Transaction Identification – Exercise
Q 2. Do the following events represent business transactions? Explain
your answer in each case.
a.
A computer is purchased on accounts.
b.
A customer returns merchandise and is given credit on account.
c.
A prospective employee is interviewed.
d.
The owner of the business withdraws cash from the business for
personal use.
e.
Merchandise is ordered for delivery next month.
• Transactions (a), (b), (d) are considered business transactions and are recorded
in the accounting records.
• Transactions (c) and (e) are not business transactions.
1
Journalizing – Exercise
Q 3. Name the accounts debited and credited for each of the following
transactions.
a.
Billing a customer for work done.
b.
Receipt of cash from customer on account.
c.
Purchase of office supplies on account.
d.
Purchase of 15 gallons of gasoline for the delivery truck.
a.
(Dr.) Accounts Receivable (Cr.) Service Revenue
b.
(Dr.) Cash
(Cr.) Accounts Receivable
c.
(Dr.) Supplies
(Cr.) Accounts Payable
d.
(Dr.) Delivery Expense
(Cr.) Cash
2
Journalizing – Exercise
BE 3.2. Agazzi Repair Shop had the following transactions during the first
month of business as a proprietorship. Journalize the transactions.
Aug. 2
Invested €12,000 cash and €2,500 of equipment in the
business.
7
Purchased supplies on account for €500. (Debit asset
account.)
12
Performed services for clients, for which €1,300 was
collected in cash and €670 was billed to the clients.
15
Paid August rent €600.
19
Counted supplies and determined that only €270 of the
supplies purchased on August 7 are still on hand.
3
Journalizing – Exercise
BE 3.2. Agazzi Repair Shop had the following transactions during the first
month of business as a proprietorship. Journalize the transactions.
Aug. 2
Invested €12,000 cash and €2,500 of equipment in the
business.
Date
Aug.
Debit
2
Cash
Equipment
Agazzi, Capital
Credit
12,000
2,500
14,500
4
Journalizing – Exercise
BE 3.2. Agazzi Repair Shop had the following transactions during the first
month of business as a proprietorship. Journalize the transactions.
Aug.
7
Purchased supplies on account for €500.
Date
Aug.
Debit
7
Supplies
500
Accounts Payable
Aug.
12
500
Performed services for clients, for which €1,300 was collected in
cash and €670 was billed to the clients.
Date
Aug.
Credit
Debit
12 Cash
Accounts Receivable
Service Revenue
Credit
1,300
670
1,970
5
Journalizing – Exercise
BE 3.2. Agazzi Repair Shop had the following transactions during the first
month of business as a proprietorship. Journalize the transactions.
Aug.
15
Paid August rent €600.
Date
Aug.
Debit
15 Rent Expense
Credit
600
Cash
Aug.
19
Counted supplies and determined that only €270 of the supplies
purchased on August 7 are still on hand.
Date
Aug.
600
Debit
19 Supplies Expense
Supplies
Credit
230
230
6
Journalizing – Exercise
E 3.1. Kai Edo is a licensed public accountant. During the first month of
operations of her business (a sole proprietorship), the following events
and transactions occurred (amounts in thousands).
Instructions: Journalize the transactions in the general journal
April 2
Invested ¥30,000 cash and equipment valued at ¥14,000 in
the business
2
Hired administrative assistant at a salary of ¥290 per week
payable monthly
Date
April.
Debit
2
Cash
30,000
Equipment
14,000
Kai Edo, Capital
No entry – Not a transaction
Credit
44,000
7
Journalizing – Exercise
Instructions: Journalize the transactions in the general journal
April 3
Purchased supplies on account ¥700
Date
April.
Debit
3
Supplies
700
Accounts Payable
April 7
700
Paid office rent of ¥600 for the month
Date
April.
Credit
Debit
7
Rent Expense
Cash
Credit
600
600
8
Journalizing – Exercise
Instructions: Journalize the transactions in the general journal
April 11
Completed a tax assignment and billed client ¥1,100 for
service rendered
Date
April.
Debit
11 Accounts Receivable
1,100
Service Revenue
April 12
1,100
Received ¥3,200 advance on a management consulting
engagement
Date
April.
Credit
Debit
12 Cash
Unearned Service Revenue
Credit
3,200
3,200
9
Journalizing – Exercise
Instructions: Journalize the transactions in the general journal
April 17
Received cash of ¥2,300 for service completed for Ferengi Co.
Date
April.
Debit
17 Cash
2,300
Service Revenue
April 21
2,300
Paid insurance expense ¥110
Date
April.
Credit
Debit
21 Insurance Expense
Cash
Credit
110
110
10
Journalizing – Exercise
Instructions: Journalize the transactions in the general journal
April 30
Paid administrative assistant ¥1,160 for the month
Date
April.
Debit
30 Salaries and Wages Expense
1,160
Cash
April 30
1,160
A count of supplies indicated that ¥120 of supplies had been
used
Date
April.
Credit
Debit
30 Supplies Expense
Supplies
Credit
120
120
11
Trial Balance – Exercise
E 3.3. The following trial balance of Scarlatti Corporation does not balance.
Scarlatti Corporation
Trial Balance
April 30, 2022
Debit
Cash
Credit
$ 5,912
Accounts Receivable
5,240
Supplies
2,967
Equipment
6,100
Accounts Payable
$ 7,044
Share Capital – Ordinary
8,000
Retained Earnings
2,000
Service Revenue
5,200
Office Expense
4,320
$24,539
$22,244
30
Trial Balance – Exercise
E 3.3. The following trial balance of Scarlatti Corporation does not balance.
An examination of the ledger shows these errors.
1.
Cash received from a customer on account was recorded (both debit and
credit) as $1,580 instead of $1,850.
2.
The purchase on account of a computer costing $1,900 was recorded as a
debit to Office Expense and a credit to Accounts Payable.
3.
Services were performed on account for a client, $2,250, for which Accounts
Receivable was debited $2,250 and Service Revenue was credited $225.
4.
A payment of $95 for telephone charges was entered as a debit to Office
Expense and a debit to Cash.
5.
The Service Revenue account was totaled at $5,200 instead of $5,280.
31
Trial Balance – Exercise
E 3.3. The following trial balance of Scarlatti Corporation does not balance.
Instruction: From this information prepare a corrected trial balance.
1.
Cash received from a customer on account was recorded (both debit and
credit) as $1,580 instead of $1,850.
(1) 1,850 - 1,580 = 270
Accounts Receivable
Cash
Debit
Bal.
(1)
5,912
270
Credit
Debit
Credit
Bal.
5,240 (1)
270
Bal.
4,970
32
Trial Balance – Exercise
E 3.3. The following trial balance of Scarlatti Corporation does not balance.
Instruction: From this information prepare a corrected trial balance.
2.
The purchase on account of a computer costing $1,900 was recorded
as a debit to Office Expense and a credit to Accounts Payable.
Equipment
Debit
Bal.
(2)
6,100
1,900
Bal.
8,000
Credit
Office Expense
Debit
Credit
Bal.
4,320 (2)
1,900
Bal.
2,420
33
Trial Balance – Exercise
E 3.3. The following trial balance of Scarlatti Corporation does not balance.
Instruction: From this information prepare a corrected trial balance.
3.
Services were performed on account for a client, $2,250, for which Accounts
Receivable was debited $2,250 and Service Revenue was credited $225.
(3) 2,250 – 225 = 2,025
Service Revenue
Debit
Credit
Bal.
(3)
5,200
2,025
34
Trial Balance – Exercise
E 3.3. The following trial balance of Scarlatti Corporation does not balance.
Instruction: From this information prepare a corrected trial balance.
4.
A payment of $95 for telephone charges was entered as a debit to Office
Expense and a debit to Cash.
(4) 95 × 2 = 190
Cash
Debit
Bal.
(1)
5,912 (4)
270
Bal.
5,992
Credit
190
35
Trial Balance – Exercise
E 3.3. The following trial balance of Scarlatti Corporation does not balance.
Instruction: From this information prepare a corrected trial balance.
5.
The Service Revenue account was totaled at $5,200 instead of $5,280.
(5) 5,280 – 5,200 = 80
Service Revenue
Debit
Credit
Bal.
5,200
(3)
2,025
(5)
80
Bal.
7,305
36
Trial Balance – Exercise
E 3.3.
Scarlatti Corporation
Trial Balance (Corrected)
April 30, 2022
Debit
Cash
Credit
$ 5,992
Accounts Receivable
4,970
Supplies
2,967
Equipment
8,000
Accounts Payable
$ 7,044
Share Capital – Ordinary
8,000
Retained Earnings
2,000
Service Revenue
7,305
Office Expense
2,420
$24,349
$24,349
37
Adjusting Entries for Deferrals - Exercise
BE 3.5. Assume that on February 1, Marks and Spencer plc (M&S) paid
₤72,000 in advance for 2 years’ insurance coverage. Prepare M&S’s
February journal entry and the annual adjusting entry on June 30.
Date
Feb.
Debit
1
Prepaid Insurance
72,000
Cash
June
30 Insurance Expense
Prepaid Insurance
Credit
72,000
15,000
15,000
* 15,000 = ₤72,000 X 5/24
65
Adjusting Entries for Deferrals - Exercise
BE 3.6. LaBouche AG owns a warehouse. On November 1, it rented storage
space to lessee (tenant) for 3 months for a total cash payment of €2,400
received in advance. Prepare LaBouche’s November 1 journal entry and the
December 31 annual adjusting entry.
Date
Nov.
Debit
1
Cash
2,400
Unearned Rent Revenue
Dec.
31 Unearned Rent Revenue
Rent Revenue
Credit
2,400
1,600
1,600
* 1,600 = €2,400 X 2/3
66
Adjusting Entries for Accruals - Exercise
BE 3.8. Included in Gonzalez NV’s December 31 trial balance is a note
receivable of €12,000. The note is a 4-month, 10% note dated October 1.
Prepare Gonzalez’s December 31 adjusting entry to record €300 of accrued
interest, and the February 1 journal entry to record receipt of €12,400 from
the borrower.
Date
Dec.
Debit
31
Interest Receivable
Credit
300
Interest Revenue
Feb.
1
Cash
Notes Receivable
300
12,400
12,000
Interest Receivable
300
Interest Revenue
100
* 100 = €12,000 X 0.1 X 1/12
88
Adjusting Entries for Accruals - Exercise
BE 3.9. Prepare the following adjusting entries at August 31 for Nokia.
a.
b.
c.
d.
Interest on notes payable of €300 is accrued.
Unbilled fees for services performed total €1,400.
Salaries and wages earned by employees of €700 have not been recorded.
Bad debt expense for the year is €900.
a. Date
Aug.
Debit
31
Interest Expense
Credit
300
Interest Payable
b. Date
Aug.
300
Debit
31
Accounts Receivable
Service Revenue
Credit
1,400
1,400
89
Adjusting Entries for Accruals - Exercise
BE 3.9. Prepare the following adjusting entries at August 31 for Nokia.
c. Salaries and wages earned by employees of €700 have not been recorded.
d. Bad debt expense for the year is €900.
c. Date
Aug.
Debit
31
Salaries and Wages Expense
700
Salaries and Wages Payable
d. Date
Aug.
700
Debit
31
Bad Debt Expense
Allowance for Doubtful Accounts
Credit
Credit
900
900
90
Closing - Exercise
BE 3.11. Side Kicks has year-end account balances of Sales Revenue €808,900.
Interest Revenue €13,500, Cost of Goods Sold €556,200, Operating Expenses
€189,000, Income Tax Expense €35,100, and Dividends €18,900.
Prepare the year-end closing entries.
Debit
Sales Revenue
Interest Revenue
808,900
13,500
Income Summary
Income Summary
Credit
822,400
780,300
Cost of Goods Sold
556,200
Operating Expenses
189,000
Income Tax Expense
35,100
104
Closing - Exercise
BE 3.11. Side Kicks has year-end account balances of Sales Revenue €808,900.
Interest Revenue €13,500, Cost of Goods Sold €556,200, Operating Expenses
€189,000, Income Tax Expense €35,100, and Dividends €18,900.
Prepare the year-end closing entries.
Debit
Income Summary
42,100
Retained Earnings
Retained Earnings
Dividends
Credit
42,100
18,900
18,900
105
Prepare Financial Statements - Exercise
E 3.11. The adjusted trial balance of Cavamanils Co. as of December 31, 2022,
contains the following
Cavamanils Co.
Adjusted Trial Balance
December 31, 2022
Cash
Accounts Receivable
Prepaid Rent
Equipment
Accumulated Depreciation - Equipment
Notes Payable
Accounts Payable
Share Capital - Ordinary
Retained Earnings
Dividends
Service Revenue
Salaries and Wages Expense
Rent Expense
Depreciation Expense
Interest Expense
Interest Payable
Debit
$18,972
6,920
2,280
18,050
Credit
$ 4,895
5,700
4,472
20,000
11,310
3,000
12,590
6,840
2,760
145
83
$59,050
83
$59,050
110
Prepare Financial Statements - Exercise
a. Prepare an income statement.
b. Prepare a retained earnings statement.
c. Prepare a classified statement of financial position.
a. Income statement
Cavamanils Co.
Income Statement
For the Year Ended December 31, 2022
Revenues
Service Revenue
Expenses
Salaries and wage expense
Rent expense
Depreciation expense
Interest expense
Net income
$12,590
$6,840
2,760
145
83
$2,762
111
Prepare Financial Statements - Exercise
b. Retained earnings statement
Cavamanils Co.
Retained Earnings Statement
For the Year Ended December 31, 2022
Retained earnings, January 1
$11,301
Add: Net income
2,762
Less: Dividends
3,000
Retained earnings, December 31
11,072
112
Prepare Financial Statements - Exercise
c. statement of financial position
Cavamanils Co.
Statement of Financial Position
December 31, 2022
Assets
Current assets
Prepaid rent
Accounts receivable
Cash
Total current assets
Noncurrent assets
Property, plant, and equipment
Equipment
Less: Accumulated depreciation
Total assets
$ 2,280
6,920
18,972
$28,172
18,050
4,895
$13,155
$41,327
113
Prepare Financial Statements - Exercise
c. statement of financial position
Cavamanils Co.
Statement of Financial Position
December 31, 2022
Equity and Liabilities
Current liabilities
Notes payable
Accounts payable
Interest payable
Total current liabilities
Equity
Share capital – ordinary
Retained earnings
Total equity and liabilities
$ 5,700
4,472
83
$10,255
$20,000
11,072
$31,072
$41,327
114
>
Adjusting Entries - DO IT!
The ledger of Zhu Company on March 31, 2022, includes these selected
accounts before adjusting entries are prepared.
(amounts in thousands)
Prepaid Insurance
Supplies
Equipment
Accumulated Depreciation—Equipment
Unearned Service Revenue
Debit
Credit
¥ 3,600
2,800
25,000
¥ 5,000
9,200
An analysis of the accounts shows the following.
1.
2.
3.
4.
Insurance expires at the rate of ¥100 per month.
Supplies on hand total ¥800.
The equipment depreciates ¥200 a month.
One-half of the unearned service revenue was performed in March.
Prepare the adjusting entries for the month of March.
115
>
1.
DO IT!
Insurance expires at the rate of ¥100 per month.
Insurance Expense
100
Prepaid Insurance
2.
100
Supplies on hand total ¥800.
Supplies Expense
2,000
Supplies
3.
2,000
The equipment depreciates ¥200 a month.
Depreciation Expense
200
Accumulated Depreciation—Equipment
4.
200
One-half of the unearned service revenue was performed in March.
Unearned Service Revenue
Service Revenue
4,600
4,600
116
>
DO IT!
Micro Computer Services began operations on August 1, 2022. At the
end of August 2022, management prepares monthly financial
statements. The following information relates to August.
1. At August 31, the company owed its employees ¥8,000 in
salaries and wages that will be paid on September 1.
2. On August 1, the company borrowed ¥300,000 from a local
bank on a 15-year mortgage. The annual interest rate is 10%.
3. Revenue for services performed but unrecorded for August
totaled ¥11,000.
Prepare the adjusting entries needed at August 31, 2022.
117
>
DO IT!
Prepare the adjusting entries needed at August 31, 2022.
1. At August 31, the company owed its employees ¥8,000 in
salaries and wages that will be paid on September 1.
Salaries and Wages Expense
Salaries and Wages Payable
8,000
8,000
2. On August 1, the company borrowed ¥300,000 from a local
bank on a 15-year mortgage. The annual interest rate is 10%.
Interest Expense
Interest Payable
2,500
2,500
3. Revenue for services performed but unrecorded for August
totaled ¥11,000.
Accounts Receivable
Service Revenue
11,000
11,000
118