Concept explainers
Problem 2-2A Preparing and posting
P2
Aracle Engineering completed the following transactions in the month of June.
a. Jena Aracel, the owner, invested $100,000 cash, office equipment with a value of $5,000.
and $60,000 of drafting equipment to launch the company in exchange for common stock.
b. The company purchased land worth $49,000 for an office by paying $6,300cash and
signing a long-term note payable for $42,700.
c. The company purchased a portable building with $55,000 cash and moved it onto the land
acquired in b.
d. The company paid $3,000 cash for the premium on an 18-month insurance policy.
e. The company completed on delivered a set of plans for a client and collected $6,200 cash.
f. The company purchased $20,000 of additional drafting equipment by paying $9,500 cash
and signing a long-term note payable for $10,500.
g. The company completed $14,000 of engineering services for a client. This amount is to be
received in 30 days.
h. The company purchased $1,150 of additional office equipment on credit.
i. The company completed engineering services for $22,000 on credit.
j. The company received a bill for rent of equipment that was used on a recently completed
job. The $1,333 rent cost must be paid within 30 days.
k. The company completed $7,000 cash is partial payment from the client described in
transaction g.
l. The company paid $1,200cash for wages to a drafting assistant.
m. The company paid $1,150 cash to settle the account payable credit in transaction h.
n. The company paid $925 cash for minor maintenance of its drafting equipment.
o. The company paid $9480 cash in dividends.
p. The company paid$1,200 cash for wages to drafting assistant.
q. The company paid $2,500cash for advertisements on the web during June.
Required
1. Prepare general journal entries to record these transactions (use the account titles listed in
part 2).
2. Open the following ledger accounts—their account numbers are in parentheses (use the
balance column format): Cash (101): Accounts Receivable(106): Prepared insurance (108):
office Equipment (163): Drafting Equipment (164): Building (170): Land (172): Accounts
Payable (201): Notes Payable (250): Common stock (307): Dividends (319):Engineering
Fees Earned (402): Wages Expense (601); Equipment Rental Expense (602); Advertising
Expense (603): and Repair Expense (604). Post the journal entries from part 1to the
accounts and enter the balance after each posting.
Check (2 )Ending balances : Cash. $22,945; Accounts Receivable,$29,000;Accounts
payable.$1,333
3. Prepare a trial balance as of the end of June.
(3)Trial balance totals, $261,733
1.
To prepare: Journal entry.
Explanation of Solution
Journal entries to record the accounting transactions.
a.
Date |
Account Title and Explanation |
Post. ref |
Debit ($) |
Credit ($) |
Cash |
|
100,000 |
|
|
|
Office Equipment |
|
5000 |
|
|
Drafting Equipment |
|
60,000 |
|
|
JA’s Capital account |
|
|
165,000 |
|
( Being cash and equipment has been invested by the owner.) |
|
|
|
Table (1)
- Cash and all the equipment has been converted into capital to invest in the business so the entire amount has been debited.
- Amount invested in the business is actually generated from all the cash and equipment and owner invested the entire amount in business so credited.
b.
Date |
Account Title and Explanation |
Post. ref |
Debit ($) |
Credit ($) |
Land |
|
$49,000 |
|
|
|
Cash |
|
$6,300 |
|
|
Notes Payable |
|
$42,700 |
|
|
( Being land has been purchased for cash and notes payable.) |
|
|
|
Table (2)
- Land is debited because it has been purchased and own by owner now.
- Cash and notes payable are credited as they have been paid to acquire the land.
c.
Date |
Account Title and Explanation |
Post. ref |
Debit ($) |
Credit ($) |
Building |
|
$55,000 |
|
|
|
Cash |
|
$55,000 |
|
|
( Being building has been purchased for cash.) |
|
|
|
Table (3)
- Building is debited as it has been purchased by the owner.
- Cash is credited as it has been paid to acquire the building.
d.
Date |
Account Title and Explanation |
Post. ref |
Debit ($) |
Credit ($) |
Prepaid Insurance |
|
$3,000 |
|
|
|
Cash |
|
$3,000 |
|
|
( Being 18 month insurance policy has been purchased for cash.) |
|
|
|
Table (4)
- Prepaid insurance is debited because it has been added to owner’s account.
- Cash is credited as it is reduced for purchasing the policy.
e.
Date |
Account Title and Explanation |
Post. ref |
Debit ($) |
Credit ($) |
Cash |
|
6,200 |
|
|
|
Fees earned for project |
|
6,200 |
|
|
( Being client billed for completed project.) |
|
|
|
Table (5)
- Cash is debited because it has been earned for completing the client’s work.
- Project is credited because it has been delivered after its completion.
f.
Date |
Account Title and Explanation |
Post. ref |
Debit ($) |
Credit ($) |
Drafting equipment |
|
20,000 |
|
|
|
Cash |
|
9,500 |
|
|
Notes Payable |
|
10,500 |
|
|
( Being drafting equipment has been purchased for cash and notes payable.) |
|
|
|
Table (6)
- Drafting equipment is debited because it has been purchased and own by owner now.
- Cash and notes payable is credited as they have been paid to acquire the drafting equipment.
g.
Date |
Account Title and Explanation |
Post. ref |
Debit ($) |
Credit ($) |
Account receivable |
|
14,000 |
|
|
|
Fees earned for engineering services |
|
14,000 |
|
|
( Being amount to be collected for delivering the project in 30 days.) |
|
|
|
Table (7)
- Since cash is going to receive in nest 30 days so it has been debited under the accounts receivables.
- Engineering services is credited because it has been delivered after its completion.
h.
Date |
Account Title and Explanation |
Post. ref |
Debit ($) |
Credit ($) |
Office Equipment |
|
1,050 |
|
|
|
Account payable |
|
1,050 |
|
|
( Being amount to be paid for purchasing the equipment.) |
|
|
|
Table (8)
- Office equipment has been acquired so it will be debited.
- Since amount is to be paid later on so it will be credited under accounts payable.
i.
Date |
Account Title and Explanation |
Post. ref |
Debit ($) |
Credit ($) |
Account receivable |
|
22,000 |
|
|
|
Fees earned for engineering services |
|
22,000 |
|
|
( Being amount collected for delivering the project.) |
|
|
|
Table (9)
- Since cash is going to receive later so it has been debited under the accounts receivables.
- Engineering services is credited because it has been delivered after its completion.
j.
Date |
Account Title and Explanation |
Post. ref |
Debit ($) |
Credit ($) |
Equipment rental expense |
|
1,333 |
|
|
|
Account payable |
|
1,333 |
|
|
( Being incurred equipment rental expense.) |
|
|
|
Table (10)
- Office equipment on rent has been received so it will be debited.
- Since amount is to be paid later on so it will be credited under accounts payable.
k.
Date |
Account Title and Explanation |
Post. ref |
Debit ($) |
Credit ($) |
Cash |
|
7,000 |
|
|
|
Account receivable |
|
7,000 |
|
|
( Being half of the amount received.) |
|
|
|
Table (11)
- Cash has been received so it will be debited.
- Since amount is received which was credit so recorded under account receivables.
l.
Date |
Account Title and Explanation |
Post. ref |
Debit ($) |
Credit ($) |
Wages Expenses |
|
1,200 |
|
|
|
Cash |
|
1,200 |
|
|
( Being cash has been paid for wages expense.) |
|
|
|
Table (12)
- Wages expenses have been debited because they have used up by the company.
- Since transaction is done on cash not on credit so cash has been credit for paying the amount.
m.
Date Account Title and Explanation Post. ref Debit ($) Credit ($) Accounts payable 1,150 Cash 1,150 (Being cash has been paid for previous expenses.) Table (13)
- Accounts payable is debited because amount has been paid for using services on credit previously.
- Amount has been paid in cash so it has been credit.
n.
Date |
Account Title and Explanation |
Post. ref |
Debit ($) |
Credit ($) |
Repair Expense |
|
925 |
|
|
|
Cash |
|
925 |
|
|
( Being cash has been paid for repair expense.) |
|
|
|
Table (14)
- Maintenance has been received by the drafting equipment so it is debited.
- Amount for expenses has been paid in cash so it is credited.
o.
Date |
Account Title and Explanation |
Post. ref |
Debit ($) |
Credit ($) |
Dividends |
|
9,480 |
|
|
|
Cash |
|
9,480 |
|
|
( Being cash has been paid to shareholders in the form of dividends) |
|
|
|
Table (15)
- Dividends have been paid to shareholders by the company so it will be debited.
- Cash is credited because dividend is paid in the form of cash.
p.
Date |
Account Title and Explanation |
Post. ref |
Debit ($) |
Credit ($) |
Wages expenses |
|
1,200 |
|
|
|
Cash |
|
1,200 |
|
|
( Being assistant’s wages paid off) |
|
|
|
Table (16)
- Since assistant’s service has been received so his wages has been debited.
- The assistant received his wages in cash so cash has been credited.
q.
Date |
Account Title and Explanation |
Post. ref |
Debit ($) |
Credit ($) |
Advertising expenses |
|
1,200 |
|
|
|
Cash |
|
1,200 |
|
|
( Being cash paid for advertising expense) |
|
|
|
Table (17)
- Advertising expenses has been incurred so debited.
- Amount for expenses has been paid in cash so credited.
2
To prepare: ledger account
Explanation of Solution
General ledgers
Cash No.101 |
|||||
Date |
Account Title and Explanation |
Post ref |
Debit ($) |
Credit ($) |
Balance ($) |
JA’s capital account |
100,000 |
100,000 |
|||
Land |
6,300 |
93,700 |
|||
Building |
55,000 |
38,700 |
|||
Prepaid Insurance |
3,000 |
35,700 |
|||
Project delivered |
6,200 |
41,900 |
|||
Drafting equipment |
9,500 |
32,400 |
|||
Account receivable |
7,000 |
39,400 |
|||
Wages expenses |
1,200 |
38,200 |
|||
Accounts payable |
1,150 |
37,050 |
|||
Repair expenses |
925 |
36,125 |
|||
Dividend payment |
9,480 |
26,645 |
|||
Wages |
1,200 |
25,445 |
|||
Advertising |
2,500 |
22,945 |
Table (18)
So, the ending balance is $22,945.
Accounts receivable 106 |
|||||
Date |
Account Title and Explanation |
Post ref |
Debit ($) |
Credit ($) |
Balance ($) |
Project completion |
14,000 |
14,000 |
|||
Project completion |
22,000 |
36,000 |
|||
Cash |
7,000 |
29,000 |
Table (19)
So, the ending balance is $29,000.
Prepaid Insurance 108 |
|||||
Date |
Account Title and Explanation |
Post ref |
Debit ($) |
Credit ($) |
Balance ($) |
g. |
Cash |
3,000 |
3,000 |
Table (20)
So, the ending balance is $3,000.
General ledger
Office Equipment 163 |
|||||
Date |
Account Title and Explanation |
Post ref |
Debit ($) |
Credit ($) |
Balance ($) |
a. |
Cash |
5,000 |
5,000 |
||
f. |
Office Equipment |
1,150 |
6,150 |
Table (21)
So, the ending balance is $6,150.
Drafting Equipment 164 |
|||||
Date |
Account Title and Explanation |
Post ref |
Debit ($) |
Credit ($) |
Balance ($) |
Cash |
60,000 |
60,000 |
|||
Cash |
20,000 |
80,000 |
Table (22)
So, the ending balance is $80,000.
Building No.170 |
|||||
Date |
Account Title and Explanation |
Post ref |
Debit ($) |
Credit ($) |
Balance ($) |
Cash |
55,000 |
55,000 |
Table (23)
So, the ending balance is $55,000.
Building No.170 |
|||||
Date |
Account Title and Explanation |
Post ref |
Debit ($) |
Credit ($) |
Balance ($) |
Cash |
49,000 |
49,000 |
Table (24)
So, the ending balance is $49,000.
General ledger
Accounts payable 201 |
|||||
Date |
Account Title and Explanation |
Post ref |
Debit ($) |
Credit ($) |
Balance ($) |
Office expense |
1,150 |
1,150 |
|||
Equipment rental |
1,333 |
2,483 |
|||
Cash |
1,150 |
1,333 |
Table (25)
So, the ending balance is $1,333.
General ledger
Notes Payable .250 |
|||||
Date |
Account Title and Explanation |
Post ref |
Debit ($) |
Credit ($) |
Balance ($) |
Land |
42,700 |
42,700 |
|||
Cash |
10,500 |
53,200 |
Table (26)
So, the ending balance is $53,200.
JA’s Capital No.301 |
|||||
Date |
Account Title and Explanation |
Post ref |
Debit ($) |
Credit ($) |
Balance ($) |
Cash |
165,000 |
165,000 |
Table (27)
So, the ending balance is $165,000.
Dividend No.301 |
|||||
Date |
Account Title and Explanation |
Post ref |
Debit ($) |
Credit ($) |
Balance ($) |
Cash |
9,480 |
9,480 |
Table (28)
So, the ending balance is $9,480.
Engineering fees earned .402 |
|||||
Date |
Account Title and Explanation |
Post ref |
Debit ($) |
Credit ($) |
Balance ($) |
Cash |
6,200 |
6,200 |
|||
Accounts Receivable |
14,000 |
20,200 |
|||
Accounts Receivable |
22,000 |
42,000 |
Table (29)
So, the ending balance is $42,200.
Wages Expenses 601 |
|||||
Date |
Account Title and Explanation |
Post ref |
Debit ($) |
Credit ($) |
Balance ($) |
Cash |
1,200 |
1,200 |
|||
Cash |
1,200 |
2,400 |
Table (30)
So, the ending balance is $2,400.
Equipment rental expense No.602 |
|||||
Date |
Account Title and Explanation |
Post ref |
Debit ($) |
Credit ($) |
Balance ($) |
Accounts Payable |
1,333 |
1,333 |
Table (31)
So, the ending balance is $1,333.
Advertising expense no 603 |
|||||
Date |
Account Title and Explanation |
Post ref |
Debit ($) |
Credit ($) |
Balance ($) |
Cash |
2,500 |
2,500 |
Table (32)
So, the ending balance is $2,500.
Repairs expense no 604 |
|||||
Date |
Account Title and Explanation |
Post ref |
Debit ($) |
Credit ($) |
Balance ($) |
Cash |
925 |
925 |
Table (33)
So, the ending balance is $925.
3.
To prepare: Trial balance.
Explanation of Solution
Trial balance
Company A |
||
Trial Balance |
||
June 30, 20XX |
||
Accounts Title |
Amount ($) |
Amount ($) |
Cash |
22,945 |
|
Accounts Payable |
1,333 |
|
Accounts Receivable |
29,000 |
|
Prepaid Insurance |
3,000 |
|
Office Equipment |
6,150 |
|
Drafting Equipment |
80,000 |
|
Building |
55,000 |
|
Land |
49,000 |
|
Note Payable |
53,200 |
|
Capital |
165,000 |
|
Dividends |
9,480 |
|
Engineering fees earned |
42,200 |
|
Wages Expenses |
2,400 |
|
Equipment rental expenses |
1,333 |
|
Advertising Expense |
2500 |
|
Repairs Expense |
925 |
|
Totals |
261,733 |
261,733 |
Table (34)
So, total trial balance is $261,733.
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