Chapter 2, Problem 2.4APR

Journal entries and trial balance

Elite Realty acts as an agent in buying, selling, renting, and managing real estate. The unadjusted trial balance on March 31, 2016, follows:

Elite Realty Unadjusted Trial Balance March 31, 2016
		Debit Balances	Credit Balances
11	Cash	26,300
12	Accounts Receivable	61,500
13	Prepaid Insurance	3,000
14	Office Supplies	1,800
16	Land	—
21	Accounts Payable		14,000
22	Unearned Rent		—
23	Notes Payable		—
31	Common Stock		10,000
32	Retained Earnings		36,000
33	Dividends	2,000
41	Fees Earned		240,000
51	Salary and Commission Expense	148,200
52	Rent Expense	30,000
53	Advertising Expense	17,800
54	Automobile Expense	5,500
59	Miscellaneous Expense	3,900
		300,000	300,000

The following business transactions were completed by Elite Really during April 2016:

Apr. 1.	Paid rent on office for month, $6,500.
2.	Purchased office supplies on account, $2,300.
5.	Paid insurance premiums, $6,000.
10.	Received cash from clients on account, $52,300.
15.	Purchased land for a future building site for $200,000, paying $30,000 in cash and giving a note payable for the remainder.
17.	Paid creditors on account, $6,450.
20.	Returned a portion of the office supplies purchased on April 2, receiving full credit for their cost, $325.
23.	Paid advertising expense, $4,300.
Enter the following transactions on Page 19 of the two-column journal:
27.	Discovered an error in computing a commission; received cash from the salesperson for the overpayment, £2,500.
28.	Paid automobile expense (including rental charges for an automobile), $1,500.
29.	Paid miscellaneous expenses, $1,400.
30.	Recorded revenue earned and billed to clients during the month, $57,000.
30.	Paid salaries and commissions for the month, $11,900.
30.	Paid dividends, $4,000.
30.	Rented land purchased on April 15 to local merchants association for use as a parking lot in May and June, during a street rebuilding program; received advance payment of $10,000.

Instructions

1. 1. Record the April 1, 2016, balance of each account in the appropriate balance column of a four-column account, write Balance in the item section, and place a check mark (✓) in the Posting Reference column.
2. 2. Journalize the transactions for April in a two-column journal beginning on Page 18. Journal entry explanations may be omitted.
3. 3. Post to the ledger, extending the account balance to the appropriate balance column after each posting.
4. 4. Prepare an unadjusted trial balance of the ledger as of April 30, 2016.
5. 5. Assume that the April 30 transaction for salaries and commissions should have been $19,100. (a) Why did the unadjusted trial balance in (4) balance? (b) Journalize the correcting entry, (c) Is this error a transposition or slide?

To determine

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”.

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

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.

Transposition error:

At the time of posting a transaction when two digits of numbers are transposed, in such case the transposition error occurs.

To journalize: The transactions of April in a two column journal beginning on page 18.

Explanation of Solution

Journalize the transactions of April in a two column journal beginning on page 18.

Journal                                           Page 18
Date		Description	Post. Ref	Debit ($)	Credit ($)
2016		Rent expense	52	6,500
April	1	Cash	11		6,500
		(To record the payment of rent)
	2	Office supplies	14	2,300
		Accounts payable	21		2,300
		(To record the purchase of supplies of account)
	5	Prepaid insurance	13	6,000
		Cash	11		6,000
		(To record the payment of insurance premium)
	10	Cash	11	52,300
		Accounts receivable	12		52,300
		(To record the receipt of cash from clients)
	15	Land	16	200,000
		Cash	11		30,000
		Notes payable	23		170,000
		(To record the purchase of land party for cash and party on signing a note)
	17	Accounts payable	21	6,450
		Cash	11		6,450
		(To record the payment made to creditors on account)
	20	Accounts payable	21	325
		Office supplies	14		325
		(To record the payment made to creditors on account)
	23	Advertising expense	53	4,300
		Cash	11		4,300
		(To record the payment of advertising expense)

Table (1)

Journal                                           Page 19
Date		Description	Post. Ref	Debit ($)	Credit ($)
2016		Cash	11	2,500
April	27	Salary and commission expense	51		2,500
		(To record the receipt of cash)
	28	Automobile expense	54	1,500
		Cash	11		1,500
		(To record the payment made for automobile expense)
	29	Miscellaneous expense	59	1,400
		Cash	11		1,400
		(To record the payment made for Miscellaneous expense)
	30	Accounts receivable	12	57,000
		Fees earned	41		57,000
		(To record the revenue earned and billed)
	30	Salary and commission expense	51	11,900
		Cash	11		11,900
		(To record the payment made for salary and commission expense)
	30	Dividends	33	4,000
		Cash	11		4,000
		(To record the payment of dividends)
	30	Cash	11	10,000
		Unearned rent	22		10,000
		(To record the cash received for the service yet to be provide)

Table (2)

To determine

To record: The balance of each accounts in the appropriate balance column of a four-column account and post them to the ledger.

Explanation of Solution

Account:         Cash                                                              Account no. 11
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1	Balance	✓			26,300
	1		18		6,500	19,800
	5		18		6,000	13,800
	10		18	52,300		66,100
	15		18		30,000	36,100
	17		18		6,450	29,650
	23		18		4,300	25,350
	27		19	2,500		27,850
	28		19		1,500	26,350
	29		19		1,400	24,950
	30		19		11,900	13,050
	30		19		4,000	9,050
	30		19	10,000		19,050

Table (3)

Account:    Accounts Receivable                                             Account no. 12
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1	Balance	✓			61,500
	10		18		52,300	9,200
	30		19	57,000		66,200

Table (4)

Account:    Prepaid Insurance                                             Account no. 13
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1	Balance	✓			3,000
	5		18	6,000		9,000

Table (5)

Account:    Office Supplies                                             Account no. 14
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1	Balance	✓			1,800
	2		18	2,300		4,100
	20		18		325	3,775

Table (6)

Account:    Land                                                               Account no. 16
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	15		18	200,000		200,000

Table (7)

Account:     Accounts Payable                                                      Account no. 21
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1	Balance	✓				14,000
	2		18		2,300		16,300
	17		18	6,450			9,850
	20		18	325			9,525

Table (8)

Account:          Unearned Rent                                                   Account no. 22
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	30		19		10,000		10,000

Table (9)

Account:   Notes Payable                                                       Account no. 23
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	15		18		170,000		170,000

Table (10)

Account:          Common stock                                                         Account no. 31
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1	Balance	✓				10,000

Table (11)

Account:          Dividends                                                              Account no. 33
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1	Balance	✓			2,000
	30		19	4,000		6,000

Table (12)

Account:          Fees earned                                                         Account no. 41
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1	Balance	✓				240,000
	30		19		57,000		297,000

Table (13)

Account:   Salary and commission expense                                Account no. 51
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1	Balance	✓			148,200
	27		19		2,500	145,700
	30		19	11,900		157,600

Table (14)

Account:   Rent expense                                                              Account no. 52
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1	Balance	✓			30,000
	1		18	6,500		36,500

Table (15)

Account:   Advertising expense                                                     Account no. 53
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1	Balance	✓			17,800
	23		18	4,300		22,100

Table (16)

Account:  Retained earnings                                                     Account no. 32
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1	Balance	✓				36,000

Table (17)

Account:   Automobile expense                                                     Account no. 54
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1	Balance	✓			5,500
	28		19	1,500		7,000

Table (18)

Account:   Miscellaneous expense                                                   Account no. 59
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1	Balance	✓			3,900
	29		19	1,400		5,300

Table (19)

To determine

To prepare: An unadjusted trial balance of Company E at April 30, 2016.

Explanation of Solution

Prepare an unadjusted trial balance of Company E at April 30, 2016 as follows:

Company E Unadjusted Trial Balance April 30, 2016
Particulars	Account No.	Debit $	Credit $
Cash	11	19,050
Accounts receivable	12	66,200
Prepaid insurance	13	9,000
Office supplies	14	3,775
Land	16	200,000
Accounts payable	21		9,525
Unearned rent	22		10,000
Notes payable	23		170,000
Common stock	31		10,000
Retained earnings	32		36,000
Dividends	33	6,000
Fees earned	41		297,000
Salaries and commission expense	51	157,600
Rent expense	52	36,500
Advertising expense	53	22,100
Automobile expense	54	7,000
Miscellaneous expense	59	5,3000
Total		532,525	532,525

Table (20)

To determine

To explain: Whether the unadjusted trial balance in (4) balance

Explanation of Solution

The unadjusted trial balance in (4) would still balance, since the debit equalized the credit in the original journal entry.