Accounting Principles (13th edition)

Chapter-02: The Recording Process

Exercise list: E2.9, E2.11, P2.1A ,P2.3A

E2.9
On April 1, Adventures Travel Agency began operations. The following transactions were
completed during the month.
1. Owner invested $24,000 in the business.
2. Obtained a bank loan for $7,000 by issuing a note payable.
3. Paid $11,000 cash to buy equipment.
4. Paid $1,200 cash for April office rent.
5. Paid $1,450 for supplies.
6. Purchased $600 of advertising in the Daily Herald, on account.
7. Performed services for $18,000: cash of $2,000 was received from customers, and the
balance of $16,000 was billed to customers on account.
8. Cash withdrawal of $400 by owner for personal use.
9. Paid the utility bill for the month, $2,000.
10. Paid Daily Herald the amount due in transaction.
11. Paid $40 of interest on the bank loan obtained in transaction (2).
12. Paid employees’ salaries and wages, $6,400.
13. Received $12,000 cash from customers billed in transaction (7).
Instructions: Journalize the transactions. (Omit explanations).

Solution:
Adventures Travel Agency
Journal Entry
For the month of April
Date Accounts Title Ref. Debit ($) Credit ($)
April-1 Cash 24,000
Owner’s Capital 24,000
-2 Cash 7,000
Notes Payable 7,000
-3 Equipment 11,000
Cash 11,000
-4 Office rent expenses 1200
Cash 1,200
-5 Supplies 1,450
Cash 1,450
-6 Advertising expenses 600
Accounts payable 600
-7 Cash 2,000
Accounts Receivable 16,000
Service Revenue 18,000
 -8 Drawings 400
Cash 400
-9 Utility expenses 2,000
Cash 2,000
-10 Accounts Payable 600
Cash 600
-11 Interest expense 40
Cash Cr 40
-12 Salaries and wages expense 6,400
Cash 6,400
-13 Cash 12,000
Accounts Receivable 12,000

E2.11

Selected transactions from the journal of Ann Wong, investment broker, are presented below
(amounts in ¥ thousands).

Ann Wong
Journal Entry
For the month of August
Date Accounts Title Ref. Debit ($) Credit ($)
August-1 Cash 5,000
Owner’s Capital 5,000
(Owner’s invested of cash in business)
-10 Cash 2,600
Service revenue 2,600
(Received cash for service performed)
-12 Equipment 5,000
Cash 2,300
Notes payable 2,700
(Purchased equipment for cash and notes payable)
-25 Accounts Receivable 1,700
Service revenue 1,700
(Billed clients for services performed)
-5 Cash 900
Account receivable 900
(Receipts of cash on account)
Instructions:
a) Post the transactions to T-accounts.
b) Prepare a trial balance at August 31, 2020.

Solution:
Req.a)
Ann Wong Investment Broker
T-Accounts

Cash
Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
Aug-1 Owner’s capital 5,000 Aug -12 Equipment 2,300
,, -10 Service revenue 2,600 ,, -31 Balance c/d 6,200
,, -31 Accounts receivable 900
8,500 8,500

Owner’s Capital
Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
Aug-31 Balance c/d 5,000 Aug-1 Cash 5,000
5,000 5,000

Service revenue
Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
Aug-31 Balance c/d 4,300 Aug-10 Cash 2,600
Aug-25 Accounts receivable 1,700
4,300 4,300

Equipment
Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
Aug-12 Cash 2,300 Aug-31 Balance c/d 5,000
Notes payable 2,700
5,000 5,000

Notes payable
Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
Aug-31 Balance c/d 2,700 Aug-12 Equipment 2,700
2,700 2,700

Account receivable
Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
Aug-25 Service revenue 1,700 Aug-31 Cash 900
,, -31 Balance c/d 800
1,700 1,700

Req.b)
 Ann Wong Investment Broker
Trial Balance
August 31,2020
SL No. Accounts title Ref. Debit ($) Credit ($)
1. Cash 6,200
2. Owner’s capital 5,000
3. Service revenue 4,300
4. Equipment 5,000
5. Notes payable 2,700
6. Accounts receivable 800
$12,000 $12,000

Problems:
P2.1

Holz Disc Golf Course was opened on March 1 by Ian Holz. The following events and transactions occurred during
March (amounts in thousands).
March- 1: Invested $20,000 cash in the business.
-3: Purchased Rainbow Golf Land for $15,000 cash. The price consists of land $12,000, building $2,000, and
equipment $1,000. (Make one compound entry).
-5: Paid advertising expenses of $900.
-6: Paid cash $600 for a one –year insurance policy.
-10: Purchased golf discs and other equipment for $1,050 from Stevenson Company payable in 30 days.
-18: Received $1,100 in cash for golf fees (Feng records golf fees as service revenue).
-19: Sold 150 coupon books for $10 each. Each book contains 4 coupons that enable the holder to pay one
round of disc golf.
-25: Withdrew $800 cash for personal use.
-30: Paid salaries of $250.
-30: Paid Stevenson Company in full.
-31: Received $2,700 cash for golf fees.
Holz Disc Golf uses the following accounts: Cash, Prepaid Insurance, Land, Building, Equipment, Accounts
payable, Unearned Service Revenue, Owner’s Capital, Drawings, Service Revenue, Advertising Expense, and
Salaries and Wages Expense.
Instructions: Journalize the March transactions.

Solution:
Holz Disc Golf Course
Journal
For the month of March
Date Accounts Title Ref. Debit ($) Credit ($)
March-1 Cash 20,000
Owner’s Capital 20,000
(Invested cash to start business)
-3 Land 12,000
Building 2,000
Equipment 1,000
Cash 15,000
(Purchased golf land consists of land, building and
equipment)
 -5 Advertising expense 900
Cash 900
(Paid cash for advertising expense)
-6 Prepaid Insurance 1.200
Cash 1,200
(Paid cash for one-year insurance policy)
-10 Equipment 1,050
Accounts payable 1,050
(Purchased equipment on account)
-18 Cash 1,100
Service Revenue 1,100
(Received cash for golf fees)
-19 Cash 1,500
Unearned Service Revenue 1,500
(Sold coupon for golf fees) [*150×10=1500]
-25 Drawings 800
Cash 800
(Withdrew cash for personal use)
-30 Salaries expense 250
Cash 250
(paid for salaries expense)
-30 Accounts Payable 1,050
Cash 1,050
(Paid cash to creditors for full settlement)
-31 Cash 2,700
Service Revenue 2,700
(Received cash for golf fees)

P2.3
Maquoketa Service was formed on May 1, 2020. The following transactions took place during the first month
(amounts in thousands).
Transactions on May 1:
1. Jay Bradford invested $40,000 cash in the company, as its sole owner.
2. Hired two employees to work in the warehouse. They will each be paid a salary of $3,050 per month.
3. Signed a 2-year rental agreement on a warehouse, paid $24,000 cash in advance for the first year.
4. Purchased furniture and equipment costing $30,000. A cash payment of $10,000 was made immediately;
the remainder will be paid in 6 months.
5. Paid $1,800 cash for a one-year insurance policy on the furniture and equipment.
Transactions during the remainder of the month:

May-6: Purchased basic office supplies for $420 cash.

May-7: Purchased more office supplies for $1,500 on account.
May-8: Total revenue earned were $20,000—$8,000 cash and $12,000 on account.
May-9: Paid $400 to suppliers for accounts payable due.
May-10: Received $3,000 from customers in payment of accounts receivable.
May-11: Received utility bills in the amount of $380, to be paid next month.
May-12: Paid monthly salaries of the two employees, totaling $6,100.

Instructions:
a) Prepare journal entries to record each of the events listed. (omit explanation).
 b) Post the journal entries to T-accounts.
c) Prepare a trial balance as of May 31, 2020.

Solution:
Req.a)
Maquoketa Service
Journal
For the month of May, 2020
Date Accounts Title Ref. Debit ($) Credit ($)
May-1 (1) Cash 40,000
Owner’s Capital 40,000
(Invested cash to start business)
-1 (2) No entry
(Hired promise is not transaction.)

-1 (3) Prepaid rent 24,000

Cash 24,000
(Paid cash for advance rent.)
-1 (4) Furniture and Equipment 30,000
Cash 10,000
Accounts payable 20,000
(Purchased furniture and equipment paying cash
amounted INR10,000 and remaining on account)
-1 (5) Prepaid insurance 1,800
Cash 1,800
(Paid cash for one year insurance policy.)
May-6 Office Supplies 420
Cash 420
(Purchased office supplies for cash)
May-7 Office Supplies 1,500
Accounts Payable 1,500
(Purchased office supplies on account.)
May-8 Cash 8,000
Accounts Receivable 12,000
Service Revenue 20,000
(Revenues earned for cash and on account.)
May-9 Accounts Payable 400
Cash 400
(Paid cash to supplier.)
May-10 Cash 3,000
Accounts Receivable 3,000
(Received cash from customers.)
May-11 Utility expenses 380
Accounts Payable 380
(Received bills for utility expenses)
May-12 Salaries expense 6,100
Cash 6,100
 (Paid cash for monthly salaries expenses.)

Req.b)
Maquoketa Service
Ledger
Cash
Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
2020 2020
May-1(1) Owner’s capital 40,000 May-1(3) Prepaid rent 24,000
,, -8 Service revenue 8,000 ,, -1(4) Furniture and equip. 10,000
,, -10 Accounts receivable 3,000 ,, -1(5) Prepaid insurance 1,800
,, -6 Office supplies 420
,, -9 Accounts payable 400
,, -12 Salaries expense 6,100
,, -31 Balance c/d 8,280
51,000 51,000

Owner’s Capital
Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
2020 2020
May-31 Balance c/d 40,000 May-1(1) Cash 40,000
40,000 40,000

Prepaid rent
Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
2020 2020
May-1(3) Cash 24,000 May-31 Balance c/d 24,000
24,000 24,000

Furniture and Equipment

Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
2020 2020
May-1(4) Cash 10,000 May-31 Balance c/d 30,000
Accounts Payable 20,000
30,000 30,000

Accounts Payable
Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
2020 2020
May-9 Cash 400 May-1(4) Furniture and Equipment 20,000
Office Supplies
,, -31 Balance c/d 21,480 ,, -7 1,500
Utility expense
,, -11 380
21,880 21,880

Prepaid Insurance
 Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
2020 2020
May-1(5) Cash 1,800 May-31 Balance c/d 1,800
1,800 1,800

Office Supplies
Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
2020 2020
May-6 Cash 420 May-31 Balance c/d 1,920
,, -7 Accounts payable 1,500
1920 1,920

Accounts Receivable
Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
2020 2020
May-8 Service revenue 12,000 May-10 Cash 3,000
,, -31 Balance c/d 9,000
12,000 12,000

Service Revenue
Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
2020 2020
May-31 Balance c/d 20,000 May-8 Cash 8,000
Accounts receivable 12,000
20,000 20,000

Utility expense
Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
2020 2020
May-11 Accounts payable 380 May-31 Balance c/d 380
380 380

Salaries expense
Dr. Cr.
Date Accounts title Ref. Amount Date Accounts title Ref. Amount
2020 2020
May-12 Cash 6,100 May-31 Balance c/d 6,100
6,100 6,100

Req.c)

Maquoketa Service
Trial Balance
May 31,2020
SL No. Accounts title Ref. Debit ($) Credit ($)
1. Cash 8,280
2. Owner’s capital 40,000
3. Prepaid rent 24,000
4. Furniture and equipment 30,000
5. Accounts payable 21,480
6. Prepaid insurance 1,800
7. Office supplies 1,920
8. Accounts receivable 9,000
9. Service revenue 20,000
10. Utility expense 380
11. Salaries expense 6,100
Total 81,480 81,480