Chapter 2, Problem 19E

1.

To determine

Prepare the journal entry to record the transactions for Company GW.

Answer to Problem 19E

Prepare the journal entry to record the transactions for Company GW.

Date	Account Title and Explanation	Debit($)	Credit($)
January 1	Cash	42,000
	Common Stock		42,000
	(To record the issuance of common stock)
January 5	Land	24,000
	Notes Payable		24,000
	(To record the purchase of land on signing a note)
January 9	Equipment	9,000
	Cash		9,000
	(To record the purchase of storage container equipment for cash)
January 12	No entry
January 18	Cash	13,000
	Service revenue		13,000
	(To record the rental fees received for the month)
January 23	Supplies	3,000
	Accounts payable		3,000
	(To record the purchase of office supplies on account)
January 31	Salaries expense	9,000
	Cash		9,000
	(To record the payment of salaries expense in cash)

Table (1)

Explanation of Solution

Journal:

Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Issuance of common stock on January1:

• Cash is an asset account, and it is increased. Therefore, debit Cash account.
• Common stock is a component of shareholder’s equity, and it is increased. Therefore, credit common stock account.

Purchase of land on signing a note on January 5:

• Land is an asset account, and it is increased. So, debit the Land account.
• Note Payable is a liability account, and it is increased. So, credit the Note Payable account.

Purchase of storage container equipment for cash on January 9:

• Equipment is the asset account, and it is increased. Hence, debit it.
• Cash is the asset account, and it is increased. Hence, credit it.

Hiring three employees per month on January 12:

• Hiring the employees does not have any impact on the financial statements. Hence, no journal entry is needed for this transaction.

Receipt of rental fees for the month on January 18:

• Cash is an asset account and it is increased. Hence, debit Cash account.
• Service Revenue is a revenue account, which is a component of stockholders’ equity, is increased. This in turn increases the stockholders’ equity. Hence, credit the Service Revenue account.

Purchase of office supplies on account on January 23:

• Supplies are the asset account and have a debit balance in nature. Since the supplies has purchased, the value of asset has increased. So, debit the Supplies account.
• Accounts Payable is a liability account and credit in nature. Since the payment of purchased supplies have not made, the liability has arises. So, credit the Accounts Payable account.

Payment of salaries expense for the current month on January 31:

• Salaries and Wages Expense is an expense account and debit in nature. Since the expense related to salaries of employees has incurred, the value of expense is increased. So, debit the Salaries and Wages Expense.
• Cash is an asset account and debit in nature. Since the amount has paid for the salaries and wages of the employees, the value of asset has decreased. So, credit the Cash account.

2.

To determine

Compute the ending balance of each account by posting the transaction to the T-accounts.

Explanation of Solution

T-account:

T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.

The components of the T-account are as follows:

a) The title of the account

b) The left or debit side

c) The right or credit side

Cash account:

Cash
	0
(1)	42,000
		(3)	9,000
(5)	13,000
		(7)	9,000
Balance	37,000

Common stock account:

Common Stock
			0
		(1)	42,000
		Balance	42,000

Land account:

Land
	0
(2)	24,000
Balance	24,000

Notes Payable account:

Notes Payable
			0
		(2)	24,000
		Balance	24,000

Equipment account:

Equipment
	0
(3)	9,000
Balance	9,000

Service Revenue account:

Service Revenue
			0
		(5)	13,000
		Balance	13,000

Supplies account:

Supplies
	0
(6)	3,000
Balance	3,000

Accounts Payable account:

Notes Payable
			0
		(6)	3,000
		Balance	3,000

Salaries Expense account:

Salaries Expense
	0
(7)	9,000
Balance	9,000

3.

To determine

Prepare a trial balance for Company GW.

Explanation of Solution

Trial balance:

A trial balance is the summary of all the ledger accounts. Debit balances are listed in left column and credit balances are listed in right column of the trial balance. The totals of debit and credit column should be equal. The trial balance is usually prepared to check the accuracy of ledger accounts balances, before the preparation of financial statements.

Prepare the trial balance of Company GW:

Company GW
Trial balance
For the month end, January 31
Accounts	Debit($)	Credit($)
Cash	37,000
Supplies	3,000
Land	24,000
Equipment	9,000
Accounts payable		3,000
Notes Payable		24,000
Common stock		42,000
Service revenue		13,000
Salaries expense	9,000
Total	$82,000	$82,000

Table (2)

Conclusion

Hence, the trial balance is prepared, and the debit column and credit column of the trial balance are agreed, both having balance of $82,000.