Chapter 2, Problem 4PSA

1.

To determine

To prepare: journal entry for September transactions.

Explanation of Solution

Journal entries to record the transactions

a.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Cash		60,000
	Office equipment		25,000
	Capital account			85,000
	(Being Cash and equipment has been invested by the owner.)
Table (1)

• Cash is an asset account. Here, asset balance has increased. Hence cash account is debited.
• Office Equipment is an asset account. Here, asset balance has increased. Hence office equipment account is debited.
• As the equity is raised by investing cash and equipment resulted in increased equity so increased in equity account is credited.

b.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Land		40,000
	Building		160,000
	Cash			30,000
	Notes payable			170,000
	(Being land and building has been purchased for cash and by issuing notes payable.)
Table (2)

• Land belongs to asset accounts it has been debited as its purchase resulted in increase in assets.
• Building also belongs to asset accounts it has been debited as its purchase resulted in increase in assets.
• Cash is an asset account it has been credited for the purchase of building as it resulted in decrease in asset account.
• Notes payable are the part of liabilities they have been credited which signifies increase in liability account.

c.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Office supplies		$2,000
	Accounts payable			$2,000
	(Being office supplies has been purchased on credit.)
Table (3)

• Since, office supplies belong to asset accounts they have been debited as their purchase resulted in increase in assets.
• As the purchase is made on credit which causes increased liabilities account so it will record under accounts payable account.

d.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Automobile		16,500
	Common stock			16,500
	(Being automobile exchanged for common stock.)
Table (4)

• Automobile is an asset account. Here, asset balance has increased. Hence office equipment account is debited.
• As the equity is raised by investing cash and equipment resulted in increased equity so increased in equity account is credited.

e.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Office equipment		5,600
	Accounts payable			5,600
	(Being purchase of office equipment on credit.)
Table (5)

• Since, office equipment belongs to asset accounts they have been debited as their purchase resulted in increase in assets.
• As the purchase is made on credit which causes increased liabilities account so it will record under accounts payable account.

f.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Salary expense		1,800
	Cash			1,800
	(Being salary paid to assistant.)
Table (6)

• Salary expense account is an expense account. Since salary expense is increased, expense is to be increased. So, debit the salary expense account.
• Cash account is an asset account. Since cash is shrinked, so it is to be reduced. Therefore, cash account is to be credited.

g.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Cash		8,000
	Fees earned			8,000
	(Being immediate collection of cash for provided services)
Table (7)

• Cash is belonging to asset account so providing services in cash causes increase in asset account so debited.
• Services have been provided so it will be credited as they will decrease the stock account.

h.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Utility expense		635
	Cash			635
	(Being cash paid for utility expenses.)
Table (8)

• Utility expense account is an expense account. Since utility expense is increased, expense is to be increased. So, debit the utility expense account.
• Cash account is an asset account. Since cash is shrinked, so it is to be reduced. Therefore, cash account is to be credited.

i.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Accounts payable		2,000
	Cash			2,000
	(Being cash paid for amount due for previous purchase.)
Table (9)

• Accounts payable is a current liability account so payment of amount due will increase the liability account so debited.
• Cash belongs to current asset account. Since cash is shrinked, so it is to be reduced. Therefore, cash account is to be credited.

j.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Office equipment		20,300
	Cash			20,300
	(Being cash paid for purchase of office equipment.)
Table (10)

• Purchase of office equipment will increase the asset account as it belongs to asset account so debited.
• Cash is a part of asset account and purchase of office equipment will decline cash resulted in recording it in credit account.

k.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Accounts Receivable		$6,250
	Fees earned			$6,250
	(Being amount will receive after 30 days for providing the services.)
Table (11)

• Account receivable is belonging to current asset account so providing services causes increase in asset account so debited.
• Services have been provided so it recorded in credited account as they will decrease the stock account.

l.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Salary expense		1,800
	Cash			1,800
	(Being salary paid to assistant.)
Table (12)

• Salary expense account is an expense account. Since salary expense is increased, expense is to be increased. So, debit the salary expense account.
• Cash account is an asset account. Since cash is shrinked, so it is to be reduced. Therefore, cash account is to be credited.

m.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Cash		4,000
	Account receivable			4,000
	(Being part of amount received for the previously completed project.)
Table (13)

• Cash account is an asset account. Since cash is earned, so it is to be increased. Therefore, cash account is to be debited.
• Account receivable is also belongs to asset account so receiving cash will decrease it so credited.

n.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Dividends		2,800
	Cash			2,800
	(Being cash is paid in form of dividend.)
Table (14)

• Since dividends has been paid which will increase equity so debited.
• Cash is credited as dividends have been paid in cash which decrease the cash account so credited.

2.

To determine

To prepare: Ledger accounts.

Explanation of Solution

Cash No.101
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Capital account		60,000		60,000
	Land and building			30,000	30,000
	Salary expense			1,800	28,200
	Delivered project		8,000		36,200
	Utility expense			635	35,565
	Accounts payable			2,000	33,565
	Office equipment			20,300	13,265
	Salaries Expense			1,800	11,465
	Accounts receivable		4,000		15,465
	Dividends			2,800	12,665
Table (15)

So the ending balance is $12,665

Account receivable No.106
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Delivered project		6,250		6,250
	Cash			4,000	2,250
Table (16)

So the ending balance is $2,250

Office supplies No.108
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Accounts payable		2,000		2,000
Table (17)

So the ending balance is $2,000

Office Equipment No.163
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Capital account		25,000		25,000
	Accounts payable		5,600		30,600
	Cash		20,300		50,900
Table (18)

So the ending balance is $50,900.

Automobiles No.164
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Capital		16,500		16,500
Table (19)

So the ending balance is $16,500

Building No.170
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Cash		160,000		160,000
Table (20)

So the ending balance is $160,000

Land No.172
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Cash		40,000		40,000
Table (21)

So the ending balance is $40,000

Accounts payable No.201
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Office supplies			2,000	2,000
	Office equipment			5,600	7,600
	Cash		2,000		5,600
Table (22)

So the ending balance is $(5,600)

Notes payable .250
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Land and building			170,000	170,000
Table (23)

So the ending balance is $(170,000)

Capital No.301
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Cash			85,000	85,000
	Automobile			16,500	101,500
Table (24)

So the ending balance is $(101,500)

Dividends .302
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Dividends		2,800		2,800
Table (25)

So the ending balance is $2,800

Fees Earned No.402
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Cash			8,000	8,000
	Accounts Receivable			6,250	14,250
Table (26)

So the ending balance is $(14,250)

Utility Expense .602
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
			635		635
Table (27)

So the ending balance is $635

Salary expense No.601
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Cash		1,800		1,800
	Cash		1,800		3,600
Table (28)

So the ending balance is $3,600

3.

To determine

To prepare: Trial balance.

Explanation of Solution

Company H
Trial Balance
September 30, 20XX
Accounts Title	Amount($)	Amount($)
Cash	12,665
Accounts Payable		5,600
Accounts Receivable	2,250
Office Supplies	2,000
Office Equipment	50,900
Notes payable		170,000
Building	160,000
Land	40,000
Automobile	16,500
Capital		101,500
Dividends	2,800
Fees earned		14,250
Salaries Expenses	3,600
Utility expenses	635
Totals	291,350	291,350
Table (29)

So, total trial balance is $291,350.