Chapter 2 – the Accounting Cycle

8/11/2019 Chapter 2 the Accounting Cycle

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Exercise 2-3 Analyze the impact of transactions on the accounting equation Exercise 2-3

Exercise 2-5 Understand the components of retained earnings Exercise 2-5

Exercise 2-8 Record transactions Exercise 2-8

Exercise 2-9 Identify transactions Exercise 2-9



Exercise 2-15 Post transactions to T-accounts Exercise 2-15

Exercise 2-17 Prepare a trial balance Exercise 2-17

Exercise 2-18 Prepare a trial balance Exercise 2-18

Exercise 2-19 Record transactions, post to T-accounts, and prepare a trial balance Exercise 2-19

Exercise 2-20 Record transactions, post to T-accounts, and prepare a trial balance Exercise 2-20

Chapter 2The Accounting Cycle: During the Period

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Exercise 2-3


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Secure Data Corporation plans to own and operate a data backup facility for

technology companies. For the first month of operations, the company had the

following transactions.1. Issue 20,000 shares of common stock for $50,000 cash.

2. Hire two employees for $1,500 per month.

3. Purchase equipment for $15,000 cash.

4. Purchase facility for $25,000. A note payable is signed for this amount.

5. Purchase office supplies for $1,500 on account.

6. Receive cash of $10,000 in service fees for the current month.7. Pay employees $3,000 for the first months salaries.

Required:

For each transaction, describe the dual effect on the accounting equation. For

example, in the first transaction, (1) assets increase and (2) stockholders equityincreases.

Analyze the impact of transactions on the accounting equation


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One asset (equipment) increases and another

asset (cash) decreases

No effect on the accounting equation

4. Purchase facility for $25,000. A note payable

is signed for this amount.

Stockholders equity

increases

Assetsincrease

Stockholders equityincreases

Assets

increase

Liabilities

increase

Transaction Dual Effect

1. Issue 20,000 shares of common stock for$50,000 cash.



5. Purchase office supplies for $1,500 on

account.

6. Receive cash of $10,000 in service fees for

the current month.

7. Pay employees $3,000 for the first months

salaries.

Assets

increase

Assets

increase

Liabilities

increase

Assets

decrease

Stockholders equity

decreases


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Exercise 2-5


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At the beginning of June, Mentor Corporation has a balance of $17,500 in the

Retained Earnings account. During the month of June, Mentor had the following

external transactions.1. Issue common stock for cash, $15,000.

2. Provide services to customers for cash, $4,000.

3. Purchase supplies and pay cash, $2,000.

4. Provide services to customers on account, $6,000.

5. Pay advertising expense, $900.

6. Pay salaries for June, $3,500.7. Pay dividends for June, $1,800.

Required:

Using the external transactions above, compute the balance of Retained Earnings

as of June 30.

Understand the components of retained earnings


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Retained earnings, June 1 $17,5001. Issue common stock for cash, $15,000. 0

2. Provide services to customers on account, $4,000. 4,000

3. Purchase supplies and pay cash, $2,000. 0

4. Provide services to customers on account, $6,000. 6,000

5. Pay advertising expense, $900. (900)

6. Pay salaries for June, $3,500. (3,500)

7. Pay dividends for June, $1,800. (1,800)

$21,300Retained earnings, June 30

Transaction Balance


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Exercise 2-8


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Terabyte Corporation engages in the following transactions for December.

1. Purchase office supplies on account for $400.2. Purchase equipment in exchange for cash of $15,000.

3. Provide services worth $8,000 to customers on account.

4. Pay employees salaries of $2,400 for the current month.

5. Purchase advertising for the current month for $500 cash.

Required:Record the transactions. Terabyte uses the following accounts: Cash, Supplies,

Equipment, Accounts Payable, Accounts Receivable, Service Revenue, and

Advertising Expense

Record transactions


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Supplies (+A) 400

Accounts Payable (+L)

(Purchase office supplies on

account)

400

(1)

Equipment ( +A) 15,000

Cash (A)

(Purchase equipment with cash)

15,000

(2)

Accounts Receivable (+A) 8,000

Service Revenue (+R, +SE)

(Provide services on account)

8,000

(3)

Salaries Expense ( +E, SE) 2,400

Cash (A)(Pay current months salaries)

2,400

(4)

Advertising Expense ( +E, SE) 500

Cash (A)

(Pay advertising for current

month)

500

(5)

Debit Credit

General Journal


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Exercise 2-9


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Below are recorded transactions of Blue Valley Corporation for June.

Required:

Provide an explanation for each transaction.

Identify transactions

Debit Credit(1) Supplies 800

Cash 800

(2) Cash 3,000

Unearned Revenue 3,000

(3) Rent Expense 600

Cash 600

(4) Dividends 500Cash 500

(5) Accounts Receivable 2,000

Service Revenue 2,000


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General Journal

Debit Credit

Supplies 800

Cash

(Purchase supplies for cash)

800

Cash 3,000

Unearned Revenue

(Receive cash from customers in advance of

services)

3,000

Rent Expense 600

Cash

(Pay current month's rent)

600

Dividends 500

Cash

(Pay dividends to stockholders)

500

Accounts Receivable 2,000

Service Revenue

(Provide services to customers on account)

2,000

1.

2.

3.

4.

5.


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Exercise 2-10


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Element Design Studio has the following transactions during the month of March.

March 5 Purchase supplies of $1,500 on account.March 11 Provide services of $4,300 to customers and receive cash.

March 21 Pay utility bill for the current month of $450.

March 25 Provide services of $1,800 to customers on account.

March 28 Pay workers salaries for the current month of $3,800.

March 30 Pay the current months rent of $1,200.

Required:

Record each transaction. Element Design uses the following accounts: Cash,

Accounts Receivable, Supplies, Accounts Payable, Service Revenue, Rent

Expense, Salaries Expense, and Utilities Expense.

Record transactions


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Supplies 1,500

Accounts Payable(Purchase supplies on account)

1,500

March 5

Cash 4,300

Service Revenue(Provide design services for cash)

4,300

March 11

Utilities Expense 450

Cash(Pay utilities for current month)

450

March 21


Service Revenue(Provide design services on account)

1,800

March 25

Salaries Expense 3,800

Cash(Pay salaries for current month)

3,800

March 28

Rent Expense 1,200

Cash

(Pay rent for current month with cash)

1,200

March 30

Debit Credit

General Journal


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Exercise 2-11


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Bobcat Construction begins operations in March and has the following

transactions.

March 1 Issue common stock for $25,000.

March 5 Purchase office equipment for $5,000 cash.

March 10 Paid rent on office space for the month, $4,500.

March 15 Secured a bank loan to finance construction equipment, $30,000.

March 22 Provide construction services for $15,000 on account.March 27 Pay salaries for the current month of $6,000.

March 28 Receive $15,000 cash from customers on account.

Required:

Record each transaction. Bobcat uses the following accounts: Cash, Accounts

Receivable, Notes Payable, Common Stock, Service Revenue, AdvertisingExpense, and Salaries Expense.

Record transactions


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Cash (+A) 25,000

Common Stock (+SE) 25,000

March 1

Office Equipment (+A) 5,000

Cash (-A) 5,000

March 5

Rent (+E, -SE) 4,500

Cash (-A) 4,500

March 10

Construction Equipment (+A) 30,000

Notes Payable (+L) 30,000

March 15

Accounts Receivable (+A) 15,000

Service Revenue (+R, +SE) 15,000

March 22

Salaries Expense (+E, -SE) 6,000

Cash (-A) 6,000

March 27

Debit Credit

General Journal

Cash (+A) 15,000

Accounts Receivable (-A) 15,000

March 28


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Exercise 2-15


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Consider the recorded transactions below.

Required:

Post each transaction to T-accounts and compute the ending balance of eachaccount. The beginning balance of each account before the transactions is: Cash,

$3,000; Accounts Receivable, $2,500; Supplies, $400; Accounts Payable, $1,000;

Unearned Revenue, $500. Service Revenue and Rent Expense each have a

beginning balance of zero.Post transactions to T-accounts

Debit Credit

(1) Supplies 800

Accounts Payable 800

(2) Accounts Receivable 4,000


(3) Rent Expense 800

Cash 800

(4) Cash 6,000


(5) Cash 2,000

Unearned Revenue 2,000

(6) Accounts Payable 1,500

Cash 1,500


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Supplies

Accounts Receivable Accounts Payable

Service RevenueUnearned Revenue

Rent Expense

Assets Liabilities Stockholders Equity

Cash

= +

3,000

400

2,500

500

1,000

0

0

(1)Accounts Payable

Debit Credit800

800

Supplies

6,000

2,000

(4)

(5)

1,500(6)

Bal. 8,700

(2) 4,000

2,000(5)

Bal. 2,500

Bal. 500

4,000(2)

Bal. 4,000

800(3)

6,000(4) 1,500(6)

Bal. 300

(3) 800

Bal. 800

(1) 800

Bal. 1,200

800(1)

(2)Service Revenue

Debit Credit4,000

4,000

Accounts Receivable(3)Cash

Debit Credit800

800

Rent Expense(4)Accounts Receivable

Debit Credit6,000

6,000

Cash(5)Unearned Revenue

Debit Credit2,000

2,000

Cash(6)Cash

Debit Credit1,500

1,500

Accounts Payable


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Exercise 2-17


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Below is the complete list of accounts of Raider Corporation and the related

balance at the end of July. All accounts have their normal debit or credit balance.

Cash, $4,000; Prepaid Insurance, $7,000; Notes Payable, $20,000; Common Stock,

$40,000; Service Revenue, $30,000; Salaries Expense, $8,000; Accounts

Receivable, $4,500; Land, $90,000; Unearned Revenue, $5,000; Retained

Earnings, $25,000; Utilities Expense, $6,500.

Required:

Prepare a trial balance with the list of accounts in the following order: assets,

liabilities, stockholders equity, revenues, and expenses.

Prepare a trial balance


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1. Cash $4,000

2. Accounts Receivable 4,500

3. Prepaid Insurance 7,000

4. Land 90,0005. Notes Payable 20,000

6. Unearned Revenue 5,000

7. Common Stock 40,0008. Retained Earnings 25,000

9. Service Revenue 30,000

10. Utilities Expense 6,500

11. Salaries Expense 8,000

RAIDER CORPORATIONTrial Balance

July 31

Cash

Accounts Receivable

Prepaid Insurance

Land

Notes Payable

Unearned Revenue

Common Stock

Retained Earnings

Service Revenue

Utilities ExpenseSalaries Expense

Accounts Debit Credit

Totals

$ 4,000

4,500

7,000

90,000

6,5008,000

5,000

40,000

25,000

30,000

$ 120,000 $120,000

$ 20,000


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Exercise 2-18


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Below is the complete list of accounts of Winner Company and the related

balance at the end of January. All accounts have their normal debit or credit

balance.

Equipment, $13,000; Buildings, $45,000; Salaries Payable, $1,000; Common

Stock, $30,000; Accounts Payable, $4,000; Supplies Expense, $2,500; Prepaid

Rent, $1,500; Service Revenue, $22,000; Accounts Receivable, $5,000; Cash,

$3,000; Salaries Expense, $5,000; Retained Earnings, $18,000.

Required:

Prepare a trial balance with the list of accounts in the following order: assets,

liabilities, stockholders equity, revenues, and expenses.

Prepare a trial balance


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WINNER COMPANYTrial Balance

January 31

Cash

Accounts Receivable

Prepaid Rent

Equipment

Buildings

Accounts Payable

Salaries Payable

Common Stock

Retained Earnings

Service RevenueSalaries Expense


Totals

$ 3,000

5,000

1,500

13,000

22,0005,000

1,000

30,000

18,000

$ 75,000 $75,000

$ 4,000

1. Cash $3,000

2. Accounts Receivable 5,000

3. Prepaid Rent 1,500

4. Equipment 13,000

5. Buildings 45,000

6. Accounts Payable 4,0007. Salaries Payable 1,000

8. Common Stock 30,000

9. Retained Earnings 18,000

10. Service Revenue 22,000

11. Salaries Expense 5,000

12. Supplies Expense 2,500

45,000

Supplies Expense 2,500


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Exercise 2-19


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Land

Equipment

Notes PayableService Revenue

Common Stock

Salaries Expense


Cash

= +

0

0

0

0

0 0

0

50,000

10,000

(1)

(6)

Bal. 42,000

(3) 15,000

50,000(1)

Bal. 50,000

Bal. 15,000

10,000(6)

Bal. 10,000

15,000(3)

Bal. 25,000

(7) 3,000

Bal. 3,000

(4) 25,000

Bal. 25,000

25,000(4)

Supplies

0(5) 1,500

Bal. 1,500

Accounts Payable

0

Bal. 1,500

1,500(5)

1. Issue 20,000 shares of common stock for $50,000 cash.

Common Stock

Debit Credit50,000

50,000

Cash

(Issuance of common stock)


Debit Credit

No entry required


Cash

Debit Credit15,000

15,000

Equipment

(Purchase equipment with cash)

4. Purchase land for $25,000. A note payable is signed for this amount.

Notes Payable

Debit Credit25,000

25,000

Land

(Purchase land with notes payable)

5. Purchase office supplies for $1,500 on account.

Accounts Payable

Debit Credit1,500

1,500

Supplies

(Purchase office supplies on account)

6. Receive cash of $10,000 in service fees for the current month.

Service Revenue

Debit Credit10,000

10,000

Cash

(Receive cash for services)

7. Pay employees $3,000 for the first months salaries.

Cash

Debit Credit3,000

3,000

Salaries Expense

(Pay salaries for the current month)

3,000(7)


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SECURE DATA CORPORATION

Trial Balance

Cash

Supplies

Equipment

Land

Accounts Payable

Notes Payable

Common Stock

Service Revenue

Salaries Expense


Totals

$42,000

1,500

15,000

25,000

3,000

25,000

50,000

10,000

$86,500 $86,500

$ 1,500

Cash $42,000

Supplies 1,500

Equipment 15,000

Land 25,000

Accounts Payable 1,500

Notes Payable 25,000

Common Stock 50,000




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Exercise 2-20


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Shoestring Interior incurs the following transactions for June.1. Provide design services in the current month for $10,000 on account.2. Purchase design equipment for $12,000 cash.3. Purchase office supplies on account for $800.

4. Pay workers salaries of $5,000 for the current month.5. Purchase advertising to appear in the current month for $1,000 cash.6. Pay office rent of $2,500 for the current month.7. Receive $5,000 from customers who previously bought services on account.8. Receive $2,000 in advance from a customer to design interiors in July.

Required:

1. Record each transaction. Shoestring uses the following accounts: Cash, AccountsReceivable, Supplies, Equipment, Accounts Payable, Unearned Revenue, CommonStock, Retained Earnings, Service Revenue, Salaries Expense, Advertising Expense, andRent Expense.

2. Post each transaction to T-accounts and compute the ending balance of each account.At the beginning of September, the company had the following account balances: Cash,$25,000; Accounts Receivable, $2,000; Supplies, $500; Equipment, $8,000; AccountsPayable, $1,500; Common Stock, $25,000; Retained Earnings, $9,000. All other accounts

had a beginning balance of zero.3. After calculating the ending balance of each account, prepare a trial balance.

Record transactions, post to T-accounts, and prepare a trial balance


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Accounts Receivable

Equipment

Unearned Revenue

Common StockAccounts Payable Retained Earnings


Cash

= +

25,000

2,000

8,000

1,500

0

25,000

5,000

2,000

(7)

(8)

Bal. 11,500

(2) 12,000

800(3)

Bal. 2,300

Bal. 20,000

Bal. 25,000

12,000(2)

Bal. 2,000

Bal. 9,000

(1) 10,000

Bal. 7,000

2,000(8)

Supplies

500(3) 800

Bal. 1,300

5,000(4)

Service Revenue Salaries Expense0

10,000(1)

Bal. 10,000

(4) 5,000

Bal. 5,000

1. Provide design services in the current month for $10,000 on account.

9,000

Rent Expense Advertising Expense

0

2,500(6)

Bal. 2,500

(5) 1,000

Bal. 1,000

0

Service Revenue

Debit Credit10,000

10,000

Accounts Receivable

(Performed design services on account)

2. Purchase design equipment for $12,000 cash.

Cash

Debit Credit12,000

12,000

Equipment

(Purchase design equipment)

3. Purchase office supplies on account for $800.

Accounts Payable

Debit Credit800

800

Supplies

(Purchase office supplies on account)

4. Pay workers salaries of $5,000 for the current month.

Cash

Debit Credit5,000

5,000

Salaries Expense

(Pay salaries for the current month)

5. Purchase advertising to appear in the current month for $1,000 cash.

Cash

Debit Credit1,000

1,000

Advertising Expense

(Pay advertising for the current month)

1,000(5)

6. Pay office rent of $2,500 for the current month.

Cash

Debit Credit2,500

2,500

Rent Expense

(Pay Rent for the current month)

2,500(6)

7. Receive $5,000 from customers who previously bought services on account.

Accounts Receivable

Debit Credit5,000

5,000

Cash

(Receive cash on account)

5,000(7)

8. Receive $2,000 in advance from a customer to design interiors in July.

Unearned Revenue

Debit Credit2,000

2,000

Cash

(Receive cash in advance for design work)


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SHOESTRING INTERIOR

Trial Balance

Cash

Accounts Receivable

Supplies

Equipment

Accounts Payable

Unearned Revenue

Common Stock

Retained Earnings

Service Revenue


Totals

$11,500

7,000

1,300

20,000

10,000

2,000

25,000

9,000

$48,300 $48,300

$ 2,300

Cash $11,500


Supplies 1,300

Equipment 20,000

Accounts Payable 2,300

Unearned Revenue 2,000Common Stock 25,000

Retained Earnings 9,000



Advertising Expense 1,000

Rent Expense 2,500

Salaries Expense

Advertising Expense

Rent Expense

5,000

1,000

2,500

Chapter 2 – the Accounting Cycle

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