Solution manual accounting 21e by warreni ch 02

An account is a form designed to record changes in a particular asset, liability, owner's equity, revenue, or expense.. For example, debits signify an increase in asset and expense accou

CHAPTER 2 ANALYZING TRANSACTIONS

CLASS DISCUSSION QUESTIONS

1 An account is a form designed to record

changes in a particular asset, liability,

owner's equity, revenue, or expense A

ledger is a group of related accounts

2 The terms debit and credit may signify

either an increase or decrease, depending

upon the nature of the account For

example, debits signify an increase in asset

and expense accounts but a decrease in

liability, owner's capital, and revenue

accounts.

3 Liabilities and owner's equity both have

rights or claims to assets as indicated by

the accounting equation, Assets =

Liabilities + Owner's Equity Therefore, the

same rules of debit and credit apply to both

liabilities and owner's equity.

4 a Decrease in owner's equity

b Increase in expense

5 a Increase in owner's equity

b Increase in revenue

6 a Assuming no errors have occurred, the

credit balance in the cash account

resulted from drawing checks for

$3,000 in excess of the amount of cash

on deposit

b The $3,000 credit balance in the cash

account as of August 31 is a liability

owed to the bank It is usually referred

to as an "overdraft" and should be

classified on the balance sheet as a

liability.

7 a The revenue was earned in May

b (1) Debit Accounts Receivable and

credit Fees Earned or another

appropriately titled revenue

account in May.

(2) Debit Cash and credit Accounts

Receivable in June.

8 The trial balance is a proof of the equality

of the debits and the credits in the ledger.

9 No Errors may have been made that had

the same erroneous effect on both debits

and credits, such as failure to record and/or

post a transaction, recording the same

transaction more than once, and posting a

transaction correctly but to the wrong account.

10 The listing of $18,590 is a transposition;

the listing of $720 is a slide.

11 a No Because the same error occurred

on both the debit side and the credit side of the trial balance, the trial balance would not be out of balance.

b Yes The trial balance would not

balance The error would cause the credit total of the trial balance to exceed the debit total by $270.

12 a The equality of the trial balance would

not be affected.

b On the income statement, total

operating expenses (salary expense) would be overstated by $7,500, and net income would be understated by

$7,500 On the statement of owner’s equity, the beginning and ending capital would be correct However, net income and withdrawals would be understated by $7,500 These understatements offset one another, and, thus, ending owner’s equity is correct The balance sheet is not affected by the error

13 a The equality of the trial balance would

not be affected

b On the income statement, revenues

(fees earned) would be overstated by

$25,000, and net income would be overstated by $25,000 On the statement of owner’s equity, the beginning capital would be correct However, net income and ending capital would be overstated by

$25,000 The balance sheet total assets is correct However, liabilities (notes payable) is understated by

$25,000, and owner’s equity is overstated by $25,000 The understatement of liabilities is offset by the overstatement of owner’s equity, and, thus, total liabilities and owner’s

14 The preferred procedure is to journalize

and post a correcting entry debiting

Accounts Receivable and crediting

Accounts Payable.

15 a From the viewpoint of Kennon Storage,

the balance of the checking account represents an asset.

b From the viewpoint of Livingston

Savings Bank, the balance of the checking account represents a liability.

Ex 2–1

Balance Sheet Accounts Income Statement Accounts

Assets Flight Equipment

Purchase Deposits

for Flight Equipment*

Spare Parts and Supplies

Liabilities Accounts Payable

Air Traffic Liability**

Owner's Equity

None

Revenue Cargo and Mail Revenue Passenger Revenue

Expenses Aircraft Fuel Expense Commissions***

Landing Fees****

* Advance payments on aircraft purchases

** Passenger ticket sales not yet recognized as revenue

*** Commissions paid to travel agents

**** Fees paid to airports for landing rights

Corey Krum, Capital 31

Corey Krum, Drawing 32

31 Millard Fillmore, Capital

32 Millard Fillmore, Drawing

Note: The order of some of the accounts within the major classifications is

somewhat arbitrary, as in accounts 13–14 and accounts 51–53 In a new business, the order of magnitude of balances in such accounts is not determinable in advance The magnitude may also vary from period to period

Ex 2–4

a and b.

Account Debited Account Credited Transaction Type Effect Type Effect

(1) asset + owner's equity +

Accounts Payable 15,000 Cash 9,000 (4) Operating Expenses 3,050

Cash 3,050 (5) Accounts Receivable 12,000

Service Revenue 12,000 (6) Accounts Payable 7,500

Cash 7,500 (7) Cash 9,500

Accounts Receivable 9,500 (8) Ira Janke, Drawing 5,000

Cash 5,000 (9) Operating Expenses 1,050

Supplies 1,050

Ex 2–6

MALTA CO.

Trial Balance February 28, 2006 Cash 23,150

Accounts Receivable 2,500

Supplies 750

Equipment 24,000

Accounts Payable 7,500 Ira Janke, Capital 40,000 Ira Janke, Drawing 5,000

Service Revenue 12,000 Operating Expenses 4,100

59,500 59,500

Ex 2–7

1 debit and credit (c)

2 debit and credit (c)

3 debit and credit (c)

4 credit only (b)

5 debit only (a)

6 debit only (a)

7 debit only (a)

Ex 2–8

a Liability—credit f Revenue—credit

b Asset—debit g Asset—debit

c Asset—debit h Expense—debit

d Owner's equity i Asset—debit

(Cindy Yost, Capital)—credit j Expense—debit

b Yes The balance sheet prepared at December 31 will balance, with Seth Fite, Capital, being reported in the owner’s equity section as a negative

$1,500.

Ex 2–11

a The increase of $28,750 in the cash account does not indicate earnings of that amount Earnings will represent the net change in all assets and liabilities from operating transactions.

b $7,550 ($36,300 – $28,750)

Ex 2–12

a $40,550 ($7,850 + $41,850 – $9,150)

b $63,000 ($61,000 + $17,500 – $15,500)

c $20,800 ($40,500 – $57,700 + $38,000)

Ex 2–13

2005

Aug 1 Rent Expense 1,500

Cash 1,500

2 Advertising Expense 700

Cash 700

4 Supplies 1,050 Cash 1,050 6 Office Equipment 7,500 Accounts Payable 7,500 8 Cash 3,600 Accounts Receivable 3,600 12 Accounts Payable 1,150 Cash 1,150 20 Gayle McCall, Drawing 1,000 Cash 1,000 25 Miscellaneous Expense 500

Cash 500

30 Utilities Expense 195

Cash 195

31 Accounts Receivable 10,150 Fees Earned 10,150 31 Utilities Expense 380

Cash 380

Ex 2–15

a.

(1) Accounts Receivable 12,190

Fees Earned 12,190 (2) Supplies 1,250

Accounts Payable 1,250 (3) Cash 9,150

Accounts Receivable 9,150 (4) Accounts Payable 750

Cash 750 b.

Ex 2–16

HALEAKALA PARK CO.

Trial Balance March 31, 2006 Cash 17,450

Fees Earned 310,000 Wages Expense 175,000

Ex 2–18

ESCALADE CO.

Trial Balance December 31, 2006 Cash 13,375

Accounts Receivable 24,600

Prepaid Insurance 8,000

Equipment 75,000

Accounts Payable 11,180 Unearned Rent 4,250 Erin Capelli, Capital 82,420 Erin Capelli, Drawing 10,000

Service Revenue 83,750 Wages Expense 42,000

3 The Accounts Receivable balance should be in the debit column.

4 The Accounts Payable balance should be in the credit column.

5 The Susan Appleby, 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:

DINERO CO.

Trial Balance January 31, 2006 Cash 7,500

Accounts Receivable 16,400

Prepaid Insurance 3,600

Equipment 50,000

Accounts Payable 1,850 Salaries Payable 1,250 Susan Appleby, Capital 43,200 Susan Appleby, Drawing 6,000

Service Revenue 78,700 Salary Expense 32,810

Ex 2–22

a Supplies 550

Accounts Payable 550

Prepaid Rent 550

Miscellaneous Expense 550

b Cash 7,500

Accounts Payable 3,750 Accounts Receivable 3,750

Ex 2–23

a 1 Net sales: $4,694 million increase ($58,247 – $53,553)

8.8% increase ($4,694 ÷ $53,553)

2 Total operating

expenses: $1,063 million increase ($12,278 – $11,215)

9.5% increase ($1,063 ÷ $11,215)

b During the year ending February 2, 2003, the percent increase in total operating expenses (9.5%) is more than the percent increase in net sales (8.8%), an unfavorable trend.

Ex 2–24

Income Statement For the Years Ending January 31, 2000 and 1999

(in millions)

Increase (Decrease)

PROBLEMS Prob 2–1A

(l) 1,300 (m) 105 Professional Fees

11,100

Prob 2–1A Concluded

3.

SHAUN WILCOX, ARCHITECT

Trial Balance April 30, 2006 Cash 9,410

Sales Commissions 12,600 (d) Rent Expense 2,000

Cash 2,000 (e) Accounts Payable 450

Cash 450 (f) Tim Cochran, Drawing 1,500

Cash 1,500 (g) Automobile Expense 1,700

Miscellaneous Expense 375

Cash 2,075 (h) Office Salaries Expense 3,000

Cash 3,000 (i) Supplies Expense 605

Supplies 605

Prob 2–2A Concluded

Supplies 245

Accounts Payable 400 Tim Cochran, Capital 12,000 Tim Cochran, Drawing 1,500

Sales Commissions 12,600 Rent Expense 2,000

Office Salaries Expense 3,000

Prob 2–3A Continued

JOURNAL Pages 1 and 2

Post.

2006

July 29 Cash 11 3,420

Accounts Receivable 12 3,420

30 Wages Expense 51 2,500

Cash 11 2,500

31 Leon Cruz, Drawing 32 2,000

Cash 11 2,000 2.

Post Balance

Date Item Ref Dr Cr Dr Cr. 2006 July 1 1 18,000 18,000

5 1 1,500 16,500

10 1 5,000 11,500

14 1 975 10,525

15 1 3,000 7,525

15 1 4,100 11,625

21 2 2,400 9,225

27 2 950 8,275

27 2 315 7,960

29 2 3,420 11,380

30 2 2,500 8,880

31 2 2,000 6,880

Accounts Receivable 12 2006 July 24 2 6,100 6,100

29 2 3,420 2,680

Prob 2–3A Continued

Prob 2–3A Continued

Prob 2–3A Concluded

3.

INGRES DESIGNS Trial Balance July 31, 2006 Cash 6,880

Fees Earned 10,200 Wages Expense 2,500

Salary and Commission Expense 51 800

31 Salary and Commission Expense 51 17,400

31 Larissa Sanchez, Drawing 32 2,500

Cash 11 2,500

31 Cash 11 1,500

Unearned Rent 22 1,500

Prob 2–4A Continued

Prob 2–4A Continued

Prob 2–4A Concluded

4.

FICKLE REALTY Trial Balance August 31, 2006 Cash 28,390

Fees Earned 265,900 Salary and Commission Expense 149,600

Prob 2–5A

1 Totals of preliminary trial balance: Debit $59,291.40

Credit $45,229.20

2 Difference between preliminary trial balance totals: $14,062.20

3 Errors in trial balance:

(a) Land debit balance was listed as $26,265.00 instead of $26,625.00.

(b) Accounts Payable credit balance of $1,077.50 was listed as debit balance (c) Wages Expense debit balance of $2,518.60 was listed as credit balance (d) Advertising Expense of $275.00 was omitted.

4 Errors in account balances:

(a) Shelly Felix, Drawing, balance of $1,350.00 was totaled as $1,500.00.

CYPRESS TV REPAIR Trial Balance July 31, 20—

Service Revenue 8,000.40 Wages Expense 2,518.60

Prob 2–6A

1.

ONYX VIDEOGRAPHY Trial Balance August 31, 2006 Cash 4,500*

Fees Earned 118,680 Wages Expense 68,000

Prob 2–1B Concluded

3.

CHRISTINA KIFF, ARCHITECT

Trial Balance July 31, 2006 Cash 10,780

Accounts Payable 700 (d) Accounts Payable 290

Cash 290 (e) Cash 10,750

Sales Commissions 10,750 (f) Automobile Expense 1,400

Miscellaneous Expense 480

Cash 1,880 (g) Office Salaries Expense 2,500

Cash 2,500 (h) Supplies Expense 575

Supplies 575 (i) Lela Peterson, Drawing 1,000

Cash 1,000

Supplies 125

Accounts Payable 410 Lela Peterson, Capital 9,000 Lela Peterson, Drawing 1,000

Sales Commissions 10,750 Office Salaries Expense 2,500

Prob 2–3B Concluded

3.

DEVON DESIGNS Trial Balance November 30, 2006 Cash 2,150

Fees Earned 11,450 Wages Expense 2,700

Prob 2–4B Continued

1 and 3.

Post Balance

Date Item Ref Dr Cr Dr Cr. 2006 Nov 1 Balance  36,300

1 18 7,000 29,300

5 18 4,800 24,500

10 18 52,000 76,500

15 18 10,000 66,500

17 18 9,100 57,400

23 18 2,050 55,350

27 19 700 56,050

28 19 1,100 54,950

29 19 390 54,560

30 19 24,000 30,560

30 19 7,500 23,060

30 19 2,000 25,060

Accounts Receivable 12 2006 Nov 1 Balance  97,500

10 18 52,000 45,500

30 19 48,400 93,900

Prepaid Insurance 13 2006 Nov 1 Balance  2,200

5 18 4,800 7,000

Office Supplies 14 2006 Nov 1 Balance  2,100

2 18 1,675 3,775

20 18 400 3,375

Land 16 2006 Nov 15 18 90,000 90,000

Prob 2–4B Concluded

4.

BOOMERANG REALTY Trial Balance November 30, 2006 Cash 25,060

Fees Earned 301,400 Salary and Commission Expense 171,500

Prob 2–5B

1 Totals of preliminary trial balance: Debit $59,291.40

Credit $45,229.20

2 Difference between preliminary trial balance totals: $14,062.20

3 Errors in trial balance:

(a) Land debit balance was listed as $26,265.00 instead of $26,625.00.

(b) Accounts Payable credit balance of $1,077.50 was listed as debit balance.

(c) Advertising Expense of $275.00 was omitted.

4 Errors in account balances:

(a) Shelly Felix, Drawing, balance of $1,350.00 was totaled as $1,500.00.

5 Errors in posting:

(a) Rent Expense entry of July 1 for $1,540.00 was posted as $15,400.00 (slide) (b) Cash entry of July 15 for $1,785.50 was posted as $1,875.50 (transposition).

(c) Service Revenue entry of July 31 for $1,276.10 was posted as $1,726.10 (transposition).

(d) Utilities Expense entry of July 30 for $436.60 was posted as $4,366.00 (slide).

6 July 31 Advertising Expense 53 175.00

Cash 11 175.00 7.

CYPRESS TV REPAIR Trial Balance July 31, 20—

Service Revenue 8,000.40 Wages Expense 2,518.60

Prob 2–6B

1.

MONTERO CARPET Trial Balance October 31, 2006 Cash 4,000*

Fees Earned 76,700 Wages Expense 43,540

Shannon Burns, Capital 31 3,000

1 Office Rent Expense 51 1,600

Continuing Problem Continued

Continuing Problem Continued

1 and 3.

Post Balance

Date Item Ref Dr Cr Dr Cr. 2006 May 1 Balance  6,160

1 1 3,000 9,160

1 1 1,600 7,560

1 1 3,360 4,200

2 1 1,200 5,400

3 1 4,800 10,200

3 1 250 9,950

4 1 150 9,800

8 1 200 9,600

11 1 600 10,200

13 1 500 9,700

14 1 1,200 8,500

16 2 1,100 9,600

21 2 240 9,360

22 2 500 8,860

23 2 400 9,260

27 2 560 8,700

28 2 1,200 7,500

29 2 170 7,330

30 2 600 7,930

31 2 2,000 9,930

31 2 600 9,330

31 2 2,000 7,330

Accounts Receivable 12 2006 May 1 Balance  1,200

2 1 1,200 — — 23 2 1,160 1,160

30 2 600 1,760

Supplies 14 2006 May 1 Balance  170

18 2 750 920

Prepaid Insurance 15 2006 May 1 1 3,360 3,360