Chapter 2 Exercises
1.
2.
Following
are
the
transactions
of
a
new
company
called
Pose-for-Pies.
Aug.
1 M
adison
Harris,
the
owner,
in
v
ested
$9,000
cash
and
$38,700
of
photograph
y
equipment
in
the
company
in
exchange
for
co
mmon
stock.
2 The company
paid
$3,100
cash
for
an
insurance
policy
co
v
ering
the
next
24
months.
5 The company
purchased
office
supplies
for
$1,710
cash.
20
The
company
recei
v
ed
$2,400
cash
in
p
ho
tography
fees
earned.
31
The
company
paid
$874
cash
for
August
u
tilities.
No Date General Journal D
eb
it
1 Aug
01
Cash
....
9,000
P
ho
tography equipment
....
38,700
Common stock
....
2 Aug
02
Prepaid insurance
....
3,100
Cash
....
3 Aug 05 Office supplies
....
1,710
Cash
....
4 Aug
20
Cash
....
2,400
Photography fees earned
....
5 Aug
31
Utilities expense
....
874
Cash
....
The transactions
of
Spade Company appear b
elo
w.
a.
Kacy Spad
e.
owne
r.
invested
$13
,750 cash
in
the company in exchange for common
stock.
b. The company purchased office
supp
lies for
$399
cash.
c. The company purchased $7,
604
of
office equipment
on
credit.
d. The company received $1.623 cash as fees
fo
r services provided
to
a customer.
e.
The company paid
$7
,
604
cash
to
settle the payable for the office equipment purchased
in transaction
c.
f. The company bill
ed
a customer
$2
,915 as fees for services provided.
g.
The company paid
$525
cash for the monthly rent.
h. The company collected
$1
,
224
cash as partial payment
for
the account receivable
created in transaction
f.
i. The company paid
$900
cash
in
div
i
den
ds
to
the
owner (sole shareholder).
Prepare
the
Trial Balance.
Credit
47
,700
3,100
1,710
2,400
874
SPADE COMPANY
Trial Balance
May 31, 2017
Debit Credit
Cash
....
$ 7,169
Accounts receivable
....
1,691
Office supplies
....
399
Office equipment
....
7,604
Accounts payable
....
Common stock
....
13,750
'Dividends
....
900
'Fees earned
....
4,538
'Rent expense
....
525
....
Totals n $ 18,288 n $ 18,288
Explanation
Cash Accounts
Receivable
a.
13,750
b.
399
f.
2,915
1
h.
1,224
d.
1,623
e.
7,604
Balance
1,691
h.
1,224
g.
525
i.
900
Balance
7,169
Office
Supplies
Office
Equipment
b.
399 1
C.
7'
604 1
Balance Balance
399
7,604
Accounts
Payable
Common
Stock
e.
7,
604 1
C.
7,604
I
:~la
nce
13,750
0
13,750
Balance
Dividends
Fees Earned
i.
900 1
d.
1,623
Balance
f.
2,915
900
Balance
4,538
Rent Expense
g.
525 1
Balance
525
3.
A
corporation
had
the
foll
owing
assets and liabilities
at
the
beginning
and
end
of
th
is year.
Beginning
of
the
year
End
of
the
year
Assets
$
140,500
182,500
Liabilities
$
60,232
73,913
a.
Owner
made
no
investments
in
the
business, and
no
dividends
were
paid
during
the
year.
b.
Owner
made
no
investments
in
the
business,
but
dividends
were
$1
,350
cash
per
month.
c.
No
dividends
we
re paid
dur
i
ng
the
year, but
the
owner
did
invest
an
additional
$45,
000
cash in
exchange
for
common
stock.
d.
Dividends
were
$1
,350
cash
per
month,
and
the
owner
invest
ed
an
additional
$35
,
000
cash in
exchange
for
common
stock.
D
etermine
the
net
income
earned
or
net
loss incurred
by
the business
during
the
year
for
each
of
the
above
separate
cases: (Decreases in
equity
should
be
indicated with a minus
sign.)
a. b. c. d.
Beginning
of
the
year
-
Equ
it
y $ 80,268 Ill $ 80,268
Ill
$
80
,
268
J $ 80,268
Owner
investments
►
0 0
45
,
000
35,000
Dividends
►
0 (16,200) 0 (16,
200
)
Net
income (loss)
►
28,319 44,519
►
(16,681) 9,519
End
of
the
year
-Equity $ 108,587 g $ 108,587 g $ 108,587 Iii $ 108,587
Explanation
a.
Beginning
of
the
year
End
of
the
year
Net
increase
in
equity
Net income
Plus
m\lner
investments
Less
di
v
idends
Change
in
equity
Assets
$140,500
182,500
$28,319
0
(0)
$28,319
Liabi
l
ities
$60,232
73,913
Equity
$
80,268
108,587
$
28,319
Si
n
ce
th
ere
were no
add
itional
in
vestments or divi
de
nds, the n
et
in
come
for the
yea
r
equa
ls
the
n
et
incr
ease
in
eq
ui
ty.
b.
Net income
Plus
m\lner
investments
Less
di
v
idends
($1,350
/
mo
. x 12
mo.)
Change
in
equity
$
44,519
0
(16,200)
$
28,319
The divi
dends
we
re
added
back
because
th
ey
redu
ced
equ
ity without redu
ci
ng net
in
come.
c.
Net income
Plus
m..rner
investment
Less
dividends
Change
in
equity
$(16,681)
45,000
(0)
$
28,319
The
in
vestment was deducted
because
it
in
cr
eased
equity
wi
thout creating
net
incom
e.
d.
Net
in
come
Plus
m\lner
inves
tment
Less
di
v
idends
($1,350/mo. x 12
mo.)
Change
in
equity
$
9,519
35,000
(16,200)
$
28,319
4.
Required
information
[The
following
information applies
to
the
questions
displayed
below.]
Carmen
Camry
ope
rates a consulting firm called
Help
Today,
which
began
operations
on
August
1.
On
August
31,
the
company's
records
show
the
fol
lowing
accounts
and
amounts
for
the
month
of
August.
Cash $
25,390
Consulting
fees
earned
Accounts
receivable
22,390
Rent
expense
Office
supplies
5,280
Salaries
expense
Land
44,030
Telephone
expense
Office
equipment
20,030
Miscellaneous
expenses
Accounts
payable
10,580
Common
stock
Dividends
6,030
$
27,$20
9,580
s,430
900
$40
1
02,200
I
Use
the
above
information
to
prepare
an
August
income
statement
for
the
business.
HELP
TODAY
Income Statement
►
For Month Ended August
31
....
Re
venues:
....
►
Consulting fees earned
....
►
$ 27,020
....
1 Total Revenues
[I
$ 27,020
t::xpenses:
.....
►
Rent expense
.....
9,58011
►
Salaries expense
....
5,630
Te
lephone expense
....
900
►
Miscellan- ·-
------
-
►
I
II
►
....
►
►
.....
►
11
Total Expenses
[I
16,650
'Net income I
...
►
$ 10,370
5.
Use
the
above
information
to
pre
pare
an
August
stat
emen
t
of
retained
earnings
for
H
elp
To
day. (Hint: N
et
in
come
for
August
is $10,370.)
HELP TODAY
Statement of Retained Earnings
For Month Ended August
31
Retained earnings,
August
1
..,
Add:
Net
income
..,
II
~ess:
Div
idends
....
►
Retained earnings,
August
31
...
Explanation
HE
LP
TODAY
I
ncome
St at ement
I
....
10
,
370
10
,
370
(6,030)
4,
340
Fo
r
Mont
h Ended August
31
Revenues:
Consulting
fees
earned
Expenses:
Rent expense
Salaries
expense
Telephone expense
M
iscel
laneous expenses
Total
expenses
Net income
$9,580
5,630
900
540
$27,020
1
6,650
$1
0,370
6.
Required information
[The
following
information
appl
ies to the
questions
displayed
below.]
Carmen Camry operates a
consulting
firm called
Help
Today,
which
began
operations
on
August
1.
On
August
31,
the
company's
records
show
the
following
accounts and
amounts
for
the
month
of
August.
Cash
Accounts
receivable
Office
supplies
land
Office
equipment
Accounts
pa
y
able
Di
v
idends
$
25,390
Consulting
fees
earned
22,390
Rent
expense
5,280
Salaries
expense
44,030
Telephone
expense
20,030
Miscellaneous
expenses
10,580
Common
stock
6,030
$ 27,02
0j
9,580
S,63
0j
900
S4
0j
102,200
I
Use
the
above
information
to
prepare
an
August
31
balance
sheet
for
Help
Today.
(Hint
The
ending
retained earnings
account
balance
as
of
August
31
is
$4
,340.)
HELP
TODAY
Balance Sheet
As
of August
31
Assets: I T labllltles:
Cash
Accounts receivable
Office supplies
Office equipment
and
lotal Assets
Explanation
T $
25
,390
T 22,390
T 5,280
T
20
,030
T
44
,030
T
T
T
111
S 117,120
HELP
TODAY
Income
statement
Accounts payable
'equity:
Common stock
~etained earnings
lotal
equity
lotal Liabilities and Equity
For
Month Ended
August
31
Revenues:
Consul
ting
fees
earned
Expense
s:
Rent
expense
Salaries
expense
Telephone
expense
Mi
sce
llan
eo
us
expenses
Total
ex
penses
Net income
HELP
TODAY
$
9,580
5,630
900
540
statement
of
Retained
Ea
r
nings
For
Mo
nth
Ended
August
31
Retained
earnings,
July
31 $ 0
Ad
d:
Net
income 10
,37
0
Le
ss
:
Dividends
Retai
ned
earn
ing
s,
August
31
1
0,370
6,030
$
4,340
$27,020
1
6,6
50
$10,370
I T
I T
T
1r
s
10
,580
T1r
I T
T
102
,200
T 4,340
T
T
,,,
s 106,540
T
Ill
$ 117,120
7.
Chapter 2 Problems
1.
Compute
the
missing
amount
for
each
of
the
following
separate
companies
a
through
d.
(losses
and
amounts
to
be
deducted
should
be
indicated
with
a minus sign.)
(a) (bl
(C)
(d)
Equity
, December
31,
2016
$ 0 $ 0 $ 0 $ 0
Owner
investments
for
stock
during
the year 102,000
102
,000
92
,
520
212,112
Dividends
during
the year
(96
,
000)
(51,000)
(11,000)
(55,000)
Net
i
ncome
(loss)
for
the year
98
,000
49
,880
(3
,
000)
(45,000)
Equity
, December
31,
2017
$
104
,000 $
100
,880 s
78
,
520
$
112
,
112
Karla Tanner
opens
a Web consulting business called Linkworks and completes
the
following transactions in its first month
of
operations.
April
1
2
3
6
9
13
19
22
25
28
29
30
Required:
Tanner
in
v
ested
$150,000
cash
along
w
ith
office
equip
m
ent
v
alued
at
$36,000
n
the
company i n exchange
for
common
stock.
The company
prepaid
$7,200
cash
for
12
months'
rent
for
office
space.
(Hint:
Debit
Prepaid
Rent
for
$7,200.)
The company
made
credit
purchases
for
$18,000
in
office
equipment
and
$3,600
in
office
supplies.
Payment
is
due
wi
thin
10
da
ys.
The company
completed
ser
v
ices
for
a
client
and i
mm
ediatel
y re
ceiv
ed
$2,000
cash.
The company
completed
a
$12,000
project
for
a
client,
who
must pay wit h
in
30 day
s.
The company
paid
$21,600
cash
to
settle
t he
account
payable
created
on Apr
il
3.
The company
paid
$6,000
cash
for
the
premium on a
12-
mon
t h
insurance
polic
y. (
Hint:
Debit
Prepaid
I
nsur
ance
for
$6,000.)
The company r
ecei
ved
$9,600
cash
as
partial
payment
for
the
w
ork
completed
on
April
9.
The company
completed
wo
r k
for
another
client
for
$2,640
on
credit.
The company
paid
$6,200
cash
in
di
v
idends.
The company
purchased
$1,200
of
additional
office
supplies
on
cr
edit.
The company
paid
$700
cash
for
this
month's
utility
bill.
1. Prepare general journal entries
to
record these transactions using
the
following titles: Cash
(101);
Accounts Receivable
(106);
Office Supplies
(124);
Prepaid Insurance
(128);
Prepaid Rent
(131);
Office Equipment
(163);
Accounts Payable
(201);
Common
Stock (307); Dividends
(319);
Services Revenue (403); and Utilities Expense (690).
2. Post
the
journal entries from part 1
to
the
ledger accounts.
3. Preoare a trial balance
as
of
Aoril
30
.
No
Date
Ac
c
oun
t Title Debit
Cred
it
1 April 01 Cash 0 150,000 0
Office equipment 0
36
,000 0
Common stock 0 186,000 0
2 April 02 Prepaid re
nt
0 7,200 0
Cash
0 7,200 0
3 April
03
Office equipment 0 18,000 0
Office supplies 0 3,600 0
Accounts payable 0 21,600 0
4 April
06
Cash 0 2,000 0
Se
rvices reven
ue
0 2,
000
0
5 April
09
Accounts receivable 0 12,000 0
Services revenue 0 12,000 0
6 April 13 Accounts payable 0
21
,600 0
Cash
0 21,600 0
7 April 19 Prepaid insurance 0 6,000 0
Cash
0 6,000 0
8 April 22 Cash 0 9,600 0
Accounts receivable 0 9,600 0
9 April
25
Accounts receivable 0 2,640 0
Services revenue 0 2,
640
0
10 April
28
Dividends 0 6,200 0
Cash
0 6,200 0
11
April
29
Office supplies 0 1,200 0
Accounts payable 0 1,200 0
12 April
30
Utilities expense 0 700 $
Cash
0 700 $
101:Cash
106: Accounts Receivable
f--
Da1e
Debit
Credit Balance
Da1e
Debit
Credit Balance
April
01
0
150
,000 0 150,000 April
09
0
12
,
000
0 12,
000
April
02
0 7,
200
0 1
42
,800 April
22
0 9,
600
0 2,
400
Apnl
06
0 2,
000
0 144,800
Apnl
25
0 2,
640
0 5,
040
April 13 0
21
,
600
0 123,200
April
19
0 6,
000
0 117,200
April
22
0 9,
600
0
126
,800
April
28
0 6,
200
0 120,600
Apnl
30
0
700
0
11
9,
900
124: Office Supplies 128: Prepaid Insurance
f--
Da1e
Debit
Credit Balance
Da1e
Debit
Credit Balance
April
03
0 3,600 0 3,600 April 19 0 6,
000
0 6,
000
Apnl
29
0 1,200 0 4,800
131: Prepaid
Rent
163: Office Equipment
f--
Da1e
Debit
Credit Balance
Da1e
Debit
Credit Balance
April
02
0 7,200 0 7,200 April 01 0
36
,
000
0
36
,
000
Apnl
03
0
18
,
000
0 54,
000
201: Accounts Payable 307: Common Stock
f--
Da1e
Debit
Credit Balance
Da1e
Debit
Credit Balance
Apnl
03
0
21
,
600
0
21
,600 April
01
0
186
,
000
0
186
,
000
Apnl
13 0
21
,600 0 0
April
29
0
1,200
0 1,200
319
: Dividends 403: Services Revenue
f--
Da1e
Debit
Credit Balance
Da1e
Debit
Credit Balance
Apnl
28
0
6,200
0 6,200
Apnl
06
0 2,
000
0 2,
000
Apr
il
09
0
12
,
000
0 14,
000
Apr
il
25
0 2,
640
0
16
,
640
690: Utilities Expense
f--
Da1e
Debit
Credit Balance
Apnl
30
0
700
0 700
LINKWORKS
Trial Balance
Apr1I30
Debit Credit
Cash o s 119,900 0
Accounts receivable 0 5,
040
0
Office supplies 0 4,
800
0
Office
equ
ipm
ent
0
54
,
000
0
Accounts payable 0 1,
200
0
Common
stock 0
186
,000 0
Dividends 0 6,
200
0
Services revenue 0
16
,640 0
Prepaid
in
surance 0 6,
000
0
Prepaid rent 0 7,
200
0
Utilities expense 0
700
0
Total $
203
,840 $ 203,840
2.
Required
information
[Th
e
fo
ll
o
win
g
in
fo
rm
at
ion
app
li
es
to
the
questions
display
ed b el
ow.]
The
acco
unt
i
ng
r
eco
rds
of
Nett
le Di
str
i
but
i
on
show
the
fo
llo
win
g assets
and
li
ab
ilities
as
of
December
31
,
20
16
and
2017.
December
31
2016 2017
Cash
$
47,2
05
$
7,917
Accounts
recei
v
able
25,624
20,089
O
ffice
s
uppli
es
4,042
2,96
0
Off
ice
equipme
nt
124,07
6
132,165
Tr
ucks
48,553
57,553
B
uild
i ng 0
161,854
Land 0 4
0,389
Accounts
payable
67,365
33,411
Not
e
payable
0
102,243
Required:
1. Pre
pare
bal
ance
sh
ee
ts
for
the
bus
iness as
of
Decembe
r 31,
20
16
and
20
1
7.
(H
in
t:
Repo
rt
on
ly
tota
l e
qu
it
y
on
the bal
ance
sheet
and
r
eme
mb
er
that
to
ta
l e
quity
e
quals
the
diff
ere
nc
e b
et
w
ee
n assets
and
li
ab
iliti
es
.)
0
An
sw
er
is
co
mplet
e
but
not e
ntirely
co
rr
ec
t.
I
NET11.E DISTRIBUTION
Balance Sheet
December
31
, 2016
Assets
Liabilities
Cash 0 $
47
,
205
0 Accounts payable o s
67
,
365
0
Accounts receiv
ab
le 0
25
,
624
0 Notes
pa
yable 0 oo
Office supplies 0 4,
042
0
Office equipment 0 1
24
,
076
0
Equity
Tr
uc
ks 0
48
,
553
0 Total
eq
uity 182,135 0
Tota
l assets $
249
,
50
0 Total liabiliti
es
and equity s
249
,
500
i 0
An
swe
r is co
mplet
e a
nd
co
rre
c
t.
7
NET11.E DISTRIBUTION
Balance Sheet
December
31
, 2017
Assets Liabilities
Cash
0$
7,
917
0 Accounts payable o s
33
,
411
0
Accounts receiv
ab
le 0 20.
089
0 Note payable 0 102,
243
0
Office supplies 0 2.
960
0
Office equipment 0
132
,1
65
0
Trucks 0
57
,
553
0 Total li
ab
iliti
es
13
5,
654
0
Building 0 161,
854
0 E
quity
Land 0
40
,
389
0 Total
eq
uity
287
,
273
0
Total assets $
422
,
927
Total liabiliti
es
and equity $
422
,
927
2.
Comput
e n
et
in
come
fo
r 2017
by
compar
in
g
tota
l e
qui
ty a
mounts
for
these
t wo y
ea
rs
a
nd
using
the
fo
llo
wing
in
fo
rmati
on:
Du
ring
20
17,
the
o
wn
er
inv
este
d
$33
,
000
add
iti
onal
cas
h
in
the
busin
ess (in
e
xchang
e
for
common
stock
) a
nd
the
co
mpany
pa
id
$37
,
20
0
cash
in
divid
e
nds.
0
An
swer
is c
omplete
and
co
rre
ct.
Equity, December
31
, 2016 $ 182,135 0
Add: Owner's investment 0
33
,ooo O
Add·
Net
income 0 109,338 0
324
,473
Less Dividends 0 37,200 0
Equity, December
31
, 2017 $ 287,273
3.
Compute
the
20
17
y
ea
r
-e
nd
debt r
atio
for
the
busin
ess.
0
An
swe
r is
complete
and
co
rr
ect
.
Debt
Ratio
Choose I
Numerator: Choose Denominator: = Debt Ratio
Total liabilities 0 1, I Total assets OI= I D
ebt
ratio
s
135
,654 0 1,
Is
422
,921 o I= I
3208%
3.
..
Required
information
{Th
e
fo
ll
o
win
g
in
formar
i
on
app
h
es
to
the
quest
i
ons
display
e d b e lo
w.]
Yi Min star
te
d an
eng
in
eer
ing firm called Min E
ngineer
ing.
He
began
ope
r
at
ions a
nd
co
mpl
eted
sev
en transacti
ons
in Ma
y,
whi
ch i
nc
l
ud
ed his initial inv
est
m
ent
of
$23
,
500
cash.
After
thos
e
se
ven transactions, the le
dg
er in
cluded
the
fo
ll
o
win
g
accounts
wi
th
norma
l balan
ces
.
Cash
Off
ice
supplies
Pre
pa
id
insurance
O
ffice
eq
u
ipme
nt
Account
s
parable
Co11Y11on
'.>
tock
Div
idcnd5
En
ginee
rin
g
fee$
ear
ned
Rent
ex
pen
$e
Required:
$
41,4J4
1,130
4 ,
400
11
,
000
11
,
000
23,500
4,136
36
,
000
8,38
0
1. Prepare a t
ri
al balance
for
this business
as
of
the
e
nd
of
May.
0 An
swe
r is c
ompl
ete a
nd
co
rr
ect .
MIN ENGINEERING
Tr1a1
Balance
May
31
Debit
Credit
Cash
0
41
,
454
0
Oiice
supplies 0 1,130 0
P r
epa
id
in
sur
ance
0
~.
~oo
o
Oiice
equipment 0 11,
000
0
Accounts
payable
0
11
,000 0
Common stock 0
23
,500 0
Dividend!. 0 4,1
36
0
Engineering fees earned 0
36
,000 0
Rent
expense
0 8,
380
0
Totals
~
70,
50
0 $
70
,500
The
fo
llo
win
g
seven
transactions
produced
the
accou
nt
bal
a
nc
es
sho
w n
above.
e.
Y.
Min
inv
ested
$23
,
500
cash
in
the
busin
ess
in ex
change
fo
r
co
mmon
stock.
b.
Pa
id
$8
,
380
cash
for
month
ly
r
ent
e
xp
e
ns
e
for
May.
c.
Pa
id
$4,400
cash
in
advance
the
annua
l
for
in
su
r
ance
prem
i
um
beginn
i
ng
the next
pe
ri
od.
d. Pur
chased
office
supp
l
ies
fo
r
$1
,
130
cas
h.
e.
Purchased
$11
,
000
of
office
eq
uipm
ent
on
cred
it (wi
th
accounts
p a
yabl
e).
f.
Rece
iv
ed
$36
,
000
cash
for
e
ngin
eer
in
g
serv
i
ces
pro
vid
ed
in
May.
g.
The
company
pa
id
$4
,
136
cash
in
divid
e
nds.
2.
Pr
epa
re a
Cash
T-
account
for
the
abo
ve
transact
i
on
,
and
compute
the
en
di
ng
Cash
ba
la
nc
e (
code
each
e
ntry
wi
th
one
of
the
t
ransact
ion
codes
a th
rough
g
).
C 0
An
swe
r is c
omplet
e
and
c
orrec
t .
__]
Cash
Beg.
Ba
l 0
a 0
23
,
500
0 8,
380
0 b 0
f.
0
36
,
000
0 4,
400
0 C. 0
1,1
30
0 d. 0
4,
13
6 0 g 0
E
nd
Ba
l
41
,
454
0
