Chapter 2, Problem 2.20E

1

To determine

To record: The transactions for Company BHP.

Answer to Problem 2.20E

Date		Account Title and Explanation		Debit($)	Credit($)
	1.	Accounts receivable		20,000
			Service revenue		20,000
		(To record the entry for providing painting service on account)
	2.			21,000
		Equipment
			Cash		21,000
		(To record the entry for purchasing painting equipment)
	3.			3,500
		supplies
			Accounts payable		3,500
		(To record the entry for purchase of supplies on account)
	4.			4,200
		Salaries expense
			Cash		4,200
		(To record the entry for payment of salary for current month)
	5.			1,000
		Advertising expense
			Cash		1,000
		(To record the entry for payment of advertising for the current month)
	6.			5,400
		Rent expense
			Cash		5,400
		(To record the entry for payment of rent for current month)
	7.			15,000
		Cash
			Accounts receivable		15,000
		(To record the entry for received cash on account)
	8.			6,000
		Cash
			Deferred revenue		6,000
		(To record the entry for receiving cash in advance for painting)

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.

1.

• Accounts receivable is an asset account. There is an increase in the asset account. So debit accounts receivable with $20,000.
• Service revenue is a revenue account which is a component of stockholders’ equity. There is an increase in revenue account this in turns increases stockholders’ equity. So credit revenue account with $20,000.

2.

• Equipment is an asset account. There is an increase in the asset account. So debit equipment account with $21,000.
• Cash is an asset account. There is a decrease in the asset account. So credit account with $21,000.

3.

• Supplies are an asset account. There is an increase in the asset account. So debit supplies account with $3,500.
• Accounts payable is a liability account. There is a decrease in the liability account. So credit accounts payable with $3,500.

4.

• Salaries expense is an expense account which is a component of stockholders’ equity. There is an increase in the expense this in turns decreases stockholders’ equity. So debit salaries expense with $4,200.
• Cash is an asset account. There is a decrease in the asset account. So credit cash account with $4,200.

5.

• Advertising expense is an expense account which is a component of stockholders’ equity. There is an increase in the expense this in turns decreases stockholders’ equity. So debit advertising expense with $1,000.
• Cash is an asset account. There is a decrease in the asset account. So credit cash account with $1,000.

6.

• Rent expense is an expense account which is a component of stockholders’ equity. There is an increase in the expense this in turns decreases stockholders’ equity. So debit rent expense with $5,400.
• Cash is an asset account. There is a decrease in the asset account. So credit cash account with $5,400.

7.

• Cash is an asset account. There is an increase in the asset account. So debit cash account with $15,000.
• Accounts receivable is an asset account. There is a decrease in the asset account. So credit accounts receivable with $15,000.

8.

• Cash is an asset account. There is an increase in the asset account. So debit cash account with $6,000.
• Deferred revenue is a liability account. There is a decrease in the liability account. So credit deferred revenue with $6,000.

2

To determine

To compute: the ending balance of each account by posting the transaction to the T-account.

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

Prepare T-account:

Accounts receivable account:

Accounts receivable
Opening balance	1,700
Service revenue	20,000	Cash	15,000
Ending balance	6,700

Service revenue account:

Service revenue
		Opening balance	0
		Accounts receivable	20,000
		Ending balance	20,000

Equipment account:

Equipment
Opening balance	7,400
cash	21,000
Ending balance	28,400

Cash account:

Cash
Opening balance	46,100	Equipment	21,000
Accounts receivable	15,000	Salary	4,200
Unearned revenue	6,000	Advertisement	1,000
		Office rent	5,400
Total	67,100	Total	67,000
Ending balance	35,500

Supplies account:

supplies
Opening balance	500
Accounts payable	3,500
Ending balance	4,000

Accounts payable account:

Accounts payable
		Opening balance	1,200
		Purchase	3,500
		Ending balance	4,700

Salaries expense account:

Salaries expense
Opening balance	0
Cash	4,200
Ending balance	4,200

Advertising expense account:

Advertising expense
Opening balance	0
Cash	1,000
Ending balance	1,000

Rent expense account:

Rent expense
Opening balance	0
Cash	5,400
Ending balance	5,400

Unearned revenue account:

Unearned revenue
		Opening balance	0
		cash	6,000
		Ending balance	6,000

Common stock account:

Common stock
		Opening balance	25,000
		Ending balance	25,000

Retained earnings account:

Retained earnings
		Opening balance	9,500
		Ending balance	9,500

3

To determine

To prepare: The trail balance of Company BPH.

Explanation of Solution

Trial balance:

Trial balance is the summary of accounts, and their debit and credit balances at a given time.  It is usually prepared at end of the accounting period.  Debit balances are listed in left column and credit balances are listed in right column.  The totals of debit and credit column should be equal.  Trial balance is useful in the preparation of the financial statements.

Prepare the trial balance of Company BPH:

Company BPH
Trial balance
Accounts	Debit($)	Credit($)
Cash	15,500
Accounts receivable	6,700
supplies	4,000
Equipment	28,400
Accounts payable		4,700
Unearned revenue		6,000
Common stock		25,000
Retained earnings		29,500
Service revenue		20,000
Salaries expense	4,200
Rent expense	1,000
Advertising expense	5,400
Total	65,200	65,200

Conclusion

Hence, the trial balance is prepared, and the debit column and credit column of the trial balance are agreed, both having balance of $65,200.