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Chapter 2 Recording Business Transactions Quick Check Answers: 1. a 2. d 3. b 4. b 5. b 6. d 7. a 8. b 9. a 10. d
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Starters (10 min.) S2-1 Req. 1 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
G C E D A I F B H J (5 min.) S2-2
Req. 1 Debits are increases for the following types of accounts: Assets Owners’ drawings Expenses (because these accounts are on the debit side of the accounting equation) Debits are decreases for these types of accounts: Liabilities Owners’ capital Revenues (because these accounts are on the credit side of the accounting equation) Req. 2 Credits are increases for these types of accounts: Liabilities Owners’ capital Revenues (because these accounts are on the credit side of the accounting equation) Credits are decreases for these types of accounts: Assets Owners’ drawings Expenses (because these accounts are on the debit side of the accounting equation) Copyright © 2013 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442551923/Horngren/Accounting/7th edition
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(5 min.) S2-3 Req. 1 Normal Balance Debit or Credit Assets Liabilities Owners’ equity overall Capital Drawings Revenues Expenses
Debit Credit Credit Credit Debit Credit Debit
(5 min.) S2-4 Req. 1 Step 1: Identify each account affected and its type. Step 2: Determine whether each account is increased or decreased. Step 3: Record the transaction in the journal. Account 5 28
Accounts receivable Service revenue Cash Accounts receivable
Increase/ Decrease Increase Increase Increase Decrease
Type Asset Owners’ equity Asset Asset
(continued) S2-4 Req. 1 Journal DATE Jan 5
28
ACCOUNTS AND EXPLANATIONS Accounts receivable Service revenue Performed service on account.
POST. REF.
Cash Accounts receivable Received cash on account.
DEBIT 1 000
CREDIT 1 000
600 600
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(10 min.) S2-5 Req. 1 Journal DATE Jan 1
2
2
3
ACCOUNTS AND EXPLANATIONS
POST. REF.
Cash Brown, capital Owner investment Medical supplies Accounts payable Purchased supplies on account.
DEBIT 29 000
CREDIT 29 000
14 000 14 000
Rent expense Cash Paid office rent.
2 600
Accounts receivable Service revenue Performed service on account.
8 000
2 600
8 000
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(10min.) S2-6 Req. 1 Journal DATE Jan 22
30
31
31
31
ACCOUNTS AND EXPLANATIONS Accounts receivable Service revenue Performed service on account.
POST. REF.
Cash Accounts receivable Received cash on account. Electricity and gas expense Accounts payable Received electricity and gas bill. Salary expense Cash Paid salary expense. Advertising expense Cash Paid advertising expense.
DEBIT 8 000
CREDIT 8 000
7 000 7 000
180 180
2 000 2 000
700 700
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(10-15 min.) S2-7 Req. 1 Journal DATE 1.
2.
POST. REF.
ACCOUNTS AND EXPLANATIONS Supplies Accounts payable Purchased supplies on account.
DEBIT 3 400
CREDIT 3 400
Accounts payable Cash ($3 400 ½) Paid on account.
1 700 1 700
Req. 2
2.
Accounts payable 1 700 Bal
1.
3 400 1 700
(10-15 min.) S2-8 Req. 1 Journal DATE
ACCOUNTS AND EXPLANATIONS Accounts receivable Service revenue Performed service on account.
POST. REF.
Cash Accounts receivable Received cash on account.
DEBIT 16 000
CREDIT 16 000
9 600 9 600
Req. 2
Bal
Cash 9 600 9 600
Bal
Accounts receivable 16 000 9 600 6 400
Service revenue 16 000 Bal 16 000
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Req. 3 a.
Walja Creek earned:
b.
Cash Accounts receivable Total assets
$16 000
as Service revenue
$9 600 6 400 $16 000
(10-15 min.) S2-9 Req. 1
Bal
Bal
Cash 29 000 26 400
Bal
Medical supplies 14 000 14 000
Accounts payable
Brown, capital
Service revenue
Bal
Bal
2 600
Accounts receivable 8 000 8 000
14 000 14 000
Bal
29 000 29 000
8 000 8 000
Bal
Rent expense 2 600 2 600
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(continued) S2-9 Req. 2 Neville Brown, GP Trial Balance 3 January 2012 ACCOUNT Cash Accounts receivable Medical supplies Accounts payable Brown, capital Service revenue Rent expense Total
DEBIT $26 400 8 000 14 000
CREDIT
$14 000 29 000 8 000 2 600 $51 000
$51 000
(10 min.) S2-10 Req. 1 Oakland Floor Coverings Trial Balance 31 December 2013 ACCOUNT Cash Equipment Accounts payable Other liabilities Oakland, capital Revenues Expenses Total
DEBIT $12 000 45 000
CREDIT
$ 2 000 18 000 22 000 34 000 19 000 $76 000
$76 000
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(10 min.) S2-11 Req. 1 Brenda Longval Travel Design Incorrect Trial Balance 30 April 2013 Balance ACCOUNT Cash Accounts receivable Office supplies Land Accounts payable Longval, capital Longval, drawings Service revenue Rent expense, computer Rent expense, office Salary expense Electricity and gas expense Total __________ *Incorrect; should be listed as a credit.
DEBIT $18 000 1 000 500 14 000
CREDIT
$ 400 30 600* 3 000 8 800 700 900 1 100 600 $70 400
$9 200
To correct this error, 1. Take the difference between total debits and total credits: $70 400 – $9 200 = $61 200 2. Divide the error by 2: $61 200 / 2 = $30 600 3. Locate $30 600 on the trial balance. The Longval, capital account should have a credit balance.
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(10 min.) S2-12 Req. 1 Francis Nangle Travel Design Incorrect Trial Balance 31 January 2013 Balance ACCOUNT Cash Accounts receivable Office supplies Land Accounts payable Nangle, capital Nangle, drawings Service revenue Rent expense, computer Rent expense, office Salary expense Electricity and gas expense Total
DEBIT $20 000 1 000 500 12 000
CREDIT
$
100 31 000
300* 8 700 700 1 200 1 200 200 $37 100
$39 800
*Incorrect; should be listed as $3 000. To correct this error, 1. Take the difference between total debits and total credits: $37 100 − $39 800 = $2 700 2. Divide the error by 9: $2 700 ÷ 9 = $300 3. Locate $300 on the trial balance. The Nangle, drawings account holds the error. Trace the Nangle, drawings balance back to the ledger account, which shows the correct amount, $3 000.
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Exercises (10 min.) E2-1 4
1
C R 2 D E B D I 3 T R
I
I
A C C O U N T
A
5
D
8
6
L E D G E R
B
B
7
A S S E T
L
A
J O U R N C A L
9
C R E D I T
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(10-15 min.) E2-2 4P 5P 2R
E
C
E
1D
E 3B I T
A
L
A
N
R O F I T C
S
T
V
A
E
S
B
L
H
E
6C
R
7E
X P E N S E
T
D
I
T
(10-15 min.) E2-3 Req. 1 ASSETS Debit $390 000
LIABILITIES Credit
+
OWNERS’ EQUITY Credit
=
$260 000
+
$130 000
– –
EXPENSES $350 000 Debit
= =
PROFIT (loss) $130 000 Credit
=
Req. 2 REVENUES $480 000 Credit
PROFIT represents a net credit because revenues (credits) exceed expenses (debits). LOSS would be a net debit because expenses (debits) would exceed revenues (credits).
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(10-15 min.) E2-4 Req. 1 Journal DATE Jul
2
5
10
12
19
21
27
ACCOUNTS AND EXPLANATIONS Electricity and gas expense Cash
DEBIT 400
400
Equipment Accounts payable
2 100
Accounts receivable Service revenue
2 000
Cash Note payable
7 000
2 100
2 000
7 000
Cash Land
29 000
Supplies Cash
800
Accounts payable Cash
CREDIT
29 000
800 2 100 2 100
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(20-30 min.) E2-5 Req. 1 May
1 2 4 6 9 17 23 31
Owners’ investment Purchased supplies on account (on credit) Paid cash for building Performed services for cash Payment on account Performed services on account Received payment on account Payment of expenses
Reqs. 2 and 3
May
1 6 23 May 31
May 2 May 31
May 9
Cash 110 75 000 May 4 2 600 9 1 900 31 24 100
Supplies 500 500
53 000 400 2 000
Accounts receivable May 17 2 500 May 23 May 31 600
130
Accounts payable 400 May 2 May 31
May 4 May 31
210 500 100
Building 53 000 53 000
120 1 900
140
Ward, capital May 1 May 31
310 75 000 75 000
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(continued) E2-5 Reqs. 2 and 3
May 31 May 31
Service revenue May 6 17 May 31
410
Salary expense 1 100 1 100
520
2 600 2 500 5 100
May 31 May 31
Rent expense 900 900
510
Req. 4 Ward Technology Solutions Trial Balance 31 May 2013 ACCOUNT Cash Accounts receivable Supplies Building Accounts payable Ward, capital Service revenue Rent expense Salary expense Total
DEBIT $24 100 600 500 53 000
CREDIT
$
900 1 100 $80 200
100 75 000 5 100
$80 200
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(20-30 min.) E2-6 Req. 1
Req. 2
Effect on Trial Balance
Account
Amount
Direction of Error
a.
Total debits > Total credits
Bill payable
$7 000
Too low
b.
Total debits > Total credits
Electricity and gas expense
810
Too high
c.
Total debits = Total credits
Furniture Accounts payable
800 800
Too high Too high
d.
Total debits > Total credits
Cash
1 080
Too high
e.
Total debits = Total credits
Supplies Accounts payable
90 90
Too low Too low
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(15-25 min.) E2-7 Reqs. 1 and 2
Jul
1 12 19 Jul 31
Cash 4 000 7 000 29 000 36 700
Jul 2 21 27
Jul 21 Jul 31
Supplies 800 800
Jul 1 Jul 31
Land 29 000 Jul 19 0
Bills payable Jul 12 Jul 31
Service revenue Jul 10 Jul 31
400 800 2,100
29 000
7 000 7 000
2 000 2 000
Jul 10 Jul 31
Accounts receivable 2 000 2 000
Jul 5 Jul 31
Equipment 2 100 2 100
Jul 27
Accounts payable 2 100 Jul 5 Jul 31
London, capital Jul 1 Jul 31
Electricity and gas expense Jul 2 400 Jul 31 400
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2 100 0
33 000 33 000
(continued) E2-7 Req. 3 London Engineering Trial Balance 31 July 2013 ACCOUNT Cash Accounts receivable Supplies Equipment Bills payable London, capital Service revenue Electricity and gas expense Total
DEBIT $36 700 2 000 800 2 100
CREDIT
$ 7 000 33 000 2 000 400 $42 000
$42 000
(10 min.) E2-8 Req. 1 Journal DATE ACCOUNTS AND EXPLANATIONS 1. Cash Adams, capital Owners’ investment.
POST. REF.
2. Supplies Accounts payable Purchased supplies on account.
DEBIT 53 000
53 000
700 700
3. Building Cash Paid cash for building.
40 000
4. Cash Bill payable Borrowed money; signed bill payable.
50 000
5. Equipment Cash Paid cash for equipment.
CREDIT
40 000
50 000
4 700 4 700
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(continued) E2-8 Req. 2 Adams’ Lawn Care Trial Balance 30 June 2013 ACCOUNT
DEBIT $ 58 300 700 4 700 40 000
Cash Supplies Equipment Building Accounts payable Bill payable Adams, capital Total
CREDIT
$
700 50 000 53 000 $103 700
$103 700
(10 min.) E2-9 Req. 1
Thomas Sell’s transaction: Journal
DATE
Req. 2
ACCOUNTS AND EXPLANATIONS Repair expense Cash Paid repair bill.
POST. REF.
DEBIT 573.41
CREDIT 573.41
Advanced Automotive’s transaction: Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST. REF.
Cash Service revenue Performed service and received cash.
DEBIT 573.41
CREDIT 573.41
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(20-25 min.) E2-10 Req. 2 Journal DATE ACCOUNTS AND EXPLANATIONS a. Cash Office furniture Parker, capital b.
c.
d.
e.
f.
g.
POST. REF.
Rent expense Cash
Office supplies Accounts payable
Salary expense Cash
Accounts payable Cash
DEBIT 14 100 5 200
CREDIT
19 300 1 500 1 500
900 900
1 700 1 700
700 700
Accounts receivable Service revenue
5 900
Parker, drawings Cash
6 700
5 900
6 700
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(continued) E2-10 Reqs. 1 and 2 ACCOUNT DATE a. b. d. e. g.
ACCOUNT DATE f.
ACCOUNT DATE c.
ACCOUNT DATE a.
Cash ITEM
JRNL. REF.
ACCOUNT NO. BALANCE DEBIT 14 100
CREDIT
DEBIT 14 100 12 600 10 900 10 200 3 500
1 500 1 700 700 6 700
Accounts receivable ITEM
JRNL. REF.
DEBIT 5 900
ACCOUNT NO. BALANCE CREDIT
Office supplies ITEM
JRNL. REF.
ITEM
DEBIT 5 900
CREDIT
ACCOUNT NO. BALANCE DEBIT 900
CREDIT
Office furniture JRNL. REF.
CREDIT
DEBIT 900
CREDIT
ACCOUNT NO. BALANCE DEBIT 5 200
CREDIT
DEBIT 5 200
CREDIT
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(continued) E2-10 Reqs. 1 and 2 ACCOUNT DATE c. e.
ACCOUNT DATE a.
ACCOUNT DATE g.
ACCOUNT DATE f.
Accounts payable ITEM
JRNL. REF.
ACCOUNT NO. BALANCE DEBIT
CREDIT 900
DEBIT
700
Parker, capital ITEM
JRNL. REF.
ACCOUNT NO. BALANCE DEBIT
CREDIT 19 300
Parker, drawings ITEM
JRNL. REF.
ITEM
DEBIT
CREDIT 19 300
ACCOUNT NO. BALANCE DEBIT 6 700
CREDIT
Service revenue JRNL. REF.
CREDIT 900 200
DEBIT 6 700
CREDIT
ACCOUNT NO. BALANCE DEBIT
CREDIT 5 900
DEBIT
CREDIT 5 900
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(continued) E2-10 Reqs. 1 and 2 ACCOUNT DATE d.
ACCOUNT DATE b.
Salary expense ITEM
JRNL. REF.
ACCOUNT NO. BALANCE DEBIT 1 700
CREDIT
Rent expense ITEM
JRNL. REF.
DEBIT 1 700
CREDIT
ACCOUNT NO. BALANCE DEBIT 1 500
CREDIT
DEBIT 1 500
CREDIT
Req. 3 Teresa Parker, Accountant Trial Balance 30 June 2013 ACCOUNT Cash Accounts receivable Office supplies Office furniture Accounts payable Parker, capital Parker, drawings Service revenue Salary expense Rent expense Total
DEBIT $ 3 500 5 900 900 5 200
CREDIT
$
200 19 300
6 700 5 900 1 700 1 500 $25 400
$25 400
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(10-20 min.) E2-11 Req. 1 Journal DATE ACCOUNTS AND EXPLANATIONS Aug 1 Cash Principe, capital Owner investment
POST. REF.
2 Supplies Accounts payable Purchased supplies on account. 4 Building Cash Paid cash for a building. 6 Cash Service revenue Performed service for cash. 9 Accounts payable Cash Paid cash on account.
DEBIT 48 000
CREDIT 48 000
500 500
47 000 47 000
4 400 4 400
200 200
17 Accounts receivable Service revenue Performed service on account.
2 200
23 Cash Accounts receivable Received cash on account.
1 600
31 Salary expense Rent expense Cash Paid expenses.
1 900 700
2 200
1 600
2 600
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(15-20 min.) E2-12 Req. 1
Aug
1 6 23 Aug 31
Aug 2 Aug 31
Aug 9
Cash 48 000 Aug 4 4 400 9 1 600 31 4 200
Supplies 500 500
Accounts payable 200 Aug 2 Aug 31
Service revenue Aug 6 17 Aug 31
Aug 31 Aug 31
47 000 200 2 600
Aug 17 Aug 31
Aug 4 Aug 31
Aug 31 Aug 31
1 600
Building 47 000 47 000
Principe, capital Aug 1 Aug 31
500 300
4 400 2 200 6 600
Accounts receivable 2 200 Aug 23 600
48 000 48 000
Salary expense 1 900 1 900
Rent expense 700 700
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(continued) E2-12 Req. 2 Principe Technology Solutions Trial Balance 31 August 2013 ACCOUNT
DEBIT $4 200 600 500 47 000
Cash Accounts receivable Supplies Building Accounts payable Principe, capital Service revenue Salary expense Rent expense Total
CREDIT
$ 300 48 000 6 600 1 900 700 $54 900
$54 900
(10 min.) E2-13 Req. 1 Atkins Moving Trial Balance 30 June 2013 ACCOUNT Cash Accounts receivable Supplies Trucks Building Accounts payable Bill payable Atkins, capital Atkins, drawings Service revenue Salary expense Fuel expense Insurance expense Electricity and gas expense Supplies expense Total
DEBIT $ 4 000 8 800 300 132 000 48 000
CREDIT
$ 4 000 54 000 72 000 5 400 80 000 7 000 3 000 600 500 400 $210 000
$210 000
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(15-20 min.) E2-14 Req. 1 Joy McDowell Tutoring Service Trial Balance 31 May 2013 ACCOUNT Cash Accounts receivable Supplies Computer equipment Accounts payable McDowell, capital Service revenue Salary expense Rent expense Electricity and gas expense Total __________ *Calculations: Cash: Accounts receivable: Accounts payable: McDowell, capital: Electricity and gas expense:
DEBIT $ 3 500* 1 500* 600 25 800
CREDIT
$12 700* 12 200* 9 800 1 700 700 900* $34 700
$34 700
$3 000 + $500 = $3 500 $2 000 – $500 = $1 500 $11 400 + $900 + $400 = $12 700 $11 600 + $600 = $12 200 $500 + $400 = $900
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Problems (10-15 min.) P2-1 Req. 1
Req. 2 Account
Cash Supplies Building Accounts payable Bills payable Cowra, capital Cowra, drawings Service revenue Salary expense Rent expense Rates expense
Account Type Asset Asset Asset Liability Liability Equity Equity Revenue Expense Expense Expense
Normal Balance Debit Debit Debit Credit Credit Credit Debit Credit Debit Debit Debit
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(40-50 min.) P2-2 Req. 1 Journal DATE ACCOUNTS AND EXPLANATIONS Sep 1 Cash Cowra, capital
POST. REF.
DEBIT 370 000
370 000
2 Building Cash
360 000
5 Cash Bill payable
260 000
360 000
260 000
10 Supplies Accounts payable
1 400
15 Accounts payable Cash
1 200
15 Rates expense Cash
1 500
16 Salary expense Rent expense Cash
2 500 1 400
28 Cowra, drawing Cash
7 000
30 Cash Service revenue
CREDIT
1 400
1 200
1 500
3 900
7 000 21 000 21 000
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(continued) P2-2 Req. 2
Sep 1 5 30
Bal
Sep 10 Bal
Sep 2 Bal
Cash 370 000 Sep 2 260 000 15 21 000 15 16 28 277 400
360 000 1 200 1 500 3 900 7 000
Sep 15
Accounts payable 1 200 Sep 10 Bal
Bills Payable Sep 5 Bal
Supplies 1 400 1 400
Cowra, drawing 7 000 7 000
Sep 15 Bal
Rates expense 1 500 1 500
260 000 260 000
Cowra, capital Sep 1 370 000 Bal 370 000
Building 360 000 360 000
Sep 28 Bal
1 400 200
Service revenue Sep 30 Bal
Sep 6 Bal
Salary expense 2 500 2 500
Sep 16 Bal
Rent expense 1 400 1 400
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21 000 21 000
(45-60 min.) P2-3 Req. 1 Journal DATE Jul
ACCOUNTS AND EXPLANATIONS 1 Cash
POST. REF.
DEBIT 68 000
CREDIT
Yung, capital
5 Rent expense—equipment
68 000
560
Cash 9 Land Cash 10 Supplies Accounts payable 19 Cash Bill payable
560 16 000 16 000 1 600 1 600 23 000 23 000
22 Accounts payable Cash
1 300
31 Cash Accounts receivable Service revenue
6 500 5 800
31 Salary expense Rent expense—office Electricity and gas expense Cash
2 500 1 100 400
31 Yung, drawings Cash
7 000
1 300
12 300
4 000
7 000
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(continued) P2-3 Req. 2
Bal
Cash 68 000 Jul 5 23 000 9 6 500 22 31 31 68 640
Jul 9 Bal
Land 16 000 16 000
Jul
1 19 31
Bills payable Jul 19 Bal
Jul 31 Bal
Jul 31 Bal
Jul 10 Bal
Supplies 1 600 1 600
Jul 22
23 000 23 000
Yung, drawings 7 000 7 000
Rent expense—equipment Jul 5 560 Bal 560
Jul 31 Bal
560 16 000 1 300 4 000 7 000
Accounts receivable 5 800 5 800
Salary expense 2 500 2 500
Jul 31 Bal
Accounts payable 1 300 July 10 Bal
1 600 300
Yung, capital Jul 1 Bal
68 000 68 000
Service revenue Jul 31 Bal
12 300 12 300
Rent expense—office 1 100 1 100
Electricity and gas expense Jul 31 400 Bal 400
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(continued) P2-3 Req. 3 Vernon Yung, GP Trial Balance 31 July 2013 ACCOUNT Cash Accounts receivable Supplies Land Accounts payable Bill payable Yung, capital Yung, drawings Service revenue Salary expense Rent expense—office Rent expense—equipment Electricity and gas expense Total
DEBIT $ 68 640 5 800 1 600 16 000
CREDIT
$
300 23 000 68 000
7 000 12 300 2 500 1 100 560 400 $103 600
$103 600
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(45-60 min.) P2-4 Req. 2 Journal DATE Sep 1
4
6
7
10
14
15
17
20
28
ACCOUNTS AND EXPLANATIONS Cash Stewart, capital
POST. REF.
DEBIT 42 000
42 000
Supplies Furniture Accounts payable
700 1 900
Cash Service revenue
1 400
Land Cash
2 600
1 400 24 000 24 000
Accounts receivable Service revenue
1 000
Accounts payable Cash
1 900
1 000
1 900
Salary expense Cash
490
Cash Accounts receivable
400
Accounts receivable Service revenue
700
Cash Service revenue
CREDIT
490
400
700 2 100 2 100
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(continued) P2-4 30
30
30
Salary expense Cash
490
Rent expense Cash
650
490
650
Stewart, drawings Cash
3 000 3 000
Reqs. 1 and 3
Sep 1 6 17 28
Bal
Sep 4 Bal
Sep 14
Cash 42 000 Sep. 1 400 400 2 100
7 14 15 30 30 30
24 000 1 900 490 490 650 3 000
15 370 Furniture 1 900 1 900 Accounts payable 1 900 Sep 4 Bal
Sep 10 Sep 20 Bal
Accounts receivable 1 000 Sep. 17 700 1 300
Sep 4 Bal
Supplies 700 700
Sep 7 Bal
2 600 700
400
Land 24 000 24 000 Stewart, capital Sep 1 Bal
42 000 42 000
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(continued) P2-4 Reqs. 1 and 3
Sep 30 Bal
Stewart, drawings 3 000 3 000
Service revenue Sep 6 10 20 28 Bal
Sep 15 30 Bal
Salary expense 490 490 980
Rent expense 650 650
Sep 30 Bal
1 400 1 000 700 2 100 5 200
Req. 4 Doris Stewart, Designer Trial Balance 30 September 2013 ACCOUNT Cash Accounts receivable Supplies Furniture Land Accounts payable Stewart, capital Stewart, drawings Service revenue Salary expense Rent expense Total
DEBIT $ 15 370 1 300 700 1 900 24 000
CREDIT
$
700 42 000
3 000 5 200 980 650 $47 900
$47 900
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(45-60 min.) P2-5 Req. 2 DATE Sep 2
3
4
7
11
15
16
18
19
29
30
30
30
Journal ACCOUNTS AND EXPLANATIONS Cash Moore, capital
POST. REF.
DEBIT 39 000
CREDIT 39 000
Supplies Furniture Accounts payable
600 2 000
Cash Service revenue
1 300
Land Cash
2 600
1 300 26 000 26 000
Accounts receivable Service revenue
700
Salary expense Cash
590
Accounts payable Cash
600
Cash Service revenue
700
590
600 2 400 2 400
Accounts receivable Service revenue
800
Cash Accounts receivable
700
Salary expense Cash
590
Rent expense Cash
670
Moore, drawings Cash
800
700
590
670 2 400 2 400
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(continued) P2-5 Reqs. 1 and 3
Sep 2 4 18 29
Bal
Sep 3 Bal
Cash 39 000 Sep 7 1 300 15 2 400 16 700 30 30 30 12 550
26 000 590 600 590 670 2 400
Furniture 2 000 2 000
Supplies 600 600
Sep 3 Bal
Sep 7 Bal
700
Land 26 000 26 000 Moore, capital Sep 2 Bal
39 000 39 000
Sep 30 Bal
Moore, drawings 2 400 2 400
Service revenue Sep 4 11 18 19 Bal
1 300 700 2 400 800 5 200
Sep 15 30 Bal
Salary expense 590 590 1 180
Rent expense 670 670
Sep 16
Accounts payable 600 Sep 3 Bal
Sep 11 19 Bal
Accounts receivable 700 Sep 29 800 800
2 600 2 000
Sep 30 Bal
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(continued) P2-5 Req. 4 Trevor Moore, Solicitor Trial Balance 30 September 2013 ACCOUNT Cash Accounts receivable Supplies Furniture Land Accounts payable Moore, capital Moore, drawings Service revenue Salary expense Rent expense Total
DEBIT $ 12 550 800 600 2 000 26 000
CREDIT
$
2 000 39 000
2 400 5 200 1 180 670 $46 200
$46 200
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(45-60 min.) P2-6 Req. 1 Journal DATE Feb 4
8
13
18
20
ACCOUNTS AND EXPLANATIONS Cash Accounts receivable Received cash on account.
POST. REF. 11 12
DEBIT 4 000
4 000
Accounts receivable Service revenue Performed services on account.
12 41
4 600
Accounts payable Cash Paid on account.
21 11
2 400
Supplies Accounts payable Purchased supplies on account.
13 21
900
Mitchell, drawings Cash Owner drawings
32 11
2 200
4 600
2 400
900
2 200
21
Paid for deck for residence; not a transaction of the business.
22
Cash Service revenue Performed service for cash.
11 41
2 300
Rent expense Cash Paid rent.
52 11
500
Salary expense Cash Paid employee salary.
51 11
1 600
27
29
CREDIT
2 300
500
1 600
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(continued) P2-6 Req. 2 ACCOUNT
Cash
DATE ITEM Jan 31 Bal Feb 4 13 20 22 27 29
JRNL. REF.
DEBIT
CREDIT
4 000 2 400 2 200 2 300 500 1 600
ACCOUNT
Accounts receivable JRNL. DATE ITEM REF. Jan 31 Bal Feb 4 8
ACCOUNT
DEBIT
CREDIT 4 000
4 600
Supplies
DATE ITEM Jan 31 Bal Feb 18
JRNL. REF.
DEBIT
CREDIT
900
ACCOUNT NO. 11 BALANCE DEBIT CREDIT 7 000 11 000 8 600 6 400 8 700 8 200 6 600
ACCOUNT NO. 12 BALANCE DEBIT CREDIT 10 500 6 500 11 100
ACCOUNT NO. 13 BALANCE DEBIT CREDIT 600 1 500
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(continued) P2-6 Req. 2 ACCOUNT
Land
DATE ITEM Jan 31 Bal
JRNL. REF.
Accounts payable JRNL. DATE ITEM REF. Jan 31 Bal Feb 13 18
DEBIT
CREDIT
ACCOUNT
Mitchell, capital JRNL. DATE ITEM REF. Jan 31 Bal
DEBIT
CREDIT
2 400 900
ACCOUNT
ACCOUNT DATE Feb 20
Mitchell, drawings JRNL. ITEM REF.
DEBIT
DEBIT 2 200
CREDIT
CREDIT
ACCOUNT NO. 14 BALANCE DEBIT CREDIT 17 000
ACCOUNT NO. 21 BALANCE DEBIT CREDIT 4 700 2 300 3 200
ACCOUNT NO. 31 BALANCE DEBIT CREDIT 30 400
ACCOUNT NO. 32 BALANCE DEBIT CREDIT 2 200
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(continued) P2-6 Req. 2 ACCOUNT DATE Feb 8 22
ACCOUNT DATE Feb 29
ACCOUNT DATE Feb 27
Service revenue JRNL. ITEM REF.
Salary expense JRNL. ITEM REF.
DEBIT
DEBIT 1 600
ACCOUNT NO. 41 BALANCE DEBIT CREDIT 4 600 6 900
CREDIT 4 600 2 300
ACCOUNT NO. 51 BALANCE DEBIT CREDIT 1 600
CREDIT
Rent expense ITEM
JRNL. REF.
DEBIT 500
ACCOUNT NO. 52 BALANCE DEBIT CREDIT 500
CREDIT
(continued) P2-6 Req. 3 Sam Mitchell, Accountant Trial Balance 28 February 2013 ACCT. NO. 11 12 13 14 21 31 32 41 51 52
ACCOUNT Cash Accounts receivable Supplies Land Accounts payable Mitchell, capital Mitchell, drawings Service revenue Salary expense Rent expense Total
DEBIT $ 6 600 11 100 1 500 17 000
CREDIT
$ 3 200 30 400 2 200 6 900 1 600 500 $ 40 500
$ 40 500
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(45-60 min.) P2-7 Req. 1 Journal DATE Jul
4
7
16
19
20
24
25
31
ACCOUNTS AND EXPLANATIONS Cash Accounts receivable Received cash on account.
POST. REF.
DEBIT 6 000
6 000
Accounts receivable Service revenue Performed services on account.
6 600
Supplies Accounts payable Purchased supplies on account.
1 000
Silver, drawings Cash Owner drawings
2 300
Accounts payable Cash Paid on account.
2 500
Cash Service revenue Performed service for cash.
2 200
Rent expense Cash Paid rent. Salary expense Cash Paid employee salary.
CREDIT
6 600
1 000
2 300
2 500
2 200
500 500
1 700 1 700
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(continued) P2-7 Req. 2 ACCOUNT
Cash
DATE ITEM Jun 30 Bal Jul 4 19 20 24 25 31
JRNL. REF.
DEBIT
CREDIT
6 000 2 300 2 500 2 200 500 1 700
ACCOUNT
Accounts receivable JRNL. DATE ITEM REF. Jun 30 Bal Jul 4 7
ACCOUNT
DEBIT
CREDIT 6 000
6 600
Supplies
DATE ITEM Jun 30 Bal Jul 16
JRNL. REF.
DEBIT
CREDIT
1 000
ACCOUNT NO. 11 BALANCE DEBIT CREDIT 7 000 13 000 10 700 8 200 10 400 9 900 8 200
ACCOUNT NO. 12 BALANCE DEBIT CREDIT 8 500 2 500 9 100
ACCOUNT NO. 13 BALANCE DEBIT CREDIT 800 1 800
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(continued) P2-7 Req. 2 ACCOUNT
Equipment
DATE ITEM Jun 30 Bal
JRNL. REF.
Accounts payable JRNL. DATE ITEM REF. Jun 30 Bal Jul 16 20
DEBIT
CREDIT
ACCOUNT
ACCOUNT
DATE Jul
19
CREDIT 1 000
2 500
Silver, capital
DATE ITEM Jun 30 Bal
ACCOUNT
DEBIT
JRNL. REF.
Silver, drawings JRNL. ITEM REF.
DEBIT
DEBIT 2 300
CREDIT
CREDIT
ACCOUNT NO. 14 BALANCE DEBIT CREDIT 13 000
ACCOUNT NO. 21 BALANCE DEBIT CREDIT 4 800 5 800 3 300
ACCOUNT NO. 31 BALANCE DEBIT CREDIT 24 500
ACCOUNT NO. 32 BALANCE DEBIT CREDIT 2 300
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(continued) P2-7 Req. 2 ACCOUNT DATE Jul
Service revenue JRNL. ITEM REF.
DEBIT
7 24
ACCOUNT DATE Jul
Salary expense JRNL. ITEM REF.
31
ACCOUNT DATE Jul
DEBIT 1 700
ACCOUNT NO. 41 BALANCE DEBIT CREDIT 6 600 8 800
CREDIT 6 600 2 200
ACCOUNT NO. 51 BALANCE DEBIT CREDIT 1 700
CREDIT
Rent expense ITEM
JRNL. REF.
25
DEBIT 500
ACCOUNT NO. 52 BALANCE DEBIT CREDIT 500
CREDIT
Req. 3 Sharon Silver, Dietician Trial Balance 31 July 2013 ACCT. NO. 11 12 13 14 21 31 32 41 51 52
ACCOUNT Cash Accounts receivable Supplies Equipment Accounts payable Silver, capital Silver, drawings Service revenue Salary expense Rent expense Total
DEBIT $ 8 200 9 100 1 800 13 000
CREDIT
$ 3 300 24 500 2 300 8 800 1 700 500 $36 600
$36 600
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(45-60 min.) P2-8 Req. 2 Journal DATE a.
b.
c.
d.
e.
f.
g.
ACCOUNTS AND EXPLANATIONS
POST. REF.
Cash Building Wills, capital Owner investment. Office supplies Accounts payable Purchased supplies on account. Office furniture Cash Purchased furniture.
DEBIT 48 000 30 000
CREDIT
78 000
2 000 2 000
14 000 14 000
Salary expense Cash Paid salary.
2 200
Accounts receivable Service revenue Performed service on account.
3 700
2 200
3 700
Accounts payable Cash Paid on account.
900
Advertising expense Accounts payable Received advertising bill.
600
900
600
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(continued) P2-8 Req. 2 Journal DATE h.
i.
j.
k.
POST. REF.
ACCOUNTS AND EXPLANATIONS Cash Service revenue Performed service and received cash.
DEBIT 1 100
CREDIT 1 100
Cash Accounts receivable Collected cash on account.
1 100
Rent expense Electricity and gas expense Cash Paid expenses.
1 000 900
Wills, drawings Cash Owner withdrawal
2 300
1 100
1 900
2 300
Reqs. 1 and 3 ACCOUNT DATE a. c. d. f. h. i. j. k.
Cash ITEM
JRNL. REF.
ACCOUNT NO. BALANCE DEBIT 48 000
CREDIT 14 000 2 200 900
1 100 1 100 1 900 2 300
DEBIT 48 000 34 000 31 800 30 900 32 000 33 100 31 200 28 900
CREDIT
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(continued) P2-8 Reqs. 1 and 3 ACCOUNT DATE e. i.
ACCOUNT DATE b.
ACCOUNT DATE c.
ACCOUNT DATE a.
ACCOUNT DATE b. f. g.
ACCOUNT DATE a.
Accounts receivable ITEM
JRNL. REF.
ACCOUNT NO. BALANCE
DEBIT 3 700
CREDIT
DEBIT 3 700 2 600
1 100
Office supplies ITEM
JRNL. REF.
ACCOUNT NO. BALANCE DEBIT 2 000
CREDIT
Office furniture ITEM
JRNL. REF.
JRNL. REF.
DEBIT 14 000
CREDIT
ITEM
DEBIT 14 000
DEBIT 30 000
CREDIT
DEBIT 30 000
DEBIT
CREDIT 2 000
DEBIT
600
Wills, capital JRNL. REF.
CREDIT
CREDIT
ACCOUNT NO. BALANCE
900
ITEM
CREDIT
ACCOUNT NO. BALANCE
Accounts payable JRNL. REF.
DEBIT 2 000
ACCOUNT NO. BALANCE
Building ITEM
CREDIT
CREDIT 2 000 1 100 1 700
ACCOUNT NO. BALANCE DEBIT
CREDIT 78 000
DEBIT
CREDIT 78 000
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(continued) P2-8 Reqs. 1 and 3 ACCOUNT DATE k.
ACCOUNT DATE e. h.
ACCOUNT DATE d.
ACCOUNT DATE j.
ACCOUNT DATE g.
ACCOUNT DATE j.
Wills, drawings ITEM
JRNL. REF.
ACCOUNT NO. BALANCE DEBIT 2 300
CREDIT
Service revenue ITEM
JRNL. REF.
ITEM
DEBIT
CREDIT 3 700 1 100
JRNL. REF.
DEBIT 2 200
CREDIT
JRNL. REF.
DEBIT 1 000
JRNL. REF.
DEBIT 2 200
CREDIT
CREDIT
DEBIT 600
DEBIT 900
DEBIT 1 000
CREDIT
ACCOUNT NO. BALANCE CREDIT
Electricity and gas expense ITEM
CREDIT 3 700 4 800
ACCOUNT NO. BALANCE
Advertising expense ITEM
DEBIT
ACCOUNT NO. BALANCE
Rent expense ITEM
CREDIT
ACCOUNT NO. BALANCE
Salary expense JRNL. REF.
DEBIT 2 300
DEBIT 600
CREDIT
ACCOUNT NO. BALANCE CREDIT
DEBIT 900
CREDIT
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(continued) P2-8 Req. 4 Wills Environmental Consulting Trial Balance 28 February 2013 ACCOUNT Cash Accounts receivable Supplies Furniture Building Accounts payable Wills, capital Wills, drawings Service revenue Salary expense Rent expense Advertising expense Electricity and gas expense Total
DEBIT $ 28 900 2 600 2 000 14 000 30 000
CREDIT
$ 1 700 78 000 2 300 4 800 2 200 1 000 600 900 $84 500
$84 500
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(15-25 min.) P2-9 Req. 1 Smart Tots Child Care Trial Balance 31 August 2013 ACCOUNT Cash Accounts receivable Supplies Equipment Accounts payable Tilley, capital Tilley, drawings Service revenue Salary expense Rent expense Total *Calculations: a. Cash: b. Accounts receivable: c. Supplies: Accounts payable: d. Equipment: e. Salary expense:
DEBIT $ 7 700* 15 000* 1 700* 78 500*
CREDIT
$ 54 000* 50 500 2 400 4 700 3 400* 500 $109 200
$109 200
$6 700 + $1 000 = $7 700 $7 000 + $4 000 + $4 000 = $15 000 $700 + $1 000 = $1 700 $53 000 + $1 000 = $54 000 $87 000 – $8 500 = $78 500 $3 600 – $200 = $3 400
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(15-25 min.) P2-10 Req. 1 Treasure Hunt Exploration Trial Balance 30 June 2013 ACCOUNT Cash Accounts receivable Supplies Exploration equipment Computers Accounts payable Bill payable Jones, capital Jones, drawing Service revenue Salary expense Rent expense Advertising expense Electricity and gas expense Total
DEBIT $ 1 300* 6 360* 1 300* 16 490* 49 000
CREDIT
$ 3 700* 18 500 50 000 4 000 10 900* 1 400 1 480* 900 870* $83 100
$83 100
*Calculations: a. Cash: $6 300 – $5 000 = $1 300 b. Rent expense: $800 + $340 + $340 = $1 480 c. Service revenue: $4 100 + $6 800 = $10 900 d. Accounts receivable: $6 000 + (400 – 40 = $360) = $6 360 e. Electricity and gas expense: $800 + $70 = $870 f. Supplies: $400 + $900 = $1 300 Accounts payable: $2 800 + $900 = $3 700 g. Exploration equipment: $22 300 – $5 810 = $16 490
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(20-30 min.) P2-11 Req. 1 Showtime Amusements Income Statement Month Ended 30 September 2013 Revenue: Service revenue Expenses: Salary expense Rates expense Rent expense Total expenses Profit
$21 000 $2 500 1 500 1 400 5 400 $15 600
Req. 2 Showtime Amusements Statement of Changes in Equity Month Ended 30 September 2013 Cougliato, capital, 1 September 2013 Owner investment Profit Drawings Cougliato, capital, 30 September 2013
$ 0 370 000 15 600 385 600 (7 000) $378 600
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(continued) P2-11 Req. 3 Showtime Amusements Balance Sheet 30 September 2013 ASSETS Cash Supplies Building
Total assets
$277 400 1 400 360 000
_______ $638 800
LIABILITIES Accounts payable Bill payable Total liabilities OWNERS’ EQUITY Cowra, capital Total liabilities and Owners’ equity
$ 200 260 000 260 200 378 600 $638 800
(20-30 min.) P2-12 Req. 1 Vernon Yung, GP Income Statement Month Ended 31 July 2013 Revenue: Service revenue Expenses: Salary expense Rent expense—office Rent expense—equipment Electricity and gas expense Total expenses Profit
$12 300 $2 500 1 100 560 400 4 560 $7 740
Req. 2 Vernon Yung, GP Statement of Changes in Equity Month Ended 31 July 2013 Yung, capital, 1 July 2013 Owner investment Profit
$
0 68 000 7 740 75 740
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Drawings Yung, capital, 31 July 2013
(7 000) $68 740
(continued) P2-12 Req. 3 Vernon Yung, GP Balance Sheet 31 July 2013 ASSETS Cash Accounts receivable Supplies Land
Total assets
$ 68 640 5 800 1 600 16 000 _______ $ 92 040
LIABILITIES Accounts payable Bill payable Total liabilities OWNERS’ EQUITY Yung, capital Total liabilities and Owners’ equity
$ 300 23 000 23 300 68 740 $ 92 040
(20-30 min.) P2-13 Req. 1 Doris Stewart, Designer Income Statement Month Ended 30 September 2013 Revenue: Service revenue Expenses: Salary expense Rent expense Total expenses Profit
$ 5 200 $ 980 650 1 630 $3 570
Req. 2 Doris Stewart, Designer Statement of Changes in Equity Month Ended 30 September 2013 Stewart, capital, 30 September 2012
$
0
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Owner investment Profit
42 000 3 570 45 570 (3 000) $42 570
Drawings Stewart, capital, 30 September 2013
(continued) P2-13 Req. 3 Doris Stewart, Designer Balance Sheet 30 September 2013 ASSETS Cash Accounts receivable Supplies Furniture Land Total assets
$ 15 370 1 300 700 1 900 24 000 _______ $ 43 270
LIABILITIES Accounts payable
$
700
OWNERS’ EQUITY Stewart, capital Total liabilities and Owners’ equity
42 570 $43 270
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(20-30 min.) P2-14 Req. 1 Trevor Moore, Solicitor Income Statement Month Ended 30 September 2013 Revenue: Service revenue Expenses: Salary expense Rent expense Total expenses Profit
$ 5 200 $1 180 670 1 850 $ 3 350
Req. 2 Trevor Moore, Solicitor Statement of Changes in Equity Month Ended 30 September 2013 Moore, capital, 1 September 2013 Owner investment Profit Drawings Moore, capital, 30 September 2013
$ 0 39 000 3 350 42 350 (2 400) $39 950
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(continued) P2-14 Req. 3 Trevor Moore, Solicitor Balance Sheet 30 September 2013 ASSETS Cash Accounts receivable Supplies Furniture Land Total assets
$ 12 550
LIABILITIES Accounts payable
800 600 2 000 26 000 _______ $ 41 950
$ 2 000
OWNERS’ EQUITY Moore, capital Total liabilities and Owners’ equity
39 950 $ 41 950
(20-30 min.) P2-15 Req. 1 Sam Mitchell, Accountant Income Statement Month Ended 28 February 2013 Revenue: Service revenue Expenses: Salary expense Rent expense Total expenses Profit
$ 6 900 $1 600 500 2 100 $ 4 800
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(continued) P2-15 Req. 2 Sam Mitchell, Accountant Statement of Changes in Equity Month Ended 28 February 2013 Mitchell, capital, 1 February 2013 Owner investment Profit
$
0 30 400 4 800 35 200 (2 200) $ 33 000
Drawings Mitchell, capital, 28 February 2013
Req. 3 Sam Mitchell, Accountant Balance Sheet 28 February 2013 ASSETS Cash Accounts receivable Supplies Land
Total assets
$ 6 600 11 100 1 500 17 000 _______ $ 36 200
LIABILITIES Accounts payable
$ 3 200
OWNERS’ EQUITY Mitchell, capital Total liabilities and Owners’ equity
33 000 $ 36 200
(20-30 min.) P2-16 Req. 1 Sharon Silver, Dietician Income Statement Month Ended 31 July 2013 Revenue: Service revenue Expenses: Salary expense Rent expense Total expenses Profit
$ 8 800 $1 700 500 2 200 $ 6 600
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Req. 2 Sharon Silver, Dietician Statement of Changes in Equity Month Ended 31 July 2013 Silver, capital, 1 July 2013 Owner investment Profit
$ 0 24 500 6 600 31 100 (2 300) $28 800
Drawings Silver, capital, 31 July 2013
Req. 3 Sharon Silver, Dietician Balance Sheet 31 July 2013 ASSETS Cash Accounts receivable Supplies Equipment Total assets
LIABILITIES $ 8 200 Accounts payable 9 100 1 800 OWNERS’ EQUITY 13 000 Silver, capital Total liabilities and Owners’ equity $ 32 100
$ 3 300
28 800 $ 32 100
(20-30 min.) P 2-17 Req. 1 Wills Environmental Consulting Income Statement Month Ended 28 February 2013 Revenue: Service revenue Expenses: Salary expense Rent expense Electricity and gas expense Advertising expense Total expenses Profit
$ 4 800 $ 2 200 1 000 900 _600 4 700 $ 100
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(continued) P2-17 Req. 2 Wills Environmental Consulting Statement of Changes in Equity Month Ended 28 February 2013 Wills, capital, 1 February 2013 Owner investment Profit Drawings Wills, capital, 28 February 2013
$
0 78 000 100 78 100 (2 300) $ 75 800
Req. 3 Wills Environmental Consulting Balance Sheet 28 February 2013 ASSETS Cash Accounts receivable Office supplies Office furniture Building Total assets
LIABILITIES $28 900 Accounts payable 2 600 2 000 OWNERS’ EQUITY 14 000 30 000 Wills, capital Total liabilities and $77 500 Owners’ equity
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63
$ 1 700
75 800 $ 77 500
Continuing Exercise (30-45 min.) E2-15 Req. 2 Journal DATE May 1
3
5
6
8
17
31
ACCOUNTS AND EXPLANATIONS Cash Lawlor, capital
POST. REF.
Equipment Accounts payable Fuel expense Cash
DEBIT 1 700
CREDIT 1 700
1 440 1 440 30 30
Accounts receivable Service revenue
150
Lawn supplies Cash
150
Cash Service revenue
800
Cash Accounts receivable
100
150
150
800
100
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(continued) E2-15 Reqs. 1 and 3
May 1 17 31 Bal
May 3 Bal
Cash 1 700 May 5 800 8 100 2 420
30 150
May 6 Bal
Accounts receivable 150 May 31 50
May 8 Bal
Lawn supplies 150 150
100
Equipment 1 440 1 440 Accounts payable May 3 Bal Service revenue May 6 17 Bal
Lawlor, capital May 1 Bal
1 440 1 440
150 800 950
May 5 Bal
1 700 1 700
Fuel expense 30 30
Req. 4 Lawlor Lawn Service Trial Balance May 31 2012 ACCOUNT Cash Accounts receivable Lawn supplies Equipment Accounts payable Lawlor, capital Service revenue Fuel expense Total
DEBIT $ 2 420 50 150 1 440
CREDIT
$1 440 1 700 950 30 $ 4 090
$4 090
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65
Continuing Problem (40-50 min.) P2-18 Req. 2 Journal DATE ACCOUNTS AND EXPLANATIONS Dec 2 Cash Draper, capital
POST. REF.
2 Rent expense Cash
DEBIT 18 000
18 000 550 550
3 Equipment Cash
1 800
4 Furniture Accounts payable
4 200
5 Supplies Accounts payable
900
9 Accounts receivable Service revenue
1 500
12 Electricity and gas expense Cash 18 Cash Service revenue
CREDIT
1 800
4 200
900
1 500 250 250 1 100 1 100
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(continued) P2-18 Reqs. 1 and 3
Dec 2 18 Bal
Cash 18 000 Dec 2 1 100 3 12 16 500
Dec 5 Bal
Supplies 900 900
Dec 4 Bal
Furniture 4 200 4 200
Draper, capital Dec 2 Bal Service revenue Dec 9 18 Bal
550 1 800 250
Dec 9 Bal
Accounts receivable 1 500 1 500
Dec 3 Bal
Equipment 1 800 1 800 Accounts payable Dec 4 5 Bal
18 000 18 000
1 500 1 100 2 600
Electricity and gas expense Dec 12 250 Bal 250
Dec 2 Bal
Rent expense 550 550
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67
4 200 900 5 100
(continued) P2-18 Req. 4 Draper Consulting Trial Balance 18 December 2012 ACCOUNT Cash Accounts receivable Supplies Equipment Furniture Accounts payable Draper, capital Service revenue Rent expense Electricity and gas expense Total
DEBIT $16 500 1 500 900 1 800 4 200
CREDIT
$ 5 100 18 000 2 600 550 250 $25 700
$25 700
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68
Apply Your Knowledge Decision Cases Decision Case 2-1 Reqs. 1 and 2
(a) (f) Bal
Cash 10 000 (b) 1 200 (d) 8 400
Accounts payable (c)
Service revenue (e)
(d)
Rent expense 1 100
300 2 500
(e) Bal
Accounts receivable 8 800 (f) 7 600
(b) Bal
Supplies 300 300
Shee Boon capital (a)
700
8 800
(d)
(c)
Salary expense 1 400
Advertising expense 700
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69
1 200
10 000
(continued) Decision Case 2-1 Req. 3 Travel Planners Trial Balance 30 June 2014 ACCOUNT Cash Accounts receivable Supplies Accounts payable Shee Boon, capital Service revenue Salary expense Rent expense Advertising expense Total
DEBIT $ 8 400 7 600 300
CREDIT
$
1 400 1 100 700 $19 500
700 10 000 8 800
$19 500
Req. 4 Travel Planners Revenues: Service revenue Expenses: Salary expense Rent expense Advertising expense Total expenses Profit for month
Recommendation:
$8 800 $1 400 1 100 700 3 200 $5 600
Discontinue the business, because profit falls below the target amount.
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Decision Case 2-2 Req. 1 Double-entry bookkeeping has the advantage that it records both sides (the ‘giving’ side and the ‘receiving’ side) of a business transaction in the precise language of accounting, i.e. ‘debits’ and ‘credits’. This allows for the exact description of balances in all accounts, and helps ensure that the entire system is always in balance. Req. 2 The bank is not misusing the term credit. From the perspective of the bank’s ledger, when you deposit money in the bank, the bank debits Cash (received from you) and credits a payable (payable to you on demand). It is this payable, a liability account, that is the source of the term credit. This is why a bank credit is good for the depositor. It means you have more money in the bank.
Focus on Ethics Listing Dingo Downs on the ASX will mean greater public accountability and, in particular, greater levels of disclosure of financial and other information about the firm. It also requires attention to what is good corporate governance. Listing on the ASX provides the benefit of greater access to potentially cheaper sources of long-term equity finance compared to debt finance. However, there are considerable costs of compliance to ASX listing rules. The ASX requires compliance with IFRS and much additional detailed, continuous disclosure of events that may reflect on the interpretation of information contained in reports filed with the ASX. There are requirements for the disclosure of information about the remuneration of directors and other officers and many detailed rules concerning the periodic filing of financial information. There are additional requirements regarding the audit of annual reports and the certification of statements made concerning the business. The ASX has issued detailed guidance on ethics and the governance of listed entities. Among the matters on which recommendations are given are disclosure of the functions of the Board, how performance of management is monitored and assessed, how management remuneration is determined, the code of conduct of the Board, company policy on continuous disclosure and financial risk management. Listing therefore carries with it a considerable overhead. Copyright © 2013 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442551923/Horngren/Accounting/7th edition
71
Fraud Case Req. 1 By changing an expense to an asset, the total expenses will decrease and profit will increase. Req. 2 The CEO gained by earning a bonus, and the accounting manager may have gained by getting favourable treatment from the CEO. The shareholders of the firm lost, because the business paid out the bonus under fraudulent conditions.
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72
Financial Accounting 7th Edition Harrison Solutions Manual Full Download: http://alibabadownload.com/product/financial-accounting-7th-edition-harrison-solutions-manual/
Financial Statement Case Req. 1 Journal DATE ACCOUNTS AND EXPLANATIONS Dec. 1 Cash & cash equivalents Revenue
POST. REF.
9 Cash & cash equivalents Borrowings
DEBIT 60 000
CREDIT 60 000
200 000 200 000
12 Inventories Trade and other payables
10 000
22 Trade and other payables Cash & cash equivalents ($10 000 × ½)
5 000
28 Administrative expenses Cash & cash equivalents
3 000
31 Borrowings Finance costs Cash & cash equivalents
100 000 1 000
10 000
5 000
3 000
101 000
Note: Some of the terms used in JB Hi-Fi financial statements appear as being slightly different to those used in your book: ‘cash and cash equivalents’ instead of ‘cash’, ‘revenues’ instead of ‘sales revenue’, ‘borrowings’ instead of ‘loans payable’ or ‘bills payable’, and ‘finance costs’ instead of ‘interest expense’. The above terms are based on the JB Hi-Fi financial statements to 30 June 2011 and they may change over time.
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