PROBLEMS
Problem 7-1A (20 minutes)
Date
Special
Journal
Subledger
S
AR/MI
2 Defective merchandise sold on March 1 was returned by
the customer. It was scrapped.
G
AR
3 Purchased office equipment on credit terms n/30.
P
AP
CR
AR
G
AP
CR
MI
P
AP/MI
17 Paid the balance owing regarding the March 3
transaction.
CD
AP
18 Purchased merchandise inventory for cash.
CD
MI
21 Paid for the merchandise purchased on March 16.
CD
AP/MI
22 Sold old equipment for cash.
CR
NE
30 Paid salaries for the month of March.
CD
NE
30 Accrued utilities for the month of March.
G
AP
30 Closed the credit balance in the income summary to
capital.
G
NE
Transaction
Mar. 1 Sold merchandise on credit.
5 Received payment regarding the March 1 sale.
10 Received a credit memorandum from the supplier
regarding defective equipment purchased on March 3.
14 Sold merchandise for cash.
16 Purchased merchandise inventory on credit; terms 1/5,
n/30.
Problem 7-3B (40 minutes)
Note: Since posting to the General Ledger was not a requirement in this problem, posting references are shown for values
posted to the subledgers only.
Part 3
Date
2014
July
5
6
13
14
Date
Account Debited
Karen Harden
Paul Kane
Kelly Grody
Karen Harden
Page 3
Cost of Goods Sold Dr.
Merchandise Inventory Cr.
A/R Dr.
Sales. Cr.




918
919
920
921
35,000
16,000
17,200
8,200
19,250
8,800
9,460
4,500
CASH RECEIPTS JOURNAL
Sales
Cash
Discounts
Explanation
Debit
Debit
PR
Account
Credited
2014
July
15 Karen Harden
15 Sales
Date
2014
July
1
7
9
SALES JOURNAL
Invoice
Number
PR
Sale of Jul 5
Cash sales

34,300
242,740
700
Page 3
Accts.
Rec.
Credit
Other
Accts.
Credit
242,740
Account Credited
Beech Company
Blackwater Inc. /Store Supp.
Poppe’s Supply /Store Equip.
Jun 30
Jul 7
Jul 8



Cost of Goods Sold Dr.
Merchandise Inventory
Cr.
35,000
PURCHASES JOURNAL
Accounts
Date of
Payable
Invoice
Terms
PR
Credit
2/10, n/30
n/10 EOM
n/10 EOM
Sales
Credit
14,500
2,300
72,500
133,500
Merchandise Inventory
Debit
Office
Supplies
Debit
Page 3
Other
Accts.
Debit
14,500
2,300
72,500
Problem 7-3B (continued)
CASH DISBURSEMENTS JOURNAL
Date
2014
July
Ch.
No.
3 300
10 301
15 302
Date
2014
July
Payee
Account Debited
PR
The Weekly Journal
Beech Company
Payroll
Advertising Expense ............
Beech Company
Sales Salaries Expense........
GENERAL JOURNAL
Account Titles and Explanations
8
PR
Accounts Payable—Blackwater Inc. .............
Store Supplies .............................................
Returned supplies to supplier.
Cash
Credit
Merchandise
Inventory Cred
1,075
14,210
60,400

Debit
290
Page 3
Credit
300
300
Problem 7-3B (concluded)
Parts 1, 2, 3
ACCOUNTS RECEIVABLE SUBLEDGER
Date
2014
July
5
14
15
Karen Harden
Explanation
PR
S3
S3
CR3
Date
2014
July
13
Explanation
Date
2014
July
6
Explanation
Kelly Grody
PR
S3
Paul Kane
PR
S3
Debit
Credit
35,000
8,200
35,000
Debit
Credit
17,200
Debit
Balance
35,000
43,200
8,200
Balance
17,200
Credit
16,000
Balance
16,000
ACCOUNTS PAYABLE SUBLEDGER
Date
Beech Company
Explanation
PR
Debit
Credit
Balance
2014
July
1
10
Date
2014
July
7
8
Date
2014
July
9
Date
2014
P3
CD3
Blackwater Inc.
Explanation
PR
P3
G3
Poppe’s Supply
Explanation
PR
14,500
14,500
Debit
2,300
300
Debit
P3
Sprague Company
Explanation
PR
Credit
Credit
72,500
Debit
Credit
14,500
0
Balance
2,300
2,000
Balance
72,500
Balance
Problem 4-5B (90 minutes)
Part 1
DILLAN’S TAILORING SERVICES
Income Statement
For Year Ended December 31, 2014
Revenue:
Sewing fees earned ................................................
Operating expenses:
Wages expense......................................................
Depreciation expense, equipment ........................
Rent expense .........................................................
Utilities expense ....................................................
Store supplies expense .........................................
Insurance expense ................................................
Total operating expenses ...................................
Net income .................................................................
$109,920
$61,200
5,400
4,800
3,720
2,600
2,200
79,920
$ 30,000
DILLAN’S TAILORING SERVICES
Statement of Changes in Equity
For Year Ended December 31, 2014
Vy Dillan, capital, January 1 .....................................
Add: Net income .......................................................
Total.........................................................................
Less: Withdrawals .....................................................
Vy Dillan, capital, December 31 ................................
$23,300
30,000
$53,300
32,000
$21,300
Problem 4-5B (concluded)
DILLAN’S TAILORING SERVICES
Balance Sheet
December 31, 2014
Assets
Current assets:
Cash ...................................................................................
Store supplies ...................................................................
Prepaid insurance .............................................................
Total current assets ..........................................................
Property, plant and equipment:
Equipment .........................................................................
Less: Accumulated depreciation ..................................
Total assets .............................................................................
Liabilities
Current liabilities:
Accounts payable .............................................................
Wages payable ..................................................................
Total current liabilities ......................................................
Equity
Vy Dillan, capital ..................................................................
Total liabilities and equity ......................................................
$15,500
6,500
3,800
$25,800
$61,000
19,700
41,300
$67,100
$39,400
6,400
$45,800
21,300
$67,100
Analysis component:
Net income is not a guarantee that a business can meet its current obligations. As a
creditor, I would review the current assets on the balance sheet to determine Vy’s ability
to pay current obligations during the year 2015. At December 31, 2014 Dillan’s Tailoring
had $25,800 in current assets and $45,800 in current liabilities. Therefore, as a creditor, I
would be concerned that current liabilities exceed current assets indicating that there are
insufficient current assets to meet current obligations.