Chapter 2, Problem 2.4BPR

Journal entries and trial balance

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

Valley Realty Unadjusted Trial Balance July 31,2016
		Debit Balances	Credit Balances
11	Cash	52,500
12	Accounts Receivable	100,100
13	Prepaid Insurance	12,600
14	Office Supplies	2,800
16	Land	—
21	Accounts Payable		21,000
22	Unearned Rent		—
23	Notes Payable		—
31	Common Stock		17,500
32	Retained Earnings		70,000
33	Dividends	44,800
41	Fees Earned		591,500
51	Salary and Commission Expense	385,000
52	Rent Expense	49,000
53	Advertising Expense	32,200
54	Automobile Expense	15,750
59	Miscellaneous Expense	5,250
		700,000	700,000

The following business transactions were completed by Valley Realty during August 2016:

Aug. 1.	Purchased office supplies on account, $3,150.
2.	Paid rent on office for month, $7,200.
3.	Received cash from clients on account, $83,900.
Aug. 5.	Paid insurance premiums, $12,000.
9.	Returned a portion of the office supplies purchased on August 1, receiving full credit for their cost, $400.
17.	Paid advertising expense, $8,000.
23.	Paid creditors on account, $13,750.
Enter the following transactions on Page 19 of the two-column journal.
29.	Paid miscellaneous expenses, $1,700.
30.	Paid automobile expense (including rental charges for an automobile), $2,500.
31.	Discovered an error in computing a commission during July; received cash from the salesperson for the overpayment, $2,000.
31.	Paid salaries and commissions for the month, $53,000.
31.	Recorded revenue earned and billed to clients during the month, $183,500.
31.	Purchased land for a future building site for $75,000, paying $7,500 in cash and giving a note payable for the remainder.
31.	Paid dividends, $1,000.
31.	Rented land purchased on August 31 to a local university for use as a park­ing lot during football season (September, October, and November); received advance payment of $5,000.

Instructions

1. 1. Record the August 1 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 August 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 August 31. 2016.
5. 5. Assume that the August 31 transaction for dividends should have been $10,000. (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.

Slide error:

A slide error occurs, when the decimal point of an amount has been misplaced.

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

Explanation of Solution

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

Journal                                           Page 18
Date		Description	Post. Ref	Debit ($)	Credit ($)
2016		Office supplies	14	3,150
August	1	Accounts payable	21		3,150
		(To record the purchase of supplies of account)
	2.	Rent expense	52	7,200
		Cash	11		7,200
		(To record the payment of rent)
	3	Cash	11	83,900
		Accounts receivable	12		83,900
		(To record the receipt of cash from clients)
	5	Prepaid insurance	13	12,000
		Cash	11		12,000
		(To record the payment of insurance premium)
	9	Accounts payable	21	400
		Office supplies	14		400
		(To record the payment made to creditors on account)
	17	Advertising expense	53	8,000
		Cash	11		8,000
		(To record the payment of advertising expense)
	23	Accounts payable	21	13,750
		Cash	11		13,750
		(To record the payment made to creditors on account)

Table (1)

Journal                                           Page 19
Date		Description	Post. Ref	Debit ($)	Credit ($)
2016	29	Miscellaneous expense	59	1,700
August		Cash	11		1,700
		(To record the payment made for Miscellaneous expense)
	30	Automobile expense	54	2,500
		Cash	11		2,500
		(To record the payment made for automobile expense)
	31	Cash	11	2,000
		Salary and commission expense	51		2,000
		(To record the receipt of cash)
	31	Salary and commission expense	51	53,000
		Cash	11		53,000
		(To record the payment made for salary and commission expense)
	31	Accounts receivable	12	183,500
		Fees earned	41		183,500
		(To record the revenue earned and billed)
	31	Land	16	75,000
		Cash	11		7,500
		Notes payable	23		67,500
		(To record the purchase of land party for cash and party on signing a note)
	31	Dividends	33	1,000
		Cash	11		1,000
		(To record the drawing made for personal use)
	31	Cash	11	5,000
		Unearned rent	22		5,000
		(To record the cash received for the service yet to be provide)

Table (2)

To determine

To record: The beginning balances of each accounts in the appropriate balance column of a four-column account, and post them to the ledger extending the account balance to the appropriate balance column after each posting.

Explanation of Solution

Account:         Cash                                                              Account no. 11
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	1	Balance	✓			52,500
	2		18		7,200	45,300
	3		18	83,900		129,200
	5		18		12,000	117,200
	17		18		8,000	109,200
	23		18		13,750	95,450
	29		19		1,700	93,750
	30		19		2,500	91,250
	31		19	2,000		93,250
	31		19		53,000	40,250
	31		19		7,500	32,750
	31		19		1,000	31,750
	31		19	5,000		36,750

Table (3)

Account:    Accounts Receivable                                             Account no. 12
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	1	Balance	✓			100,100
	3		18		83,900	16,200
	31		19	183,500		199,700

Table (4)

Account:    Prepaid Insurance                                             Account no. 13
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	1	Balance	✓			12,600
	5		18	12,000		24,600

Table (5)

Account:    Office Supplies                                             Account no. 14
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	1	Balance	✓			2,800
	1		18	3,150		5,950
	9		18		400	5,550

Table (6)

Account:    Land                                                               Account no. 16
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	31		19	75,000		75,000

Table (7)

Account:     Accounts Payable                                                      Account no. 21
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	1	Balance	✓				21,000
	1		18		3,150		24,150
	9		18	400			23,750
	23		18	13,750			10,000

Table (8)

Account:          Unearned Rent                                                   Account no. 22
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	31		19		5,000		5,000

Table (9)

Account:   Notes Payable                                                       Account no. 23
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	31		19		67,500		67,500

Table (11)

Account:          Common stock                                                     Account no. 31
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	1	Balance	✓				17,500

Table (12)

Account:          Retained earnings                                                  Account no. 32
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	1	Balance	✓				70,000

Table (13)

Account:          Dividends                                                               Account no. 33
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	1	Balance	✓			44,800
	31		19	1,000		45,800

Table (13)

Account:          Fees earned                                                         Account no. 41
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	1	Balance	✓				591,500
	31		19		183,500		775,000

Table (14)

Account:   Salary and commission expense                                Account no. 51
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	1	Balance	✓			385,000
	31		19		2,000	383,000
	31		19	53,000		436,000

Table (15)

Account:   Rent expense                                                              Account no. 52
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	1	Balance	✓			49,000
	2		18	7,200		56,200

Table (16)

Account:   Advertising expense                                                     Account no. 53
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	1	Balance	✓			32,200
	17		18	8,000		40,200

Table (17)

Account:   Automobile expense                                                     Account no. 54
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	1	Balance	✓			15,750
	30		19	2,500		18,250

Table (19)

Account:   Miscellaneous expense                                                   Account no. 59
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
August	1	Balance	✓			5,250
	29		19	1,700		6,950

Table (20)

To determine

To prepare: An unadjusted trial balance of Company V at August 31, 2016.

Explanation of Solution

Prepare an unadjusted trial balance of Company V at August 31, 2016 as follows:

Company V Unadjusted Trial Balance August 31, 2016
Particulars	Account No.	Debit $	Credit $
Cash	11	36,750
Accounts receivable	12	199,700
Prepaid insurance	13	24,600
Office supplies	14	5,550
Land	16	75,000
Accounts payable	21		10,000
Unearned rent	22		5,000
Notes payable	23		67,500
Common stock	31		17,500
Retained earnings	32		70,000
Dividends	33	45,800
Fees earned	41		775,000
Salaries and commission expense	51	436,000
Rent expense	52	56,200
Advertising expense	53	40,200
Automobile expense	54	18,250
Miscellaneous expense	59	6,950
Total		945,000	945,000

Table (20)

Conclusion

The debit column and credit column of the unadjusted trial balance are agreed, both having balance of $945,000.

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.