Chapter 2, Problem 2PSA

Problem 2-2A Preparing and posting journal entries; preparing a trial balance C3 C4 A1 P1

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

To determine

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.

To determine

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.

To determine

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.