Chapter 2, Problem 2AP

1.

To determine

Prepare the journal entries for the given transactions.

Explanation of Solution

Journal entry:

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

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and equities.
• Credit, all increase in liabilities, revenues, and equities, all decrease in assets, and expenses.

Prepare the journal entries for the given transactions as follows:

Date		Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	a.	Cash	101	100,000
		Office Equipment	163	5,000
		Drafting Equipment	164	60,000
		Common Stock	307		165,000
		(To record owner invested cash and equipment for stock)
	b.	Land	172	49,000
		Cash	101		6,300
		Notes Payable	250		42,700
		(To record purchase of  land in cash and on note payable)
	c.	Building	170	55,000
		Cash	101		55,000
		(To record building purchased in cash)
	d.	Prepaid Insurance	108	3,000
		Cash	101		3,000
		(To record 18-month insurance policy purchased in cash)
	e.	Cash	101	6,200
		Engineering Fees Earned	402		6,200
		(To record engineering fees earned from customer)
	f.	Drafting Equipment	164	20,000
		Cash	101		9,500
		Notes Payable	250		10,500
		(To record purchase of  drafting equipment in cash and on note payable)
	g.	Accounts Receivable	106	14,000
		Engineering Fees Earned	402		14,000
		(To record engineering service performed on account)
	h.	Office Equipment	163	1,150
		Accounts Payable	201		1,150
		(To record equipment purchased on credit)
	i.	Accounts Receivable	106	22,000
		Engineering Fees Earned	402		22,000
		(To record engineering service performed on account)
	j.	Equipment Rental Expense	602	1,333
		Accounts Payable	201		1,333
		(To record equipment rental expense on account)
	k.	Cash	101	7,000
		Accounts Receivable	106		7,000
		(To record cash received from credit customer)
	l.	Wages Expense	601	1,200
		Cash	101		1,200
		(To record wages expense paid in cash)
	m.	Accounts Payable	201	1,150
		Cash	101		1,150
		(To cash paid to supplier)
	n.	Repairs Expense	604	925
		Cash	101		925
		(To record repair expense paid in cash)
	o.	Dividends	319	9,480
		Cash	101		9,480
		(To record dividend paid to investors)
	p.	Wages Expense	601	1,200
		Cash	101		1,200
		(To record  assistant’s wages paid in cash)
	q.	Advertising Expense	603	2,500
		Cash	101		2,500
		(To record advertising expense paid in cash)

Table (1)

2.

To determine

Post the journal entries to the general ledger accounts.

Explanation of Solution

Posting transactions:

The process of transferring the journalized transactions into the accounts of the ledger is known as posting the transactions.

Post the journal entries to the general ledger accounts as follows:

Cash No. 101
Date	PR	Debit ($)	Credit ($)	Balance  ($)
(a)		100,000		100,000
(b)			6,300	93,700
(c)			55,000	38,700
(d)			3,000	35,700
(e)		6,200		41,900
(f)			9,500	32,400
(k)		7,000		39,400
(l)			1,200	38,200
(m)			1,150	37,050
(n)			925	36,125
(o)			9,480	26,645
(p)			1,200	25,445
(q)			2,500	22,945

Accounts Receivable No. 106
Date	PR	Debit ($)	Credit ($)	Balance  ($)
(g)		14,000		14,000
(i)		22,000		36,000
(k)			7,000	29,000

Prepaid Insurance No. 108
Date	PR	Debit ($)	Credit ($)	Balance  ($)
(d)		3,000		3,000

Office Equipment No. 163
Date	PR	Debit ($)	Credit ($)	Balance  ($)
(a)		5,000		5,000
(h)		1,150		6,150

Drafting Equipment No. 164
Date	PR	Debit ($)	Credit ($)	Balance  ($)
(a)		60,000		60,000
(f)		20,000		80,000

Building No. 170
Date	PR	Debit ($)	Credit ($)	Balance  ($)
(c)		55,000		55,000

Land No. 172
Date	PR	Debit ($)	Credit ($)	Balance  ($)
(b)		49,000		49,000

Accounts Payable No. 201
Date	PR	Debit ($)	Credit ($)	Balance  ($)
(h)			1,150	1,150
(j)			1,333	2,483
(m)		1,150		1,333

Notes Payable No. 250
Date	PR	Debit ($)	Credit ($)	Balance  ($)
(b)			42,700	42,700
(f)			10,500	53,200

Common Stock No. 307
Date	PR	Debit ($)	Credit ($)	Balance  ($)
(a)			165,000	165,000

Dividends No. 319
Date	PR	Debit ($)	Credit ($)	Balance  ($)
(o)		9,480		9,480

Engineering Fees Earned No. 402
Date	PR	Debit ($)	Credit ($)	Balance  ($)
(e)			6,200	6,200
(g)			14,000	20,200
(i)			22,000	42,200

Wages Expense No. 601
Date	PR	Debit ($)	Credit ($)	Balance  ($)
(l)		1,200		1,200
(p)		1,200		2,400

Equipment Rental Expense No. 602
Date	PR	Debit ($)	Credit ($)	Balance  ($)
(j)		1,333		1,333

Advertising Expense No. 603
Date	PR	Debit ($)	Credit ($)	Balance  ($)
(q)		2,500		2,500

Repairs Expense No. 604
Date	PR	Debit ($)	Credit ($)	Balance  ($)
(n)		925		925

3.

To determine

Prepare a trial balance as of the end of June.

Explanation of Solution

Trial balance:

Trial balance is a summary of all the ledger accounts balances presented in a tabular form with two column, debit and credit. It checks the mathematical accuracy of the ledger postings and helps preparing the final accounts.

Prepare a trial balance as of the end of June as follows:

Company A
Trial Balance
June 30
Particulars	Debit ($)	Credit ($)
Cash	22,945
Accounts receivable	29,000
Prepaid insurance	3,000
Office equipment	6,150
Drafting equipment	80,000
Building	55,000
Land	49,000
Accounts payable		1,333
Notes payable		53,200
Common stock		165,000
Dividends	9,480
Engineering fees earned		42,200
Wages expense	2,400
Equipment rental expense	1,333
Advertising expense	2,500
Repairs expense	925
Totals	261,733	261,733

Table (2)

Therefore, the total of debit, and credit columns of a trial balance is $261,733 and agree.