Corporate Financial Accounting
Corporate Financial Accounting
15th Edition
ISBN: 9781337670517
Author: WARREN
Publisher: Cengage
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Chapter 2, Problem 2.3BPR

Journal entries and trial balance

On October 1, 20Y4, Jay Pryor established an interior decorating business. Pioneer Designs. During the month, Jay completed the following transactions related to the business:

  Oct    1. Jay transferred cash from a personal bank account to an account to be used for the business in exchange for common stock, $18,000.

4.     Paid rent for period of October 4 to end of month, $3,000.

10.    Purchased a used truck for $23,750, paying $3,750 cash and giving a note payable for the remainder.

13.    Purchased equipment on account, $10,500.

14.    Purchased supplies for cash, $2,100.

Oct 15 Paid annual premiums on property and casualty insurance, $3,600.

15.    Received cash for job completed, $8,950.

  Enter the following transactions on Page 2 of the two column journal:

21.    Paid creditor a portion of the amount owed for equipment purchased on October 13, $2,000.

24.     Recorded jobs completed on account and sent invoices to customers. $ 14.1 SO.

26.    Received an invoice for truck expenses, to be paid in November, $700.

27.    Paid utilities expense, $2,240.

27.    Paid miscellaneous expenses, $1,100.

29.    Received cash from customers on account $7,600.

30.    Paid wages of employees, $4,800.

31.    Paid dividends, $3,500.

  Instructions

1. Journalize each transaction in a two-column journal beginning on Page I. referring to the following chart of accounts in selecting the accounts to lie debited and credited. (Do not insert the account numbers in the journal at this time.) Journal entry explanations may be omitted.

11    Cash

12    Accounts Receivable

13    Supplies

14    Prepaid Insurance 16 Equipment

18    Truck

21    Notes Payable

22    Accounts Payable

31    Common Stock

33    Dividends

41    Fees Earned

51    Wages Expense

53    Rent Expense

54    Utilities Expense

55    Truck Expense

59    Miscellaneous Expense

2. Post the journal to a ledger of four-column accounts, inserting appropriate posting references as each item is posted. Extend the balances to the appropriate balance columns after each transaction is posted.

3. Prepare an unadjusted trial balance for Pioneer Designs as of October 31, 20Y4.

4. Determine the excess of revenues over expenses for October.

5. Chapter 2, Problem 2.3BPR, Journal entries and trial balance On October 1, 20Y4, Jay Pryor established an interior decorating Can you think of any reason why the amount determined in (4) might not be the net income for October?

1.

Expert Solution
Check Mark
To determine

To journalize: The transactions in a two column journal beginning on Page 1.

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.

Rules of debit and credit:

“An increase in an asset account, an increase in an expense account, a decrease in liability account, and a decrease in a revenue account should be debited.

Similarly, an increase in liability account, an increase in a revenue account and a decrease in an asset account, a decrease in an expenses account should be credited”.

Journalize each transaction in a two column journal beginning on Page 1.

                                                   Journal                                           Page          1    
Date Description Post. Ref Debit ($) Credit ($)
20Y4   Cash 11 18,000  
October 1     Common stock 31   18,000
    (To record the transfer of cash from personal bank account to business account in exchange for common stock)      
 
  4 Rent expense 53 3,000  
        Cash 11   3,000
    (To record the payment of rent for the month of June)      
 
  10 Truck 18 23,750  
        Cash 11   3,750
        Notes payable 21   20,000
    (To record the purchase of truck by cash and on account)      
 
  13 Equipment    16 10,500  
        Accounts payable 22   10,500
    (To record the purchase of equipment on account)      
           
 
  14 Supplies 13 2,100  
        Cash 11   2,100
    (To record the purchase of supplies)      
 
  15 Prepaid insurance 14 3,600  
        Cash 11   3,600
    (To record the payment made for insurance premiums)      
 
  15 Cash 11 8,950  
         Fees earned 41   8,950
    (To record the receipt of cash for the completed job)      

Table (1)

                                                   Journal                                           Page 2
Date Description Post. Ref Debit ($) Credit ($)
20Y4 21 Accounts payable 22 2,000  
October       Cash 11   2,000
    (To record the payment made to creditor on account)      
 
  24 Accounts receivable 12 14,150  
         Fees earned 41   14,150
    (To record the invoices sent to customers for the jobs completed)      
 
  26 Truck expense 55 700  
         Accounts payable 22   700
    (To record the receipt of invoices for truck expenses)    
 
  27 Utilities expense 54 2,240  
      Cash  11   2,240
    (To record the payment of utilities expense)      
 
  27 Miscellaneous expense 59 1,100  
         Cash 11   1,100
    (To record the payment of miscellaneous expense)      
 
  29 Cash 11 7,600  
         Accounts receivable 12   7,600
    (To record the receipt of cash from customers on account)      
 
  30 Wages expense 51 4,800  
         Cash 11   4,800
    (To record the payment of wages expense)    
 
  31 Dividends 33 3,500  
         Cash 11   3,500
    (To record the withdrawal of cash for personal use)      

Table (2)

2.

Expert Solution
Check Mark
To determine

To post: The journal to a ledger of four-column accounts with appropriate post references, and the balances after each transaction is posted.

Explanation of Solution

T-account:

An account is referred to as a T-account, because the alignment of the components of the account resembles the capital letter ‘T’. An account consists of the three main components which are as follows:

  • The title of the account
  • The left or debit side
  • The right or credit side

General Ledger

Account:         Cash                                                              Account no.        11
DateItemPost. Ref

Debit

 ($)

Credit ($)Balance
Debit ($) Credit ($)
20Y4            
October 1   1 18,000   18,000  
  4   1   3,000 15,000  
  10   1   3,750 11,250  
  14   1   2,100 9,150  
  15   1   3,600 5,550  
  15   1 8,950   14,500  
  21   2   2,000 12,500  
  27   2   2,240 10,260  
  27   2   1,100 9,160  
  29   2 7,600   16,760  
  30   2   4,800 11,960  
  31   2   3,500 8,460  

Table (3)

Account:    Accounts Receivable                                             Account no. 12
DateItemPost. Ref

Debit

 ($)

Credit ($)Balance
Debit ($) Credit ($)
20Y4            
October 24   2 11,900   14,150  
  29   2   7,600 6,550  

Table (4)

Account:          Supplies                                                         Account no. 13
DateItemPost. Ref

Debit

 ($)

Credit ($)Balance
Debit ($) Credit ($)
20Y4            
October 14   1 2,100   2,100  

Table (5)

Account:    Prepaid Insurance                                             Account no. 14
DateItemPost. Ref

Debit

 ($)

Credit ($)Balance
Debit ($) Credit ($)
20Y4            
October 15   1 3,600   3,600  

Table (6)

Account:    Equipment                                                Account no. 16
DateItemPost. Ref

Debit

 ($)

Credit ($)Balance
Debit ($) Credit ($)
20Y4            
October 13   1 10,500   10,500  

Table (7)

Account:     Truck                                                     Account no. 18
DateItemPost. Ref

Debit

 ($)

Credit ($)Balance
Debit ($) Credit ($)
20Y4            
October 10   1 23,750   23,750  

Table (8)

Account:     Notes Payable                                                     Account no. 21
DateItemPost. Ref

Debit

 ($)

Credit ($)Balance
Debit ($) Credit ($)
20Y4            
October 10   1   20,000   20,000

Table (9)

Account:     Accounts Payable                                                   Account no. 22
DateItemPost. Ref

Debit

 ($)

Credit ($)Balance
Debit ($) Credit ($)
20Y4            
October 13   1   10,500   10,500
  21   2 2,000     8,500
  26   2   700   9,200

Table (10)

Account:     Common Stock                                                         Account no. 31
DateItemPost. Ref

Debit

 ($)

Credit ($)Balance
Debit ($) Credit ($)
20Y4            
October 1   1   18,000   18,000

Table (11)

Account:       Dividends                                                      Account no. 33
DateItemPost. Ref

Debit

 ($)

Credit ($)Balance
Debit ($) Credit ($)
20Y4            
October 31   2 3,500   3,500  

Table (12)

Account:          Fees earned                                                         Account no. 41
DateItemPost. Ref

Debit

 ($)

Credit ($)Balance
Debit ($) Credit ($)
20Y4            
October 15   1   8,950   8,950
  24   2   14,150   23,100

Table (13)

Account:   Wages expense                                                       Account no. 51
DateItemPost. Ref

Debit

 ($)

Credit ($)Balance
Debit ($) Credit ($)
20Y4            
October 30   2 4,800   4,800  

Table (14)

Account:   Rent expense                                                 Account no. 53
DateItemPost. Ref

Debit

 ($)

Credit ($)Balance
Debit ($) Credit ($)
20Y4            
October 4   1 3,000   3,000  

Table (15)

Account:  Utilities expense                                                                  Account no. 54
DateItemPost. Ref

Debit

 ($)

Credit ($)Balance
Debit ($) Credit ($)
20Y4            
October 27   2 2,240   2,240  

Table (16)

Account:   Truck expense                                                            Account no. 55
DateItemPost. Ref

Debit

 ($)

Credit ($)Balance
Debit ($) Credit ($)
20Y4            
October 26   2 700   700  

Table (17)

Account:   Miscellaneous expense                                                   Account no. 59
DateItemPost. Ref

Debit

 ($)

Credit ($)Balance
Debit ($) Credit ($)
20Y4            
October 27   2 1,100   1,100  

Table (18)

3.

Expert Solution
Check Mark
To determine

To prepare: An unadjusted trial balance of P Designs as of October 31, 20Y4.

Explanation of Solution

Unadjusted trial balance:

The unadjusted trial balance is the summary of all the ledger accounts that appears on the ledger accounts before making adjusting journal entries.

Prepare an unadjusted trial balance of P Designs as of October 31, 20Y4 as follows:

P Designs

Unadjusted Trial Balance

October 31, 20Y4

Particulars

Account

No.

Debit $ Credit $
Cash 11 8,460  
Accounts receivable 12 6,550  
Supplies 13 2,100  
Prepaid insurance 14 3,600  
Equipment 16 10,500
Truck 18 23,750
Notes payable 21   20,000
Accounts payable 22   9,200
Common stock 31   18,000
Dividends 33 3,500  
Fees earned 41 23,100
Wages expense 51 4,800  
Rent expense 53 3,000  
Utilities expense 54 2,240  
Van expense 55 700  
Miscellaneous expense 59 1,100  
Total   70,300 70,300

Table (19)

4.

Expert Solution
Check Mark
To determine

The excess of revenues over expenses for the month of October.

Answer to Problem 2.3BPR

The excess of revenues over expenses for the month of October is $11,260.

Explanation of Solution

Calculate the excess of revenues over expenses.

(Excess of revevnuesover expenses)=(Fees earned)(Wages expense+Rent Expense+Utilities expense+Van Expense+Miscellaneous Expense)=($23,100)($4,800+$3,000+$2,240+$700+$1,100)=$11,260

Conclusion

Hence, the excess of revenues over expenses for the month of October is $11,260.

5.

Expert Solution
Check Mark
To determine

To discuss: The reason behind the amount determined in (4) might not be the net income for October.

Explanation of Solution

The amount determined in (4) might not be the net income for October, because adjusting entries for supplies used, insurance expired, and depreciation should be passed at the end of the accounting period in order to bring the accounts up to date.

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Chapter 2 Solutions

Corporate Financial Accounting

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