SOLUTIONS TO EXERCISES
Exercise 2-1
a.
b.
c.
d.
e.
f.
The owner invested $3,200 cash in the business.
Paid the rent for the current month, $435.
Received and paid the advertising bill, $98.
Bought supplies on account, $280.
Received and paid the bill for a miscellaneous expense, $75.
The owner invested personal equipment with a fair market value of $3,720 in the
business.
g. Bought equipment for $1,835, paying $900 in cash and placing the balance on
account.
h. Sold services on account, $615.
i. Received and paid the utility bill, $92.
j. The owner withdrew $325 in cash for personal use.
k. Sold services for cash, $1,025.
Exercise 2-2
Assets
+
–
Dr.
Cr.
Cash
+
Dr.
–
Cr.
Accounts
Receivable
+
–
Dr.
Cr.
=
Liabilities
–
+
Dr.
Cr.
+ Owner's Equity +
–
+
Dr.
Cr.
Revenue
–
+
Dr.
Cr.
Accounts
Payable
–
+
Dr.
Cr.
A Bevin,
Capital
–
+
Dr.
Cr.
Income from
Services
–
+
Dr.
Cr.
A. Bevin,
Drawing
+
–
Dr.
Cr.
–
Expenses
+
–
Dr.
Cr.
Rent
Expense
+
–
Dr.
Cr.
Wages
Expense
+
–
Dr.
Cr.
Equipment
+
–
Dr.
Cr.
Utilities
Expense
+
–
Dr.
Cr.
A. Bevin,
Drawing
+
–
Dr.
Cr.
Supplies
Expense
+
–
Dr.
Cr.
Miscellaneous
Expense
+
–
Dr.
Cr.
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1
Exercise 2-3
a.
b.
c.
d.
e.
Utilities
Expense
+
–
Dr.
Cr.
81
Supplies
Expense
+
–
Dr.
Cr.
234
Prepaid
Insurance
+
–
Dr.
Cr.
420
Accounts
Payable
–
+
Dr.
Cr.
537
Utilities
Expense
+
–
Dr.
Cr.
86
Cash
f.
–
Cr.
81
+
Dr.
Accounts
Payable
–
+
Dr.
Cr.
234
Cash
h.
–
Cr.
420
+
Dr.
Cash
+
Dr.
g.
i.
–
Cr.
537
Accounts
Receivable
+
–
Dr.
Cr.
875
Truck
Expense
+
–
Dr.
Cr.
129
Cash
+
–
Dr.
Cr.
936
R. Carter,
Drawing
+
–
Dr.
Cr.
400
Income from
Services
–
+
Dr.
Cr.
875
Cash
–
Cr.
129
+
Dr.
Accounts
Receivable
+
–
Dr.
Cr.
936
Cash
+
Dr.
–
Cr.
400
Cash
+
Dr.
–
Cr.
86
Exercise 2-4
0.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Normal
Account
Classification
Increase Side
Decrease Side
Balance Side
Cash ................................. A........................ Debit ................... Credit ................. Debit
Wages Expense ................. E ........................ Debit .................. Credit ................. Debit
Equipment ........................ A........................ Debit .................. Credit ................. Debit
J. Roe, Capital ................. OE ..................... Credit ................. Debit .................. Credit
Service Revenue ............... R........................ Credit ................. Debit .................. Credit
J. Roe, Drawing ............... OE ..................... Debit .................. Credit ................. Debit
Accounts Receivable ........ A........................ Debit .................. Credit ................. Debit
Rent Expense .................... E ........................ Debit .................. Credit ................. Debit
Fees Earned ..................... R........................ Credit ................. Debit .................. Credit
Accounts Payable ............. L ........................ Credit ................. Debit .................. Credit
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Exercise 2-5
At Your Service
Trial Balance
December 31, 20 —
ACCOUNT NAME
Cash
Accounts Receivable
Prepaid Insurance
Equipment
Accounts Payable
L. Mas, Capital
L. Mas, Drawing
Income from Services
Rent Expense
Supplies Expense
Utilities Expense
Wages Expense
DEBIT
CREDIT
3,300.00
9,500.00
1,400.00
26,000.00
8,600.00
26,600.00
1,800.00
33,000.00
3,600.00
1,700.00
3,500.00
17,400.00
68,200.00
68,200.00
Exercise 2-6
Ace Modeling Agency
Trial Balance
March 31, 20—
ACCOUNT NAME
Cash
Accounts Receivable
Office Furniture
Office Equipment
Accounts Payable
R. Ralston, Capital
R. Ralston, Drawing
Modeling Fees
Salary Expense
Rent Expense
Utilities Expense
Supplies Expense
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DEBIT
CREDIT
16,455.00
2,600.00
350.00
2,800.00
2,882.00
8,100.00
2,200.00
18,680.00
3,400.00
1,600.00
175.00
82.00
29,662.00
29,662.00
3
Exercise 2-6 (concluded)
Ace Modeling Agency
Income Statement
For Month Ended March 31, 20—
Revenue:
Modeling Fees
Expenses:
Salary Expense
Rent Expense
Utilities Expense
Supplies Expense
Total Expenses
Net Income
$18,680.00
$3,400.00
1,600.00
175.00
82.00
5,257.00
$13,423.00
Ace Modeling Agency
Statement of Owner's Equity
For Month Ended March 31, 20 —
R. Ralston, Capital, March 1, 20—
Investment during March
Net Income for March
Subtotal
Less Withdrawals for March
Increase in Capital
R. Ralston, Capital, March 31, 20—
$
0.00
$ 8,100.00
13,423.00
$21,523.00
2,200.00
19,323.00
$19,323.00
Ace Modeling Agency
Balance Sheet
March 31, 20—
Assets
Cash
Accounts Receivable
Office Furniture
Office Equipment
Total Assets
$16,455.00
2,600.00
350.00
2,800.00
$22,205.00
Liabilities
Accounts Payable
$ 2,882.00
Owner's Equity
R. Ralston, Capital
Total Liabilities and Owner's Equity
19,323.00
$22,205.00
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4
Exercise 2-7
Amount of
Difference
Debit or Credit Column
of Trial Balance
Understated or Overstated
0. Example: A $149 debit to Accounts Receivable
was not recorded.
$149 ... Debit column understated
a. A $32 debit to Supplies Expense was recorded as $320. 288 ... Debit column overstated
b. A $255 debit to Accounts Payable was recorded twice. 255 ... Credit column overstated
c. A $79 debit to Prepaid Insurance was not recorded.
79 ... Debit column understated
d. A $63 credit to Cash was not recorded.
63 ... Debit column overstated
e. A $180 debit to Equipment was recorded twice.
180 ... Debit column overstated
f. A $54 debit to Utilities Expense was recorded as $45.
9 ... Debit column understated
Exercise 2-8
a. Equal totals in the trial balance because $28 was debited to Office Equipment and $28
was credited to Cash. The effect is that Office Equipment is understated by $252 and
Cash is overstated by $252.
b. Equal totals in the trial balance because $160 was debited to Accounts Receivable and
$160 was credited to Cash. The effect is that the $160 should have been debited to Accounts Payable, not Accounts Receivable, and so Accounts Receivable is overstated by
$160 and Accounts Payable is overstated by $160.
c. Equal totals in the trial balance because $105 was debited to Equipment and $105 was
credited to Cash. The effect is that the $105 should have been debited to Supplies Expense, not Equipment, and so Equipment is overstated by $105 and Supplies Expense is
understated by $105.
d. Unequal totals in the trial balance because $96 was debited correctly to Accounts Payable
but the credit to cash was transposed as $69. The effect is that Cash is overstated by $27.
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5