,200. Determine the
cash payments made during November.
a.
Accounts Payable
Oct. 1 X
90,000 125,000
Oct. 31 40,000
X + $125,000 – $90,000 = $40,000
X = $40,000 + $90,000 – $125,000
X = $5,000
b.
Accounts Receivable
May 1 25,000 240,000
X
May 31 36,000
$25,000 + X – $240,000 = $36,000
X = $36,000 + $240,000 – $25,000
X = $251,000
c.
Cash
Nov. 1 18,275 X
279,100
Nov. 30 13,200
$18,275 + $279,100 – X = $13,200
X = $18,275 + $279,100 – $13,200
X = $284,175
were $125,000. Assuming the October 31 balance of Accounts Payable was $40,000,
determine the account balance on October 1.
b. On May 1, the accounts receivable account balance was $25,000. During May, $240,000
was collected from customers on account. Assuming the May 31 balance was $36,000,
determine the fees billed to customers on account during May.
c. On November 1, the cash account balance was $18,275. During November, cash
receipts totaled $279,100 and the November 30 balance was $13,200. Determine the
cash payments made during November.
a.
Accounts Payable
Oct. 1 X
90,000 125,000
Oct. 31 40,000
X + $125,000 – $90,000 = $40,000
X = $40,000 + $90,000 – $125,000
X = $5,000
b.
Accounts Receivable
May 1 25,000 240,000
X
May 31 36,000
$25,000 + X – $240,000 = $36,000
X = $36,000 + $240,000 – $25,000
X = $251,000
c.
Cash
Nov. 1 18,275 X
279,100
Nov. 30 13,200
$18,275 + $279,100 – X = $13,200
X = $18,275 + $279,100 – $13,200
X = $284,175
EX 2-10 Cash account balance
During the month, Lathers Co. received $400,000 in cash and paid out $290,000 in cash.
a. Do the data indicate that Lathers Co. had net income of $110,000 during the month? Explain.
b. If the balance of the cash account is $185,000 at the end of the month, what was the cash balance at the beginning of the month?
a. Do the data indicate that Lathers Co. had net income of $110,000 during the month? Explain.
b. If the balance of the cash account is $185,000 at the end of the month, what was the cash balance at the beginning of the month?
Answer:
a. The increase of $110,000 ($400,000 – $290,000) in the cash account does not
indicate net income of that amount. Net income is the net change in all assets
and liabilities from operating (revenue and expense) transactions.
b. $75,000 ($185,000 – $110,000)
EX 2-9 Transactions and T Accounts
The following selected transactions were completed during August of the current year:
1. Billed customers for fees earned, $35,700.
2. Purchased supplies on account, $2,000.
3. Received cash from customers on account, $26,150.
4. Paid creditors on accounts, $800.
a. Journalize the above transactions in a two-column journal, using the appropriate number to identify the transactions. Journal entry explanations may be omitted.
b. Post the entries prepared in (a) to the following T accounts: Cash, Supplies, Accounts Receivable, Accounts Payable, Fees Earned. To the left of each amount posted in the accounts, place the appropriate number to identify the transactions.
c. Assume that the unadjusted trial balance on August 31 shows a credit balance for Accounts Receivable. Does the credit balance mean an error has occurred?
Answer:
a.
(1) Accounts Receivable.......................................... 35,700
Fees Earned ................................................... 35,700
(2) Supplies............................................................... 2,000
Accounts Payable.......................................... 2,000
(3) Cash..................................................................... 26,150
Accounts Receivable .................................... 26,150
(4) Accounts Payable............................................... 800
Cash................................................................ 800
1. Billed customers for fees earned, $35,700.
2. Purchased supplies on account, $2,000.
3. Received cash from customers on account, $26,150.
4. Paid creditors on accounts, $800.
a. Journalize the above transactions in a two-column journal, using the appropriate number to identify the transactions. Journal entry explanations may be omitted.
b. Post the entries prepared in (a) to the following T accounts: Cash, Supplies, Accounts Receivable, Accounts Payable, Fees Earned. To the left of each amount posted in the accounts, place the appropriate number to identify the transactions.
c. Assume that the unadjusted trial balance on August 31 shows a credit balance for Accounts Receivable. Does the credit balance mean an error has occurred?
Answer:
a.
(1) Accounts Receivable.......................................... 35,700
Fees Earned ................................................... 35,700
(2) Supplies............................................................... 2,000
Accounts Payable.......................................... 2,000
(3) Cash..................................................................... 26,150
Accounts Receivable .................................... 26,150
(4) Accounts Payable............................................... 800
Cash................................................................ 800
b. Note: First value is a debit. For Accounts with only one entry, they're using their normal balances.
Cash
(3) 26,150 (4) 800
Accounts Payable
(4) 800 (2) 2,000
Supplies
(2) 2,000
Fees Earned
(1) 35,700
Accounts Receivable
(1) 35,700 (3) 26,150
c. No. A credit balance in Accounts Receivable could occur if a customer over
paid his or her account. Regardless, the credit balance should be investigated
to verify that an error has not occurred.
Friday, September 6, 2013
EX 2-8 Journalizing and posting
On February 3, 2012, Wilco Co. purchased $3,250 of supplies on account. In Wiko Co.’s chart of accounts, the supplies account in No. 15, and the accounts payable account is No. 21.
(a) Journalize the February 3, 2012, transaction on page 19 of Wilco Co.’s two-column journal. Include an explanation of the entry.
(b) Prepare a four-column account for supplies. Enter a debit balance of $975 as pf February 1, 2012. Place a check mark (✓) in the Posting Reference column.
(c) Prepare a four-column account for Accounts Payable. Enter a credit balance of $13,150 as of February 1, 2012. Place a check mark (✓) in the Posting Reference column.
(d) Post the February 3, 2012, transaction to the accounts.
(e) Do the rules of debit and credit apply to all companies?
Answer:
Note: Not properly formatted.
a.
JOURNAL Page 19
Post.
Date Description Ref. Debit Credit
2012
Feb. 3 Supplies .................................................. 15 3,250
Accounts Payable .............................. 21 3,250
Purchased supplies on account.
b., c., d.
Supplies 15
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.
2012
Feb. 1 Balance ................................ ô€€¹ ............ ........... 975 ...........
3 .............................................. 19 3,250 ........... 4,225 ...........
Accounts Payable 21
2012
Feb. 1 Balance ................................ ô€€¹ ............ ........... ........... 13,150
3 .............................................. 19 ............ 3,250 ........... 16,400
e. Yes, the rules of debit and credit apply to all companies.
(a) Journalize the February 3, 2012, transaction on page 19 of Wilco Co.’s two-column journal. Include an explanation of the entry.
(b) Prepare a four-column account for supplies. Enter a debit balance of $975 as pf February 1, 2012. Place a check mark (✓) in the Posting Reference column.
(c) Prepare a four-column account for Accounts Payable. Enter a credit balance of $13,150 as of February 1, 2012. Place a check mark (✓) in the Posting Reference column.
(d) Post the February 3, 2012, transaction to the accounts.
(e) Do the rules of debit and credit apply to all companies?
Answer:
Note: Not properly formatted.
a.
JOURNAL Page 19
Post.
Date Description Ref. Debit Credit
2012
Feb. 3 Supplies .................................................. 15 3,250
Accounts Payable .............................. 21 3,250
Purchased supplies on account.
b., c., d.
Supplies 15
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.
2012
Feb. 1 Balance ................................ ô€€¹ ............ ........... 975 ...........
3 .............................................. 19 3,250 ........... 4,225 ...........
Accounts Payable 21
2012
Feb. 1 Balance ................................ ô€€¹ ............ ........... ........... 13,150
3 .............................................. 19 ............ 3,250 ........... 16,400
e. Yes, the rules of debit and credit apply to all companies.
Sunday, August 4, 2013
EX 2-7 Transactions
Chalet Co. has the following accounts in its ledger: Cash; Accounts Receivable; Supplies; Office Equipment; Accounts Payable; Andee Freese, Capital; Andee Freese, Drawing; Fees Earned; Rent Expense; Advertising Expense; Utilities Expense; Miscellaneous Expense.
Journalize the following selected transactions for October 2012 in a two-column journal.
Journal entry explanations may be omitted.
Oct. 1. Paid rent for the month, $2,000.
2. Paid advertising expense, $900.
5. Paid cash for supplies, $1,300.
6. Purchased office equipment on account, $16,000.
10. Received cash from customers on account, $6,700.
15. Paid creditor on account, $1,200.
27. Paid cash for repairs to office equipment, $600.
30. Paid telephone bill for the month, $180.
31. Fees earned and billed to customers for the month, $26,800.
31. Paid electricity bill for the month, $400.
31. Withdrew cash for personal use, $3,000.
Answer:
2012
Oct. 1 Rent Expense ...................................................... 2,000
Cash................................................................ 2,000
2 Advertising Expense .......................................... 900
Cash................................................................ 900
5 Supplies............................................................... 1,300
Cash................................................................ 1,300
6 Office Equipment ................................................ 16,000
Accounts Payable.......................................... 16,000
10 Cash..................................................................... 6,700
Accounts Receivable .................................... 6,700
15 Accounts Payable ............................................... 1,200
Cash................................................................ 1,200
27 Miscellaneous Expense...................................... 600
Cash................................................................ 600
30 Utilities Expense ................................................. 180
Cash................................................................ 180
31 Accounts Receivable.......................................... 26,800
Fees Earned ................................................... 26,800
31 Utilities Expense ................................................. 400
Cash................................................................ 400
31 Andee Freese, Drawing ...................................... 3,000
Cash................................................................ 3,000
Journalize the following selected transactions for October 2012 in a two-column journal.
Journal entry explanations may be omitted.
Oct. 1. Paid rent for the month, $2,000.
2. Paid advertising expense, $900.
5. Paid cash for supplies, $1,300.
6. Purchased office equipment on account, $16,000.
10. Received cash from customers on account, $6,700.
15. Paid creditor on account, $1,200.
27. Paid cash for repairs to office equipment, $600.
30. Paid telephone bill for the month, $180.
31. Fees earned and billed to customers for the month, $26,800.
31. Paid electricity bill for the month, $400.
31. Withdrew cash for personal use, $3,000.
Answer:
2012
Oct. 1 Rent Expense ...................................................... 2,000
Cash................................................................ 2,000
2 Advertising Expense .......................................... 900
Cash................................................................ 900
5 Supplies............................................................... 1,300
Cash................................................................ 1,300
6 Office Equipment ................................................ 16,000
Accounts Payable.......................................... 16,000
10 Cash..................................................................... 6,700
Accounts Receivable .................................... 6,700
15 Accounts Payable ............................................... 1,200
Cash................................................................ 1,200
27 Miscellaneous Expense...................................... 600
Cash................................................................ 600
30 Utilities Expense ................................................. 180
Cash................................................................ 180
31 Accounts Receivable.......................................... 26,800
Fees Earned ................................................... 26,800
31 Utilities Expense ................................................. 400
Cash................................................................ 400
31 Andee Freese, Drawing ...................................... 3,000
Cash................................................................ 3,000
EX 2-6 Normal balances of accounts
Identify each of the following accounts of Advanced Services Co. as asset, liability, owner’s equity, revenue, or expense, and state in each case whether the normal balance is a debit or a credit.
a. Accounts Payable
b. Accounts Receivable
c. Barbara Mallary, Capital
d. Barbara Mallary, Drawing
e. Cash
f. Fees Earned
g. Office Equipment
h. Rent Expense
i. Supplies
j. Wages Expense
Answer:
a. liability, credit
b. asset, debit
c. owner's equity, credit
d. owner's equity, dedit
e. asset, debit
f. revenue, credit
g. asset, debit
h. expense, debit
i. asset, debit
j. expense, debit
a. Accounts Payable
b. Accounts Receivable
c. Barbara Mallary, Capital
d. Barbara Mallary, Drawing
e. Cash
f. Fees Earned
g. Office Equipment
h. Rent Expense
i. Supplies
j. Wages Expense
Answer:
a. liability, credit
b. asset, debit
c. owner's equity, credit
d. owner's equity, dedit
e. asset, debit
f. revenue, credit
g. asset, debit
h. expense, debit
i. asset, debit
j. expense, debit
Friday, July 12, 2013
EX 2-5 Normal entries for accounts
During the month, Iris Labs Co. has a substantial number of transactions affecting each of the following accounts. State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries.
1. Accounts Payable
2. Accounts Receivable
3. Cash
4. Fees Earned
5. Insurance Expense
6. Nicki Swanson, Drawing
7. Utilities Expense
Answer
1. (c) debit and credit
2. (c) debit and credit
3. (c) debit and credit
4. (b) credit only
5. (a) debit only
6. (a) debit only
7. (a) debit only
1. Accounts Payable
2. Accounts Receivable
3. Cash
4. Fees Earned
5. Insurance Expense
6. Nicki Swanson, Drawing
7. Utilities Expense
Answer
1. (c) debit and credit
2. (c) debit and credit
3. (c) debit and credit
4. (b) credit only
5. (a) debit only
6. (a) debit only
7. (a) debit only
EX 2-3 Chart of accounts
Alpha School is a newly organized business that teaches people how to inspire and influence others. The list of accounts to be opened in the general ledger is as follows:
Accounts Payable
Accounts Receivable
Cash
Equipment
Fees Earned
Jan Pulver, Capital
Jan Pulver, Drawing
Miscellaneous Expense
Prepaid Insurance
Rent Expense
Supplies
Supplies Expense
Unearned Rent
Wages Expense
List the accounts in the order in which they appear in the ledger of Alpha School and assign account numbers. Each account number is to have two digits: the first digit is to indicate the major classification (1 for assets, etc.), and the second digit is to identify the specific account within each major classification (11 for Cash, etc.).
Answer
1. Assets
11 Cash
12 Accounts Receivable
13 Supplies
14 Prepaid Insurance
15 Equipment
2. Liabilities
21 Accounts Payable
22 Unearned Rent
3. Owner's Equity
31 Jan Pulver, Capital
32 Jan Pulver, Drawing
4. Revenue
41 Fees Earned
5. Expenses
51 Wages Expense
52 Rent Expense
53 Supplies Expense
59 Miscellaneous Expense
Accounts Payable
Accounts Receivable
Cash
Equipment
Fees Earned
Jan Pulver, Capital
Jan Pulver, Drawing
Miscellaneous Expense
Prepaid Insurance
Rent Expense
Supplies
Supplies Expense
Unearned Rent
Wages Expense
List the accounts in the order in which they appear in the ledger of Alpha School and assign account numbers. Each account number is to have two digits: the first digit is to indicate the major classification (1 for assets, etc.), and the second digit is to identify the specific account within each major classification (11 for Cash, etc.).
Answer
1. Assets
11 Cash
12 Accounts Receivable
13 Supplies
14 Prepaid Insurance
15 Equipment
2. Liabilities
21 Accounts Payable
22 Unearned Rent
3. Owner's Equity
31 Jan Pulver, Capital
32 Jan Pulver, Drawing
4. Revenue
41 Fees Earned
5. Expenses
51 Wages Expense
52 Rent Expense
53 Supplies Expense
59 Miscellaneous Expense
EX 2-2 Chart of accounts
Innerscape Interiors is owned and operated by Jean Cartier, an interior decorator. In the ledger of Innerscape Interiors, the first digit of the account number indicates its major account classification (1—assets, 2—liabilities, 3—owner’s equity, 4—revenues, 5— expenses). The second digit of the account number indicates the specific account within each of the preceding major account classifications.
Match each account number with its most likely account in the list below. The account numbers are 11, 12, 13, 21, 31, 32, 41, 51, 52, and 53.
Accounts Payable
Accounts Receivable
Cash
Fees Earned
Jean Cartier, Capital
Jean Cartier, Drawing
Land
Miscellaneous Expense
Supplies Expense
Wages Expense
Answer
Accounts Payable - 21
Accounts Receivable - 12
Cash - 11
Fees Earned - 41
Jean Cartier, Capital - 31
Jean Cartier, Drawing - 32
Land - 13
Miscellaneous Expense - 53
Supplies Expense - 52
Wages Expense - 51
Match each account number with its most likely account in the list below. The account numbers are 11, 12, 13, 21, 31, 32, 41, 51, 52, and 53.
Accounts Payable
Accounts Receivable
Cash
Fees Earned
Jean Cartier, Capital
Jean Cartier, Drawing
Land
Miscellaneous Expense
Supplies Expense
Wages Expense
Answer
Accounts Payable - 21
Accounts Receivable - 12
Cash - 11
Fees Earned - 41
Jean Cartier, Capital - 31
Jean Cartier, Drawing - 32
Land - 13
Miscellaneous Expense - 53
Supplies Expense - 52
Wages Expense - 51
EX 2-1 Chart of accounts
The following accounts appeared in recent financial statements of Continental Airlines:
Accounts Payable
Flight Equipment
Air Traffic Liability
Landing Fees (Expense)
Aircraft Fuel Expense
Passenger Revenue
Cargo and Mail Revenue
Purchase Deposits for Flight Equipment
Commissions (Expense)
Spare Parts and Supplies
Identify each account as either a balance sheet account or an income statement account. For each balance sheet account, identify it as an asset, a liability, or owner’s equity. For each income statement account, identify it as a revenue or an expense.
Answer
Balance Sheet Accounts
Assets
-Flight Equipment
-Purchase Deposits for Flight Equipment
-Spare Parts and Supplies
Liabilities
-Accounts Payable
-Air Traffic Liability
Owner's Equity
None
Income Statement Accounts
Revenue
-Cargo and Mail Revenue
-Passenger Revenue
Expenses
-Aircraft Fuel Expense
-Commissions
-Landing Fees
Accounts Payable
Flight Equipment
Air Traffic Liability
Landing Fees (Expense)
Aircraft Fuel Expense
Passenger Revenue
Cargo and Mail Revenue
Purchase Deposits for Flight Equipment
Commissions (Expense)
Spare Parts and Supplies
Identify each account as either a balance sheet account or an income statement account. For each balance sheet account, identify it as an asset, a liability, or owner’s equity. For each income statement account, identify it as a revenue or an expense.
Answer
Balance Sheet Accounts
Assets
-Flight Equipment
-Purchase Deposits for Flight Equipment
-Spare Parts and Supplies
Liabilities
-Accounts Payable
-Air Traffic Liability
Owner's Equity
None
Income Statement Accounts
Revenue
-Cargo and Mail Revenue
-Passenger Revenue
Expenses
-Aircraft Fuel Expense
-Commissions
-Landing Fees
PE 2-2B Journal entry for asset purchase
Prepare a journal entry for the purchase of office supplies on August 7 for $4,000, paying $1,000 cash and the remainder on account.
Answer
Aug. 7 Office Supplies 4,000
Cash 1,000
Accounts Payable 3,000
Answer
Aug. 7 Office Supplies 4,000
Cash 1,000
Accounts Payable 3,000
PE 2-2A Journal entry for asset purchase
Prepare a journal entry for the purchase of office equipment on March 4 for $27,150, paying $5,000 cash and the remainder on account.
Answer
Mar. 4 Office Equipment 27,150
Cash 5,000
Accounts Payable 22,150
Answer
Mar. 4 Office Equipment 27,150
Cash 5,000
Accounts Payable 22,150
PE 2-1B Rules of debit and credit and normal balances
State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries. Also, indicate its normal balance.
1. Accounts Payable
2. Cash
3. Malissa Wahl, Drawing
4. Miscellaneous Expense
5. Insurance Expense
6. Fees Earned
Answers
1. Debit and credit entries, normal credit balance
2. Debit and credit entries, normal debit balance
3. Debit entries only, normal debit balance
4. Debit entries only, normal debit balance
5. Debit only, normal debit balance
6. Credit entries only, normal credit balance
1. Accounts Payable
2. Cash
3. Malissa Wahl, Drawing
4. Miscellaneous Expense
5. Insurance Expense
6. Fees Earned
Answers
1. Debit and credit entries, normal credit balance
2. Debit and credit entries, normal debit balance
3. Debit entries only, normal debit balance
4. Debit entries only, normal debit balance
5. Debit only, normal debit balance
6. Credit entries only, normal credit balance
PE 2-1A Rules of debit and credit and normal balances
State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries. Also, indicate its normal balance.
1.Accounts Receivable
2.Commissions Earned
3.Notes Payable
4.Paul Howe, Capital
5.Rent Revenue
6.Wages Expense
Answers
1. Debit and credit entries, normal debit balance
2. Credit entries only, normal credit balance
3. Debit and credit entries, normal credit balance
4. Credit entries only, normal credit balance
5. Credit entries only, normal credit balance
6. Debit entries only, normal debit balance
1.Accounts Receivable
2.Commissions Earned
3.Notes Payable
4.Paul Howe, Capital
5.Rent Revenue
6.Wages Expense
Answers
1. Debit and credit entries, normal debit balance
2. Credit entries only, normal credit balance
3. Debit and credit entries, normal credit balance
4. Credit entries only, normal credit balance
5. Credit entries only, normal credit balance
6. Debit entries only, normal debit balance
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