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Financial Accounting

14th Edition
Carl Warren + 2 others
ISBN: 9781305088436

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BuyFindarrow_forward

Financial Accounting

14th Edition
Carl Warren + 2 others
ISBN: 9781305088436
Textbook Problem

On August 1, 2016, Rafael Masey established Planet Realty, which completed the following transactions during the month:

  1. a. Rafael Masey transferred cash from a personal bank account to an account to be used for the business, $17,500.
  2. b. Purchased supplies on account, $2,300.
  3. c. Earned sales commissions, receiving cash, $13,300.
  4. d. Paid rent on office and equipment for the month, $3,000.
  5. e. Paid creditor on account, $1,150.
  6. f. Withdrew cash for personal use, $1,800.
  7. g. Paid automobile expenses (including rental charge) for month, $1,500, and miscellaneous expenses, $400.
  8. h. Paid office salaries, $2,800.
  9. i. Determined that the cost of supplies used was $1,050.

Instructions

  1. 1. Journalize entries for transactions (a) through (i), using the following account titles: Cash; Supplies; Accounts Payable; Rafael Masey, Capital; Rafael Masey, Drawing; Sales Commissions; Rent Expense; Office Salaries Expense; Automobile Expense; Supplies Expense; Miscellaneous Expense. Journal entry explanations may be omitted.
  2. 2. Prepare T accounts, using the account titles in (1). Post the journal entries to these accounts, placing the appropriate letter to the left of each amount to identify the transactions. Determine the account balances, after all posting is complete. Accounts containing only a single entry do not need a balance.
  3. 3. Prepare an unadjusted trial balance as of August 31, 2016.
  4. 4. Determine the following:
  5. a. Amount of total revenue recorded in the ledger.
  6. b. Amount of total expenses recorded in the ledger.
  7. c. Amount of net income for August.
  8. 5. Determine the increase or decrease in owner’s equity for August.

1.

To determine

Journalize the transactions of Company P for the month of August.

Explanation

Journal: Journal is the book of original entry. Journal consists of the day today financial transactions in a chronological order. The journal has two aspects; they are debit aspect and the credit aspect.

Rules of debit and credit:

“An increase in an asset account, an increase in an expense account, a decrease in liability account, and a decrease in a revenue account should be debited.

Similarly, an increase in liability account, an increase in a revenue account and a decrease in an asset account, a decrease in an expenses account should be credited”.

The transactions of Company P for the month of August are as follows.

DateDescriptionPostRef.Debit ($)Credit ($)
2016a.Cash 17,500 
August     Person RM’s Capital  17,500
  (To record the owner’s capital)   
 
 b.Supplies 2,300 
      Accounts payable  2,300
  (To record the purchase of supplies on account)   
 
 c.Cash 13,300 
      Sales commissions  13,300
  (To record the fees received from customers)   
 
 d.Rent expense 3,000 
      Cash  3,000
  (To record the rent paid for the month)   
 
 e...

2.

To determine

Prepare T accounts and post the respective journal entries.

3.

To determine

Prepare an unadjusted trial balance of Company P at August 31, 2016.

4. a.

To determine

Calculate the amount of total revenue recorded in the ledger.

b.

To determine

Calculate the amount of total revenue recorded in the ledger.

c.

To determine

Calculate the amount of net income for August.

5.

To determine

Calculate the increase or decrease in owner’s equity for August.

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