Chapter 2, Problem 2.11P

(1) (a)

To determine

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting rules for Journal entries:

• To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
• To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.

To Determine: The sales revenue for the month of December.

Explanation of Solution

Determine the sales revenue for the month of December.

Sales Revenue:

$\begin{array}{l}\begin{array}{l}\text{Cash}\text{receipts}\text{from}\\ \text{Customers}\end{array}]=\text{Sales}\text{revenue }\left(\begin{array}{l}+\text{Decrease in Accounts Receivable}\\ \text{OR}\\ -\text{Increase in Accounts Receivable}\end{array}\right)\\ \Rightarrow \text{Sales}\text{revenue}=\left[\begin{array}{l}\left(\text{Cash}\text{receipts}\text{from}\text{Customers}\right)\\ \left(\begin{array}{l}-\text{Decrease in Accounts Receivable}\\ \text{OR}\\ +\text{Increase in Accounts Receivable}\end{array}\right)\end{array}\right]\end{array}$

Working Note:

$\begin{array}{c}\text{Sales}\text{Revenue}\text{=}\text{Cash}\text{receipts}\text{from}\text{Customers}-\text{Decrease in Accounts Receivable}\\ \text{=\$80,000}-\left(\$10,000-\$3,000\right)\\ \text{=}\$80,000-\$7,000\\ =\$73,000\end{array}$

Conclusion

Thus, the amount of sales revenue is $73,000.

(1) (b)

To determine

The cost of goods sold for the month of December.

Explanation of Solution

Determine the cost of goods sold for the month of December.

Compute the amount of cost of goods sold:

$\begin{array}{l}\text{Cash}\text{payment }\\ \text{to suppliers}\end{array}]=\text{Cost of Goods Sold }\left(\begin{array}{l}+\text{ Decrease in Accounts Payable}\\ \text{/}\text{Increase in Inventory}\\ \text{OR}\\ -\text{Increase in Accounts Payable }\\ \text{/}\text{Decrease in Inventory}\end{array}\right)$

$\Rightarrow \text{Cost of goods sold }=\left[\begin{array}{l}\text{Cash Payments to Suppliers}\\ \left(\begin{array}{l}-\text{ Decrease in Accounts Payable}\\ \text{/}\text{Increase in Inventory}\\ \text{OR}\\ +\text{Increase in Accounts Payable }\\ \text{/}\text{Decrease in Inventory}\end{array}\right)\end{array}\right]$

Working Note:

$\begin{array}{l}\Rightarrow \text{Cost of goods sold =}\left[\begin{array}{l}\text{Cash Payments to Suppliers}\\ \left(\begin{array}{l}+\text{ Increase in Accounts Payable}\\ \text{+Decrease in Inventory}\end{array}\right)\end{array}\right]\\ \Rightarrow \text{Cost of goods sold }=\$60,000\left[\begin{array}{l}+3,000\left(\$15,000-\$12,000\right)\\ +\$1,000\left(\$7,000-\$6,000\right)\end{array}\right]\\ \Rightarrow \text{Cost of goods sold }=\$64,000\end{array}$

Conclusion

Thus, the amount of cost of goods sold is $64,000.

(1) (c)

To determine

The insurance expense for the month of December.

Explanation of Solution

Determine the insurance expense for the month of December.

Insurance Expense:

$\begin{array}{l}\begin{array}{l}\text{Cash payments for }\\ \text{Insurance Expense}\end{array}]=\text{ Insurance Expenses}\left\{\begin{array}{l}+\text{Increase in Prepaid Insurance }\\ \text{OR}\\ -\text{Decrease in Prepaid Insurance }\end{array}\right\}\\ \Rightarrow \text{Insurance Expenses}=\left[\begin{array}{l}\left(\begin{array}{l}\text{Cash payments for}\\ \text{ Insurance Expense}\end{array}\right)\\ \left\{\begin{array}{l}-\text{Increase in Prepaid Insurance }\\ \text{OR}\\ \text{+Decrease in Prepaid Insurance }\end{array}\right\}\end{array}\right]\end{array}$

$\begin{array}{c}\text{Insurance Expenses}=\left[\begin{array}{l}\left(\begin{array}{l}\text{Cash payments for}\\ \text{ Insurance Expense}\end{array}\right)\\ -\text{Increase in Prepaid Insurance }\end{array}\right]\\ =\$5,000-2,500\left(\$7,500-\$5,000\right)\\ =\$2,500\end{array}$

Conclusion

Thus, the insurance expenses are $2,500.

(1) (d)

To determine

The salaries and wages expense for the month of December.

Explanation of Solution

Determine the salaries and wages expense for the month of December.

Calculate the cash payments for Salaries and wages expenses.

$\begin{array}{l}\begin{array}{l}\text{Cash payments for }\\ \text{Salries and Wages}\end{array}]=\left[\begin{array}{l}\text{Salaries and Wages expense}\\ \left(\begin{array}{l}+\text{Decrease in salaries and wages payable}\\ \text{OR}\\ -\text{Increase in salaries and wages payable}\end{array}\right)\end{array}\right]\\ \Rightarrow \begin{array}{l}\text{Salaries and }\\ \text{Wages Expense}\end{array}]\text{=}\left[\begin{array}{l}\left(\begin{array}{l}\text{Cash payments for }\\ \text{Salries and Wages}\end{array}\right)\\ \left(\begin{array}{l}-\text{Decrease in salaries and wages payable}\\ \text{OR}\\ \text{+Increase in salaries and wages payable}\end{array}\right)\end{array}\right]\end{array}$

$\begin{array}{c}\text{Salaries and Wages expense}\text{=}\left[\begin{array}{l}\left(\begin{array}{l}\text{Cash payments for }\\ \text{Salries and Wages}\end{array}\right)\\ -\text{Decrease in salaries and wages payable}\end{array}\right]\\ =\$10,000-\$2,000\left(\$5,000-\$2,000\right)\\ =\$8,000\end{array}$

Thus, the Salaries and wages expenses are $8,000.

2.

To determine

To Prepare: The summary journal entries to record the month’s sales, and cost of those sales.

Explanation of Solution

Sales Entry:

The following is the accounting equation for the entry:

$\begin{array}{c}\text{Assets}\text{=}\text{Liabilities}\text{+}\text{Stockholder's}\text{Equity}\\ \text{+73,000}\left(\text{Accounts Receivable}\right)\text{=}\text{+\$\$73,000}\left(\text{Sales Revenue}\right)\end{array}$

Record the following journal entry in the general journal:

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Accounts Receivable (A+)		73,000
	Sales Revenue (E+)			73,000
	(To record the revenues on account)

Table (1)

• Accounts Receivable is an asset account, and increased by $73,000. Therefore, debit accounts receivable account with $73,000.
• Sales revenue is revenue account, and increased by $73,000. Therefore, credit Sales revenue account with $73,000.

Cost of goods sold Entry:

The following is the accounting equation for the entry.

$\begin{array}{c}\text{Assets }\text{= Liabilities + Stockholders' Equity}\\ -\text{\$64,000}\left(\text{Inventory}\right)=-\$64,000\left(\text{Cost of Goods Sold}\right)\end{array}$

The following is the accounting entry:

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Cost of Goods Sold (E–)		64,000
	Inventory (A–)			64,000
	(To record the cost of goods sold)

Table (2)

• Cost of goods sold is an expense account, and increased which has decreased the equity by $64,000. Therefore, debit cost of goods sold account with $64,000.
• Inventory is an asset and decreased by $64,000. Therefore, credit the inventory account with $64,000.