Chapter 2, Problem 4PSB

1.

To determine

To prepare: Journal entry for transactions.

Explanation of Solution

Journal entries to record the transactions

a.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Cash		35,000
	Office Equipment		11,000
	Capital account			46,000
	(Being cash and equipment has been invested by the owner.)

Cash and all the equipment has been converted into capital to invest in the business so the entire amount has been debited

Amount invested in the business is actually generated from all the cash and equipment and owner invested the entire amount in business so credited.

b.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Land		7,500
	Building		40,000
	Cash			15,000
	Notes payable			32,500
	(Being land and building has been purchased for cash and by issuing notes payable.)

Land and building belongs to asset accounts it has been debited as their purchase resulted in increase in assets.

Cash is an asset account it has been credited for the purchase of land as it resulted in decrease in asset account whereas notes payable are the part of liabilities they have been credited which signifies increase in liabilities.

c.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Office supplies		500
	Accounts payable			500
	(Being office supplies has been purchased for credit.)

Office supplies belong to asset accounts it has been debited as their purchase resulted in increase in assets.

Accounts payable is a liability account it has been credited for the purchase of office supplies as it resulted in increase in liability account.

d.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Automobile		8,000
	Common stock			8,000
	(Being premium for insurance has been paid in advance)

Automobile belongs to asset account so there is an increase in asset account so it is debited.

While common stock is also a part of asset account it is credited because there is decrease in stock account for the exchange of automobile.

e.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Office equipment		1,200
	Accounts payable			1,200
	(Being purchased on credit.)

Equipment belongs to asset account they increase the asset account so debited.

While accounts payable is a liability account so purchasing supplies on credit will increase them so credited.

f.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Wages expense		1,000
	Cash			1,000
	(Being wages paid on cash.)

Wages expense account is an expense account. Since wages expense is increased, expense is to be increased. So, debit the wages 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		3,200
	Service fees earned			3,200
	(Being cash received for provided services.)

Cash is belonging to asset account so providing services causes increase in asset account so debited.

Services have been provided so it recorded in credited account.

h.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Utility expense		540
	Cash			540
	(Being utility expenses paid on cash.)

Utility expense account is an expense account. Since utility expense is increased, expense is to be increased. So, debit the wages 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		500
	Cash			500
	(Being amount paid due.)

Accounts payable is a liability account so payment of amount due will increase the current liabilities so debited.

Cash belongs to 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		3,400
	Cash			3,400
	(Being equipment purchased on cash.)

Equipment belongs to asset account they increase the asset account so debited.

While cash is also an asset account so paying cash for purchase will decrease it so credited.

k.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Account receivable		4,200
	Fees earned			4,200
	(Being services provided on credit)

Account receivables are an asset account. Since services are provided on credit, so it is to be increased. Therefore, account receivable is to be debited.

Fees earned are belonging to asset account so providing services will decrease stock so credited.

l.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Salaries expense		1,000
	Cash			1,000
	(Being salaries paid on cash.)

Salaries expense account is an expense account. Since wages expense is increased, expense is to be increased. So, debit the wages 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		2,200
	Account receivables			2,200
	(Being amount received which was due.)

Accounts receivable is an asset account so payment of amount due will increase the asset account so debited.

Account receivables belong to asset account. Since it is shrinked, so it is to be reduced. Therefore, it is to be credited.

n.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
	Dividends		1,100
	Cash			1,100
	(Being cash is paid in form of dividend.)

Since, a dividend has been paid so debited.

Cash is credited as dividends have been paid in cash which decrease the account so credited.

2.

To determine

To prepare: Ledger accounts.

Explanation of Solution

General ledger

Cash No.101
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Capital		35,000		35,000
	Land and building			15,000	20,000
	Salaries expense			1,000	19,000
	Fees earned		3,200		22,200
	Utility expense			540	21,660
	Accounts payable			500	21,160
	Office equipment			3,400	17,760
	Salaries expense			1,000	16,760
	Accounts receivables		2,200		18,960
	Dividends			1,100	17,860

So the ending balance is $17,860

Account receivable No.106
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Fees earned		4,200		4,200
	Cash			2,200	2,000

So the ending balance is $2,000

Office Supplies No.108
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Accounts payable		500		500

So the ending balance is $500

Office Equipment No.163
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Capital account		11,000		11,000
	Accounts payable		1,200		12,200
	Cash		3,400		15,600

So the ending balance is $15,600.

Automobile No.163
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Cash		8,000		8,000

So the ending balance is $8,000

Building No.170
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
.	Cash		40,000		40,000

So the ending balance is $40,000

Land No.172
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Cash		7,500		7,500

So the ending balance is $7,500

Accounts payable No.201
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Office supplies			500	500
	Office equipment			1,200	1,700
	Cash		500		1,200

So the ending balance is $(1,200)

Notes payable .250
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Land and building			32,500	32,500

So the ending balance is $32,500

Capital No.301
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Cash and office equipment			46,000	46,000
	Automobile			8,000	54,000

So the ending balance is $54,000

Dividends No.302
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Cash		1,100		1,100

So the ending balance is $1,100

Fees Earned No.402
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Fees earned			3,200	3,200
	Accounts receivable			4,200	7,400

So the ending balance is $7,400

Utility Expense 602
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Accounts payable		540		540

So the ending balance is $540

Wages expense No.601
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
	Cash		1,000		1,000
	Cash		1,000		2,000

So the ending balance is $2,000

3.

To determine

To prepare: Trial balance.

Explanation of Solution

N consulting
Trial Balance
June 30, 20XX
Accounts Title	Amount($)	Amount($)
Cash	17,860
Accounts Payable		1,200
Accounts Receivable	2,000
Automobiles	8,000
Office Supplies	500
Notes payable		32,500
Building	40,000
Land	7,500
Office equipment	15,600
Capital		54,000
Dividends	1,100
Fees earned		7,400
Salaries Expenses	2,000
Utility expenses	540
Totals	95,100	95,100

So, total trial balance is $95,100.