Concept explainers
To prepare: The
Explanation of Solution
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.
The accounting equation implies the relationship between the assets, liabilities, and the stockholders equity. The balance of both the assets and the liabilities, stockholders equity must be equally balanced. The accounting equation is as follows;
- a. To journalize: The issuance of common stock.
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Cash (A+) | 80,000 | ||
Common stock (SE+) | 80,000 | ||
(To record the issuance of common stock to investors) |
Table (1)
- Cash is an asset account. Thus, an increase in cash increases the asset account. Hence, debit cash account by $80,000.
- Common stock is a component of
stockholder equity account. Thus, an increase in common stock increases the stockholders equity account. Hence, common stock account is being credited to increase its balance by $80,000.b. To journalize: The service rendered partly for cash and partly on account.
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Cash (A+) | 16,000 | ||
72,000 | |||
Service revenue (R+, SE+) | 88,000 | ||
(To record the service performed partly for cash and partly on account) |
Table (2)
- Cash is an asset account. Thus, an increase in cash increases the asset account. Hence, debit cash account by $16,000.
- Accounts receivable is an asset account. Thus, an increase in accounts receivable increases the asset account. Hence, debit accounts receivable account by $72,000.
- Service revenue is a stockholder’s equity account. Thus, an increase in service revenue increases the stockholder’s equity account. Hence, service revenue account is being credited to increase its balance by $88,000.
- c. To journalize: The equipment purchased on account.
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Equipment (A+) | 82,000 | ||
Accounts payable (L+) | 82,000 | ||
(To record the purchase of equipment on account ) |
Table (3)
- Equipment is an asset account. Thus, an increase in equipment increases the asset account. Hence, debit equipment account by $82,000.
- Accounts payable is a liability account. Thus, an increase in accounts payable increases the liability account. Hence, account payable account is being credited to increase its balance by $82,000.
- d. To journalize: The repair expense incurred on account.
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Repairs and maintenance expenses (E+, SE-) | 3,000 | ||
Accounts payable (L+) | 3,000 | ||
(To record the repair expenses incurred on account) |
Table (4)
- Repairs and maintenance is an expense account which comes under
Retained earnings in stockholder’s equity. Thus, an increase in Repairs and maintenance expense account decreases the stockholder’s equity account. Hence, Repairs and maintenance expenses account is being debited to increase its balance by $3,000. - Accounts payable is a liability account. Thus, an increase in accounts payable increases the liability account. Hence, accounts payable account is being credited to increase its balance by $3,000.
- e. To journalize: The cash received for the service rendered on account.
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Cash (A+) | 65,000 | ||
Accounts receivable (A–) | 65,000 | ||
(To record the cash received for the service performed on account) |
Table (5)
- Cash is an asset account. Thus, an increase in cash increases the asset account. Hence, debit cash account by $65,000.
- Accounts receivable is an asset account. Thus, a decrease in accounts receivable decreases the asset account. Hence, debit accounts receivable account by $65,000.
- f. To journalize: The amount borrowed by signing a note.
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Cash (A+) | 90,000 | ||
Notes payable (L+) | 90,000 | ||
(To record the amount borrowed by signing a note) |
Table (6)
- Cash is an asset account. Thus, an increase in cash increases the asset account. Hence, debit cash account by $90,000.
- Notes payable is a liability account. Thus, an increase in notes payable increases the liability account. Hence, notes payable account is being credited to increase its balance by $90,000.
- g. To journalize: The rent paid in advance.
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Prepaid Rent(A+) | 74,400 | ||
Cash (A-) | 74,400 | ||
(To record the rent amount paid in advance ) |
Table (7)
- Prepaid rent is an asset account. Thus, an increase in prepaid rent increases the asset account. Hence, debit prepaid rent account by $74,400.
- Cash is an asset account. Thus, a decrease in cash decreases the asset account. Hence, credit cash account by $74,400.
- h. To journalize: The wages expense incurred for the current month.
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Salaries and Wages expenses (E+, SE–) | 38,000 | ||
Cash (A–) | 38,000 | ||
(To record the payment of wages to employees) |
Table (8)
- Salaries and Wages expense is a component of stockholder equity account. Thus, an increase in Salaries and Wages expenses decreases the stockholders equity account. Hence, Salaries and Wages expenses account is being debited to increase its balance by $38,000.
- Cash is an asset account. Thus, a decrease in cash decreases the asset account. Hence, credit cash account by $38,000.
- i. To journalize: The delivery expense incurred.
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Delivery expenses (E+, SE–) | 49,000 | ||
Cash (A–) | 49,000 | ||
(To record the delivery expenses incurred) |
Table (9)
- A delivery expense is a component of stockholder equity account. Thus, an increase in delivery expenses decreases the stockholders equity account. Hence, delivery expenses account is being debited to increase its balance by $1,200.
- Cash is an asset account. Thus, a decrease in cash decreases the asset account. Hence, credit cash account by $1,200.
- j. To journalize: The payment made for the purchase of furniture on account.
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Accounts payable (L-) | 2,000 | ||
Cash (A-) | 2,000 | ||
(To record the payment made for the accounts payable) |
Table (10)
- Accounts payable is a liability account. Thus, a decrease in accounts payable decreases the liability account. Hence, account payable account is being debited to decrease its balance by $15,000.
- Cash is an asset account. Thus, a decrease in cash account decreases the asset account. Hence, cash account is being credited to decrease its balance by $15,000.
- k. No entry is required for this item, as there is no exchange transaction has ocuured.
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Chapter 3 Solutions
Fundamentals of Financial Accounting
- Prepare journal entries to record the following transactions for the month of November: A. on first day of the month, issued common stock for cash, $20,000 B. on third day of month, purchased equipment for cash, $10,500 C. on tenth day of month, received cash for accounting services, $14,250 D. on fifteenth day of month, paid miscellaneous expenses, $3,200 E. on last day of month, paid employee salaries, $8,600arrow_forwardReconstructing a Beginning Account Balance During the month, services performed for customers on account amounted to $7,500 and collections from customers in payment of their accounts totaled $6,000. At the end of the month, the Accounts Receivable account had a balance of $2,500. What was the Accounts Receivable balance at the beginning of the month?arrow_forwardReversing Entries Thomas Company entered into two transactions involving promissory notes and properly recorded each transaction. 1. On November 1, it purchased land at a cost of 8,000. It made a 2,000 down payment and signed a note payable agreeing to pay the 6,000 balance in 6 months plus interest at an annual rate of 10%. 2. On December 1, it accepted a 4,200, 3-month, 12% (annual interest rate) note receivable from a customer for the sale of merchandise. On December 31, Thomas made the following related adjustments: Required: 1. Assuming that Thomas uses reversing entries, prepare journal entries to record: a. the January 1, reversing entries b. the March 1, 4,326 collection of the note receivable c. the May 1, 6,300 payment of the note payable 2. Assuming instead that Thomas does not use reversing entries, prepare journal entries to record the collection of the note receivable and the payment of the note payable.arrow_forward
- The following transactions were completed by Hammond Auto Supply during January, which is the first month of this fiscal year. Terms of sale are 2/10, n/30. The balances of the accounts as of January 1 have been recorded in the general ledger in your Working Papers or in CengageNow. Hammond Auto Supply does not track cash sales by customer. Jan. 2Issued Ck. No. 6981 to JSS Management Company for monthly rent, 775. 2J. Hammond, the owner, invested an additional 3,500 in the business. 4Bought merchandise on account from Valencia and Company, invoice no. A691, 2,930; terms 2/10, n/30; dated January 2. 4Received check from Vega Appliance for 980 in payment of 1,000 invoice less discount. 4Sold merchandise on account to L. Paul, invoice no. 6483, 850. 6Received check from Petty, Inc., 637, in payment of 650 invoice less discount. 7Issued Ck. No. 6982, 588, to Fischer and Son, in payment of invoice no. C1272 for 600 less discount. 7Bought supplies on account from Doyle Office Supply, invoice no. 1906B, 108; terms net 30 days. 7Sold merchandise on account to Ellison and Clay, invoice no. 6484, 787. 9Issued credit memo no. 43 to L. Paul, 54, for merchandise returned. 11Cash sales for January 1 through January 10, 4,863.20. 11Issued Ck. No. 6983, 2,871.40, to Valencia and Company, in payment of 2,930 invoice less discount. 14Sold merchandise on account to Vega Appliance, invoice no. 6485, 2,050. Jan. 18Bought merchandise on account from Costa Products, invoice no. 7281D, 4,854; terms 2/10, n/60; dated January 16; FOB shipping point, freight prepaid and added to the invoice, 147 (total 5,001). 21Issued Ck. No. 6984, 194, to M. Miller for miscellaneous expenses not recorded previously. 21Cash sales for January 11 through January 20, 4,591. 23Issued Ck. No. 6985 to Forbes Freight, 96, for freight charges on merchandise purchased on January 4. 23Received credit memo no. 163, 376, from Costa Products for merchandise returned. 29Sold merchandise on account to Bruce Supply, invoice no. 6486, 1,835. 31Cash sales for January 21 through January 31, 4,428. 31Issued Ck. No. 6986, 53, to M. Miller for miscellaneous expenses not recorded previously. 31Recorded payroll entry from the payroll register: total salaries, 6,200; employees federal income tax withheld, 872; FICA Social Security tax withheld, 384.40, FICA Medicare tax withheld, 89.90. 31Recorded the payroll taxes: Social Security tax, 384.40, FICA Medicare tax, 89.90; state unemployment tax, 334.80; federal unemployment tax, 37.20. 31Issued Ck. No. 6987, 4,853.70, for salaries for the month. 31J. Hammond, the owner, withdrew 1,000 for personal use, Ck. No. 6988. Required 1. Record the transactions for January using a sales journal, page 73; a purchases journal, page 56; a cash receipts journal, page 38; a cash payments journal, page 45; and a general journal, page 100. Assume the periodic inventory method is used. 2. Post daily all entries involving customer accounts to the accounts receivable ledger. 3. Post daily all entries involving creditor accounts to the accounts payable ledger. 4. Post daily those entries involving the Other Accounts columns and the general journal to the general ledger. Write the owners name in the Capital and Drawing accounts. 5. Add the columns of the special journals and prove the equality of the debit and credit totals. 6. Post the appropriate totals of the special journals to the general ledger. 7. Prepare a trial balance. 8. Prepare a schedule of accounts receivable and a schedule of accounts payable. Do the totals equal the balances of the related controlling accounts?arrow_forwardThe following transactions were completed by Hammond Auto Supply during January, which is the first month of this fiscal year. Terms of sale are 2/10, n/30. The balances of the accounts as of January 1 have been recorded in the general ledger in your Working Papers or in CengageNow. Hammond Auto Supply does not track cash sales by customer. Jan. 2Issued Ck. No. 6981 to JSS Management Company for monthly rent, 775. 2J. Hammond, the owner, invested an additional 3,500 in the business. 4Bought merchandise on account from Valencia and Company, invoice no. A691, 2,930; terms 2/10, n/30; dated January 2. 4Received check from Vega Appliance for 980 in payment of 1,000 invoice less discount. 4Sold merchandise on account to L. Paul, invoice no. 6483, 850. 6Received check from Petty, Inc., 637, in payment of 650 invoice less discount. 7Issued Ck. No. 6982, 588, to Fischer and Son, in payment of invoice no. C1272 for 600 less discount. 7Bought supplies on account from Doyle Office Supply, invoice no. 1906B, 108; terms net 30 days. 7Sold merchandise on account to Ellison and Clay, invoice no. 6484, 787. 9Issued credit memo no. 43 to L. Paul, 54, for merchandise returned. 11Cash sales for January 1 through January 10, 4,863.20. 11Issued Ck. No. 6983, 2,871.40, to Valencia and Company, in payment of 2,930 invoice less discount. 14Sold merchandise on account to Vega Appliance, invoice no. 6485, 2,050. Jan. 18Bought merchandise on account from Costa Products, invoice no. 7281D, 4,854; terms 2/10, n/60; dated January 16; FOB shipping point, freight prepaid and added to the invoice, 147 (total 5,001). 21Issued Ck. No. 6984, 194, to M. Miller for miscellaneous expenses not recorded previously. 21Cash sales for January 11 through January 20, 4,591. 23Issued Ck. No. 6985 to Forbes Freight, 96, for freight charges on merchandise purchased on January 4. 23Received credit memo no. 163, 376, from Costa Products for merchandise returned. 29Sold merchandise on account to Bruce Supply, invoice no. 6486, 1,835. 31Cash sales for January 21 through January 31, 4,428. 31Issued Ck. No. 6986, 53, to M. Miller for miscellaneous expenses not recorded previously. 31Recorded payroll entry from the payroll register: total salaries, 6,200; employees federal income tax withheld, 872; FICA Social Security tax withheld, 384.40, FICA Medicare tax withheld, 89.90. 31Recorded the payroll taxes: Social Security tax, 384.40, FICA Medicare tax, 89.90; state unemployment tax, 334.80; federal unemployment tax, 37.20. 31Issued Ck. No. 6987, 4,853.70, for salaries for the month. 31J. Hammond, the owner, withdrew 1,000 for personal use, Ck. No. 6988. Required 1. Record the transactions in the general journal for January. If you are using Working Papers, start with page 1 in the journal. Assume the periodic inventory method is used. The chart of accounts is as follows: 2. Post daily all entries involving customer accounts to the accounts receivable ledger. 3. Post daily all entries involving creditor accounts to the accounts payable ledger. 4. Post daily the general journal entries to the general ledger. Write the owners name in the Capital and Drawing accounts. 5. Prepare a trial balance. 6. Prepare a schedule of accounts receivable and a schedule of accounts payable. Do the totals equal the balances of the related controlling accounts?arrow_forwardPrepare journal entries to record the following transactions that occurred in March: A. on first day of the month, purchased building for cash, $75,000 B. on fourth day of month, purchased inventory, on account, $6,875 C. on eleventh day of month, billed customer for services provided, $8,390 D. on nineteenth day of month, paid current month utility bill, $2,000 E. on last day of month, paid suppliers for previous purchases, $2,850arrow_forward
- Customer Deposits Wolfe $ Wolfe collected $9,000 from a customer on April 1 and agreed to provide legal services during the next three months. Wolfe $ Wolfe expects to provide an equal amount of services each month. Required Prepare the journal entry for the receipt of the customer deposit on April 1. Prepare the adjusting entry on April 30. What will be the effect on net income for April if the entry in (2) is not recorded?arrow_forwardPost the following July transactions to T-accounts for Accounts Receivable, Sales Revenue, and Cash, indicating the ending balance. Assume no beginning balances in these accounts. A. on first day of the month, sold products to customers for cash, $13,660 B. on fifth day of month, sold products to customers on account, $22,100 C. on tenth day of month, collected cash from customer accounts, $18,500arrow_forwardPrepare journal entries to record the following transactions for the month of July: A. on first day of the month, paid rent for current month, $2,000 B. on tenth day of month, paid prior month balance due on accounts, $3,100 C. on twelfth day of month, collected cash for services provided, $5,500 D. on twenty-first day of month, paid salaries to employees, $3,600 E. on thirty-first day of month, paid for dividends to shareholders, $800arrow_forward
- Journal Entries Following is a list of transactions entered into during the first month of operations of Gardener Corporation, a new landscape service. Prepare in journal form the entry to record each transaction. April 1: Articles of incorporation are filed with the state, and 100,000 shares of common stock are issued for $100,000 in cash. April 4: A six-month promissory note is signed at the bank. Interest at 9% per annum will be repaid in six months along with the principal amount of the loan of $50,000. April 8: Land and a storage shed are acquired for a lump sum of $80,000. On the basis of an appraisal, 25% of the value is assigned to the land and the remainder to the building. April 10: Mowing equipment is purchased from a supplier at a total cost of $25,000. A down payment of $10,000 is made, with the remainder due by the end of the month. April 18: Customers are billed for services provided during the first half of the month. The total amount billed of $5,500 is due within ten days. April 27: The remaining balance due on the mowing equipment is paid to the supplier. April 28: The total amount of $5,500 due from customers is received. April 30: Customers are billed for services provided during the second half of the month. The total amount billed is $9,850. April 30: Salaries and wages of $4,650 for the month of April are paid.arrow_forwardAdjusting Entries Kretz Corporation prepares monthly financial statements and therefore adjusts its accounts at the end of every month. The following information is available for March 2016: Kretz Corporation takes out a 90-day, 8%, $15,000 note on March 1, 2016, with interest and principal to be paid at maturity. The asset account Office Supplies on Hand has a balance of $1,280 on March 1, 2016. During March, Kretz adds $750 to the account for purchases during the period. A count of the supplies on hand at the end of March indicates a balance of $1,370. The company purchased office equipment last year for $62,600. The equipment has an estimated useful life of six years and an estimated salvage value of $5,000. The companys plant operates seven days per week with a daily payroll of $950. Wage earners are paid every Sunday. The last day of the month is Thursday, March 31. The company rented an idle warehouse to a neighboring business on February 1, 2016, at a rate of $2,500 per month. On this date, Kretz Corporation credited Rent Collected in Advance for six months rent received in advance. On March 1, 2016, Kretz Corporation credited a liability account, Customer Deposits, for $4,800. This sum represents an amount that a customer paid in advance and that Kretz will earn evenly over a four-month period. Based on its income for the month, Kretz Corporation estimates that federal income taxes for March amount to $3,900. Required For each of the preceding situations, prepare in general journal form the appropriate adjusting entry to be recorded on March 31, 2016.arrow_forwardReview the following transactions and prepare any necessary journal entries. A. On January 5, Bunnet Co. purchases 350 aprons (Supplies) at $25 per apron from a supplier, on credit. Terms of the purchase are 3/10, n/30 from the invoice date of January 5. B. On February 18, Melon Construction receives advance cash payment from a client for construction services in the amount of $20,000. Melon had yet to provide construction services as of February 18. C. On March 21, Noonan Smoothies sells 875 smoothies for $4 cash per smoothie. The sales tax rate is 6.5%. D. On June 7, Organic Methods paid a portion of their noncurrent note in the amount of $9,340 cash.arrow_forward
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