CHAPTER 2

The Recordi= ng Process

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 2-1

	(a) Debit Effect	&nbs= p;	(b) Credit Effect	&nbs= p;	(c) Normal Balance
1.	Accounts Payable		Decrease		Increase	Credit
Advertising Expense	Increase	&nbs= p;	Decrease	&nbs= p;	Debit
Service Revenue	Decrease	&nbs= p;	Increase	&nbs= p;	Credit
Accounts Receivable	Increase	&nbs= p;	Decrease	&nbs= p;	Debit
A. J. Ritter, Capital	Decrease	&nbs= p;	Increase	&nbs= p;	Credit
A. J. Ritter, Drawing	Increase	&nbs= p;	Decrease	&nbs= p;	Debit

BRIEF EXERCISE 2-2

Account Debited	&nbs= p;	Account Credited
June 1		Cash		Hank Norris, Capital
2	Equipment	&nbs= p;	Accounts Payable
3	Rent Expense	&nbs= p;	Cash
12	Accounts Receivable	&nbs= p;	Service Revenue

<= /p>

BRIEF EXERCISE 2-3

June 1 Cash..........................................= ............................... 5,000

&= nbsp; &nbs= p; Hank Norris, Capital.....................= ................. &= nbsp; 5,= 000

&= nbsp; 2 Equipment..........................................= .................... = 900

&= nbsp; &nbs= p; Accounts Payable.............................= ............ &= nbsp; &nbs= p; 900

&= nbsp; 3 Rent Expense..........................................= ............... = 800

&= nbsp; &nbs= p; Cash..........................................= ....................... &= nbsp; &nbs= p; 800

&= nbsp; 12 Accounts Receivab= le..........................................= . = 300

&= nbsp; &nbs= p; Service Revenue.............................= .............. &= nbsp; &nbs= p; 300

BRIEF EXERCISE 2-4

The basic steps in the recording process are:

1. &nb= sp; Analyze each transaction. In this step, busi= ness documents are examined to determine the effects of the transaction on the accounts.

2. &nb= sp; Enter each transaction in a journal. This step is called journalizing and it resu= lts in making a chronological record of the transactions.

3. &nb= sp; Transfer journal information to ledger accoun= ts. This step is called posting. Posting makes it possible to accumulate the effects of journalized transactions on individual accounts.

BRIEF EXERCISE 2-5

	(a)	Effect on Accounting Equation		(b)	Debit-Credit Analysi= s

Aug. 1	The asset Cash is increased; the owner’s equity account T. J. Carlin, Capital is increased.		Debits increase asse= ts: debit Cash $8,000. Credits increase owner’s equity: credit T. J. Carlin, Capital $8,00= 0.

&nb= sp; 4	The asset Prepaid Insurance is increased; the asset Cash is decreased.		Debits increase asse= ts: debit Prepaid Insurance $1,800. Credits decrease assets: credit Cash $1,800.

&nb= sp; 16	The asset Cash is increased; the revenue Service Revenue is increased.		Debits increase asse= ts: debit Cash $800. Credits increase revenues: credit Service Revenue $800.

&nb= sp; 27	The expense Salaries Expense is increased; the asset Cash is decreased.		Debits increase expe= nses: debit Salaries Expense $1,000. Credits decrease assets: credit Cash $1,000.

BRIEF EXERCISE 2-6

Aug. 1 Cash..........................................= ............................... 8,000

&= nbsp; &nbs= p; T. J. Carlin, Capital..................= ...................... &= nbsp; 8,= 000

&= nbsp; 4 Prepaid Insurance= ..........................................= ....... 1,800

&= nbsp; &nbs= p; Cash..........................................= ....................... &= nbsp; 1,= 800

= 16 Cash..........................................= ............................... = 800

&= nbsp; &nbs= p; Service Revenue.............................= ............... &= nbsp; &nbs= p; 800

= 27 Salaries Expense<= span style=3D'mso-tab-count:1 dotted'>..........................................= ......... 1,000

&= nbsp; &nbs= p; Cash..........................................= ....................... &= nbsp; 1,= 000

BRIEF EXERCISE 2-7

Cash	Service Revenue=
5/12&nb= sp; = 2,400		5/5 &= nbsp; 5,000
5/15&nb= sp; = 3,000		5/15 = 3,000
Ending Bal. 5,400		Ending Bal. 8,000

Accounts Receivable<= o:p>
5/5&nbs= p; &= nbsp; 5,000	5/12 = 2,400

Ending Bal. 2,600

BRIEF EXERCISE 2-8

Cash

Date	Explanation	Ref.	Debit	Credit	Balance
May 12		J1	2,400		2,400
15<= /p>		J1	3,000		5,400

BRIEF EXERCISE 2-8 (Continued)

Accounts Receivable

Date	Explanation	Ref.	Debit	Credit	Balance
May 5		J1	5,000		5,000
12		J1		2,400	2,600

Service Revenue

Date	Explanation	Ref.	Debit	Credit	Balance
May 5		J1	&nbs= p;	5,000	5,000
15		J1	&nbs= p;	3,000	8,000

BRIEF EXERCISE 2-9

CLELAND COM= PANY

Trial Balan= ce

June 30, 20= 08

&nb= sp; = &nb= sp; = &nb= sp; = &nb= sp; = &nb= sp; = &nb= sp;

&= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Debit &= nbsp; Credit

Cash..........................................= ...................................... $ 8,800

Accounts Receivable..........................= ........................ 3,000

Equipment..........................................= ........................... 17,000

Accounts Payable.............................= ........................... &= nbsp; &nbs= p; $ 9,000

Cleland, Capital.............................= ............................... &= nbsp; &nbs= p; 20,000

Cleland, Drawing.............................= ............................. 1,200

Service Revenue.............................= ............................. &= nbsp; &nbs= p; 8,000

Salaries Expense.............................= ............................ 6,000

Rent Expense.............................= ................................... 1,000 &= nbsp; = ;

&= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; $37,0= 00 &= nbsp; $37,000

<= /o:p>

BRIEF EXERCISE 2-10

KWUN COMPAN= Y

Trial Balan= ce

December 31= , 2008

&nb= sp; = &nb= sp; = &nb= sp; = &nb= sp; = &nb= sp; = &nb= sp;

&= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Debit &= nbsp; Credit

Cash..........................................= ...................................... $14,800

Prepaid Insurance...........................= ............................ 3,500

Accounts Payable.............................= ........................... &= nbsp; &nbs= p; $ 3,000

Unearned Revenue.............................= ......................... &= nbsp; &nbs= p; 2,200

P. Kwun, Capital.......................= .................................... &= nbsp; &nbs= p; 13,000

P. Kwun, Drawing.......................= .................................. 4,500

Service Revenue.............................= ............................. &= nbsp; &nbs= p; 25,600

Salaries Expense.............................= ............................ 18,600

Rent Expense.............................= ................................... 2,400 &= nbsp; = ;

&= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; $43,8= 00 = $43,800

SOLUTIONS TO EXERCISES

EXERCISE 2-1

1. False.= An account is an accounting record of a specific asset, liability, or owner’s equity item.

2. False. An account shows increases and decreases in the item it relates to.

3. False. Each asset, liability, and owner’s equity item has a separate a= ccount.

4. False.= An account has a left, or debit si= de, and a right, or credit side.

5. True.<= /p>

EXERCISE 2-2

EXERCISE 2-3

General Jou= rnal

Date		Account Titles and Explanation	Ref.		Debit		Credit
Jan. 2		Cash........................................= ...........		10,000
	D. Reyes, Capital....................= ..			=	=	10,000
	&= nbsp;			=	=	=
= ; 3		Equipm= ent........................................= .			4,000	=	=
	Cash........................................= ...			=	=	4,000
	&= nbsp;			=	=	=
= ; 9		Suppli= es........................................= .....			500	=	=
	Accounts Payable................... =			=	=	500
	&= nbsp;			=	=	=
11<= /p>		Accoun= ts Receivable...................... <= /span>			1,800	=	=
	Service Revenue......................			=	=	1,800
	&= nbsp;			=	=	=
16<= /p>		Advert= ising Expense......................			200	=	=
	Cash........................................= ...			=	=	200
	&= nbsp;			=	=	=
20<= /p>		Cash........................................= ...........			700	=	=
	Accounts Receivable..............			=	=	700
	&= nbsp;			=	=	=
23<= /p>		Accoun= ts Payable...........................=			300	=	=
	Cash........................................= ...			=	=	300
	&= nbsp;			=	=	=
28<= /p>		D. Rey= es, Drawing...........................=			1,000	=	=
	Cash........................................= ...			=	=	1,000

EXERCISE 2-4

Oct. 1 Debits increase assets: debit Cash $15,000.

&nbs= p; Credits increase owner’s equity: credit Pete Hanshew, Capital
$15,000.

&= nbsp; 2 No transaction.

&n= bsp;

&= nbsp; 3 Debits increase assets: debit Office Furniture $1,900.

&= nbsp; Credits increase liabilities: credit Accounts Payable $1,900.

EXERCISE 2-4 (Continued)

Oct. 6 Debits increase assets: debit Accoun= ts Receivable $3,200.

&nbs= p; Credits increase revenues: credit Ser= vice Revenue $3,200.

27 Debits decrease liabilities: debit Accounts P= ayable $700.

&= nbsp; Credits decrease assets: credit Cash = $700.

&n= bsp;

30 Debits increase expenses: debit Salaries Expe= nse $2,500.

&= nbsp; Credits decrease assets: credit Cash = $2,500.

EXERCISE 2-5

General Jou= rnal

Date	Account Titles and Explanation	Ref.	Debits		Credit
Oct. 1	Cash........................................= ........... ........................................= .....................		15,000	=
	= ; Pete Hanshew, Capital.......... =			=	15,000
	&= nbsp;			=
= ; 2	No ent= ry.			=
	&= nbsp;			=
= ; 3	Office Furniture.........................= .......		1,900	=
	= ; Accounts Payable.................. <= /p>			=	1,900
	&= nbsp;			=
= ; 6	Accoun= ts Receivable...................... <= /span>		3,200	=
	= ; Service Revenue....................			=	3,200
	&= nbsp;			=
27<= /p>	Accoun= ts Payable...........................=		700	=
	= ; Cash........................................= ..			=	700
	&= nbsp;			=
30<= /p>	Salari= es Expense...........................= ..		2,500	=
	= ; Cash........................................= ..			=	2,500

EXERCISE 2-6

(a) &nb= sp; 1. Increase the asset Cash, increase the liability Notes Payable.

= 2. Increase the asset Comp= uter, decrease the asset Cash.

= 3. Increase the asset Supplies, increase the liability Accounts Payable= .

(b) 1. Cash.................................................................= .... = 5,000

&= nbsp; &nbs= p; Notes Payable.............................= ................ &= nbsp; &nbs= p; 5,000

&= nbsp; 2. Computer..........................................= .................. = 2,500

&= nbsp; &nbs= p; Cash..........................................= ................... &= nbsp; &nbs= p; 2,500

&= nbsp; 3. Supplies..........................................= .................... &= nbsp; 700

&= nbsp; &nbs= p; Accounts Payable.............................= ......... &= nbsp; &nbs= p; 700

EXERCISE 2-7

(a) Assets =3D Liabilities + Owners’ Equity

+ = &nb= sp; + &= nbsp; (Investment)

– &= nbsp; &nbs= p; – &= nbsp; (Expense)

+ = &nb= sp; + &= nbsp; (Revenue)

– &= nbsp; &nbs= p; – &= nbsp; (Drawings)

(b) 1. Cash.................................................................= .... = 4,000

&= nbsp; &nbs= p; A. Rowand, Capital.....................= ................ &= nbsp; &nbs= p; 4,000

&= nbsp; 2. Rent Expense..........................................= ........... = 1,100

&= nbsp; &nbs= p; Cash..........................................= ................... &= nbsp; &nbs= p; 1,100

&= nbsp; 3. Accounts Receivable....................................... = 5,200

&= nbsp; &nbs= p; Consulting Revenue.............................= ..... &= nbsp; &nbs= p; 5,200

&= nbsp; 4. A. Rowand, Drawing......................................... = &= nbsp; 700

&= nbsp; &nbs= p; Cash..........................................= ................... &= nbsp; &nbs= p; 700

EXERCISE 2-8

1. &= nbsp; False. The general ledger contains all the asset, liability, and owner’s equity accounts.

2. &= nbsp; True.

3. &= nbsp; False. The accounts in the general ledger are arranged in financial statement order: first the assets, then the liabiliti= es, owner’s capital, owner’s drawing, revenues, and expenses.

4. &= nbsp; True.

5. &= nbsp; False. The general ledger is not a book of original entry; transactions are first reco= rded in the general journal, then in the general ledger.

EXERCISE 2-9

(a)

(b= ) &= nbsp; &nbs= p; TERESA GONZALEZ, INVESTMENT BROKER

= &nb= sp; = &nb= sp; Trial Balance

= &nb= sp; = &nb= sp; August 31, 2008

= ; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p;

&= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Debit = Credit

Cash..........................................= .................................. <= /span>$ 7,300

Accounts Receivable..........................= ..................... &= nbsp; 700

Office Equipment...........................= ........................... 5,000=

Notes Payable.............................= .............................. &= nbsp; &nbs= p; $ 4,000

Teresa Gonzalez, Capital...................= .................... &= nbsp; &nbs= p; 5,000

Service Revenue.............................= ......................... &n= bsp; 4,000

&nb= sp; = &nb= sp; = &nb= sp; = &nb= sp; = $13,000 $1= 3,000

<= /o:p>

EXERCISE 2-10

(a) = &nb= sp; = General Journal

Date	Account Titles and Explana= tion	Ref.	Debit	Credit
Apr. 1	Cash= ........................................= ............ J. Simon, Capit= al........................... = ; (Owner’s investment of = ; cash in business)		15,000	15,000

12<= /p>	Cash= ........................................= ............ Service Revenue= .......................... = ; (Received cash for = ; services provided)		900	900

15<= /p>	Salaries Expense...........................= ... Cash........................................= ........ = ; (Paid salaries to date)		600	600

25<= /p>	Accounts Payable...........................= .. Cash........................................= ........ = ; (Paid creditors on account)		1,500	1,500

29<= /p>	Cash= ........................................= ............ Accounts Receiv= able................... = ; (Received cash in payment = ; of account)		400	400

30<= /p>	Cash= ........................................= ............ Unearned Revenu= e...................... = ; (Received cash for future = ; services)		1,000	1,000

EXERCISE 2-10 (Continued)

(b) = &nb= sp; SIMON LANDSCAPING COMPANY

= &nb= sp; = &nb= sp; Trial Balance

= &nb= sp; = &nb= sp; April 30, 2008

= ; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p;

&= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Debit Credit

Cash..........................................= ................................... $15,200

Accounts Receivable..........................= ...................... = 2,800

Supplies..........................................= ............................. = 1,800

Accounts Payable.............................= ......................... &= nbsp; &nbs= p; $ 300

Unearned Revenue.............................= ....................... &= nbsp; &nbs= p; 1,000

J. Simon, Capital......................= .................................. &= nbsp; &nbs= p; 15,000

Service Revenue.............................= ........................... &= nbsp; &nbs= p; 4,100

Salaries Expense.............................= .......................... 600 &n= bsp;

&= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; $20,400 $20,400

EXERCISE 2-11

(a) Oct. 1 Cash<= span style=3D'mso-tab-count:1 dotted'>..........................................= ...................... = 5,000

&= nbsp; &nbs= p; Heerey, Capital.............................= ......... &= nbsp; &nbs= p; 5,000

&= nbsp; &nbs= p; (Owner’s investm= ent of cash in
&= nbsp; &nbs= p; business)

&= nbsp; 10 Cash................................................................ = &= nbsp; 650

&= nbsp; &nbs= p; Service Revenue.............................= ...... &= nbsp; &nbs= p; 650

&= nbsp; &nbs= p; (Received cash for ser= vices
&= nbsp; &nbs= p; provided)

&= nbsp; 10 Cash................................................................ = = 4,000

&= nbsp; &nbs= p; Notes Payable.............................= ........... &= nbsp; &nbs= p; 4,000

&= nbsp; &nbs= p; (Obtained loan from ba= nk)

&= nbsp; 20 Cash................................................................ = &= nbsp; 500

&= nbsp; &nbs= p; Accounts Receivable..........................= . &= nbsp; &nbs= p; 500

&= nbsp; &nbs= p; (Received cash in paym= ent of
&= nbsp; &nbs= p; account)

&= nbsp; 20 Accounts Receivable................................... &= nbsp; 940

&= nbsp; &nbs= p; Service Revenue.............................= ...... &= nbsp; &nbs= p; 940

&= nbsp; &nbs= p; = (Billed clients for se= rvices
&= nbsp; &nbs= p; &= nbsp; provided)

EXERCISE 2-11 (Continued)

(b) = &nb= sp; = &nb= sp; HEEREY CO.

= &nb= sp; = &nb= sp; Trial Balance

= &nb= sp; = &nb= sp; October 31, 2008

= ; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p;

&= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Debit &= nbsp; Credit

Cash..........................................= .............................. $ 9,200

Accounts Receivable..........................= ................ 1,240

Supplies..........................................= ....................... &= nbsp; 400

Furniture..........................................= ...................... 2,000

Notes Payable.............................= .......................... &= nbsp; &nbs= p; $ 4,000

Accounts Payable.............................= ................... &= nbsp; &nbs= p; 500

Heerey, Capital.............................= ........................ &= nbsp; &nbs= p; 7,000

Heerey, Drawing.............................= ...................... &= nbsp; 300

Service Revenue.............................= ..................... &= nbsp; &nbs= p; 2,390

Store Wages Expense.......................= .................. &= nbsp; 500

Rent Expense.............................= .......................... 250<= /u> = &= nbsp;

&= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; $13,8= 90 $1= 3,890

EXERCISE 2-12

(a) = &nb= sp; = General Journal

Date		Account Titles and Explanation	<= /p>	Ref.	<= /p>	Debit	<= /p>	Credit
1		Cash........................................= .......... Tina Cordero, Capital............	&nbs= p;	101 301		10,000	=	10,000
	&= nbsp;	&nbs= p;	&nbs= p;			=
= ; 5		Equipm= ent........................................= Cash........................................= .. Accounts Payable.................. <= /p>	&nbs= p;	157 101 201		12,000	=	5,000 7,000
	&= nbsp;	&nbs= p;	&nbs= p;			=
25		Accoun= ts Payable.......................... = Cash........................................= ..	&nbs= p;	201 101		3,000	=	3,000
	&= nbsp;	&nbs= p;	&nbs= p;			=
30		Tina C= ordero, Drawing.................. <= /p> Cash........................................= ..	&nbs= p;	306 101		500	= =	500
		&nbs= p;	&nbs= p;			=

EXERCISE 2-12 (Continued)

(b)

Cash &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; = No. 101

Date	Explanation		Ref.	<= /p>	Debit	<= /p>	Credit	<= /p>	Balance
		J1	&nbs= p;	10,000	&nbs= p;		&nbs= p;	10,000
5			J1	&nbs= p;		&nbs= p;	5,000	&nbs= p;	5,000
25			J1	&nbs= p;		&nbs= p;	3,000	&nbs= p;	2,000
30			J1	&nbs= p;		&nbs= p;	500	&nbs= p;	1,500

Equipment &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; No. 157

Date

Explanation

Ref.

<= /p>

Debit

<= /p>

Credit

<= /p>

Balance

&nbs= p;

12,000

&nbs= p;

12,000

Accounts Payable = &nb= sp; = &nb= sp; = &nb= sp; = No. 201

Date	Explanation	Ref.	<= /p>	Debit	<= /p>	Credit	<= /p>	Balance
Sept. 5		J1	<= /p>			7,000		7,000
25=		J1	<= /p>	3,000				4,000

Tina Cordero, Capital &nb= sp; = &nb= sp; = &nb= sp; = No. 301

Date

Explanation

Ref.

Debit

Credit

Balance

10,000

Tina Cordero, Drawing &nb= sp; = &nb= sp; = &nb= sp; = No. 306

Date

Explanation

Ref.

Debit

Credit

Balance

500

&nbs= p;

500

EXERCISE 2-13

&nbs= p; Error	&nbs= p;	(a) In Balanc= e	&nbs= p;	(b) Differenc= e	&nbs= p;	(c) Larger Co= lumn
1.		No		$400		Debit
2.	&nbs= p;	Yes	&nbs= p;	—	&nbs= p;	—
3.	&nbs= p;	Yes	&nbs= p;	—	&nbs= p;	—
4.	&nbs= p;	No	&nbs= p;	300	&nbs= p;	Credit
5.	&nbs= p;	Yes	&nbs= p;	—	&nbs= p;	—
6.	&nbs= p;	No	&nbs= p;	18	&nbs= p;	Credit

EXERCISE 2-14

SANFORD DEL= IVERY SERVICE

Trial Balan= ce

July 31, 20= 08

&nb= sp; = &nb= sp; = &nb= sp; = &nb= sp; = &nb= sp; = &nb= sp;

&= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; Debit &= nbsp; Credit

Cash ($82,907 – Debit total without Cash
$66,340)..........................................= ............................ $16,567

Accounts Receivable..........................= ........................ = 7,642

Prepaid Insurance...........................= ............................ = 1,968

Delivery Equipment...........................= .......................... 49,36= 0

Notes Payable.............................= .................................. &= nbsp; &nbs= p; $18,450

Accounts Payable.............................= ........................... &= nbsp; &nbs= p; 8,396

Salaries Payable.............................= ............................. &= nbsp; &nbs= p; = 815

Sanford, Capital.............................= ............................... &= nbsp; &nbs= p; 44,636

Sanford, Drawing.............................= ............................ &= nbsp; 700

Service Revenue.............................= ............................. &= nbsp; &nbs= p; 10,610

Salaries Expense.............................= ............................ = 4,428

Repair Expense.............................= ............................... &= nbsp; 961

Gas and Oil Expense.....................= .............................. &= nbsp; 758

Insurance Expense.............................= ........................ 523 = = ;

&= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; &= nbsp; $82,907 $8= 2,907

Cash
Aug. 1 5,000	Aug. 12 1,000
= ; 10 2,400&nbs= p;	<= /p>
= ; 31 900	<= /p>
Bal. = ; 7,300	<= /p>

Accounts Receivable
Aug. 25 1,600	Aug. 31 900
Bal. = ; 700	<= /p>

Office Equipment
Aug. 12 5,000	<= /p>
Notes Payable
<= /p>	Aug. 12 4,000

Service Revenue
<= /p>	Aug.= 10 = ; 2,400
<= /p>	= ; 25 1,600
<= /p>	Bal.= = ; 4,000