
Journal entry is a medium of recording the business transactions carried during a particular accounting period.
A trial balance is a statement consisting of all the ledger accounts which is prepared at the end of accounting period.
Four Column Accounts:
The four column accounts keeps track of the balance as transactions takes place. In case of assets and expense accounts, the increase in the expenses and assets are shown in the debit column and vice-versa. When there is increase in liabilities and revenues, it is shown on the credit side and vice-versa.
Income Statement:
The statement which shows the revenues earned and expenses incurred during a particular year is called Income statement.
Statement of Owner's Equity:
Statement of owner's equity is concerned with portion of owner's equity.
A financial statement which shows the financial position of a company during specified accounting period is called a balance sheet.
Prepare journal entries to record the transactions, create financial statements, and assess the impact of each transaction on financial statements.

Answer to Problem 5GLP
Solution:
Journal entries
Date | Accounts | Debit | Credit |
a. | Cash | $100,000 | |
Office Equipment | $5,000 | ||
Drafting Equipment | $60,000 | ||
J. Aracel, Capital | $165,000 | ||
b. | Land | $49,000 | |
Cash | $6,300 | ||
Note Payable | $42,700 | ||
c. | Building | $55,000 | |
Cash | $55,000 | ||
d. | Prepaid Insurance | $3,000 | |
Cash | $3,000 | ||
e. | Cash | $6,200 | |
Engineering Fees Earned | $6,200 | ||
f. | Drafting Equipment | $20,000 | |
Cash | $9,500 | ||
Notes Payable | $10,500 | ||
g. | $14,000 | ||
Engineering Fees Earned | $14,000 | ||
h. | Office Equipment | $1,150 | |
Accounts Payable | 1,150 | ||
i. | Accounts Receivable | $22,000 | |
Engineering Fees Earned | $22,000 | ||
j. | Equipment Rental Expense | $1,333 | |
Accounts Payable | $1,333 | ||
k. | Cash | $7,000 | |
Accounts Receivable | $7,000 | ||
l. | Wages Expense | $1,200 | |
Cash | $1,200 | ||
m. | Accounts Payable | $1,150 | |
Cash | $1,150 | ||
n. | Repairs Expense | $925 | |
Cash | $925 | ||
o. | J. Aracel, Withdrawals | $9,480 | |
Cash | $9,480 | ||
p. | Wages Expense | $1,200 | |
Cash | $1,200 | ||
q. | Advertising Expense | $2,500 | |
Cash | $2,500 |
Financial Statements
ARACEL ENGINEERING COMPANY Income Statement Month Ended June 30. | ||
Revenues: | ||
Engineering Fee Earned | $42,200 | |
Expenses: | ||
Wages Expense | $2,400 | |
Equipment Rental Expense | $1,333 | |
Advertising Expense | $2,500 | |
Repairs Expense | $925 | |
Total Expense | $7,158 | |
Net Income | $35,042 |
ARACEL ENGINEERING COMPANY Statement of Owner's Equity Month Ended June 30 | |
J. Aracel, Capital, June 1 | $0 |
Owner's contribution during the month | $165,000 |
Net income for the month | $35,042 |
Subtotal | $200,042 |
Owner's withdrawal | ($9,480) |
J. Aracel, Capital, June 30. | $190,562 |
ARACEL ENGINEERING COMPANY Balance Sheet Month Ended June 30. | |
Assets | |
Current Asset: | |
Cash | $22,945 |
Accounts Receivable | $29,000 |
Prepaid Insurance | $3,000 |
Total Current Assets | $54,945 |
Plant, Property and Equipment | |
Office Equipment | $6,150 |
Drafting Equipment | $80,000 |
Building | $55,000 |
Land | $49,000 |
Total Plant, Property and Equipment | $190,150 |
Total Assets | $245,095 |
Liabilities | |
Current Liabilities | |
Accounts Payable | $1,333 |
Long-Term Liabilities | |
Notes Payable | $53,200 |
Total Liabilities | $54,533 |
Owner's Equity | |
J. Aracel, Capital | $190,562 |
Total Liabilities and Owner's Equity | $245,095 |
Transactions | Impact on financial statements |
a. | The cash, office equipment and drafting equipment brought in by J. Aracel are assets to the company, so these assets will debited and the capital account of J. Aracel will be credited for the contribution made by him. |
b. | The land purchased by the company is debited as it increases assets and the cash account and note payable account are credited as it results in decrease of cash and increase of liabilities. |
c. | Company bought a portable building which debited as to increase the assets and cash account is credited which will decrease the cash balance of the company. |
d. | Insurance premium for 18 months is paid in advance increases the assets as it is a prepaid insurance and the outflow of cash will result in decrease of cash. |
e. | Services performed for the client for cash will increase the cash balance and revenue in the income statement of the company. |
f. | The purchase of drafting equipment will increase the assets of the company and at the same time, the cash accounts will decrease by the amount paid in cash and increase the liabilities by the amount of note payable sign. |
g. | Service performed on account increases the assets by debiting the accounts receivable and revenue by crediting the engineering fees earned. |
h. | Purchase of additional office equipment on credit increases the assets "Office Equipment" and liabilities "Accounts Payable" at the same time. |
i. | Debiting the Accounts Receivable increases the assets and crediting the Engineering Fees Earned increases the revenue of the company in the income statement. |
j. | Accrued equipment rental expense increases the expenses in the income statement and liabilities in the balance sheet of the company. |
k. | Collections on accounts will decrease the assets of accounts receivable and increases the assets of cash accounts simultaneously. |
l. | Wages expense incurred increases the expenses in the income statement and decreases the assets of cash accounts as it results in outflow of cash. |
m. | Payment on accounts payable decreases the liabilities "Accounts Payable" and assets "Cash Account" at the same time. |
n. | Repair expense is an expense which decreases the net income in the income statement and cash balance in the balance sheet. |
o. | Withdrawal by the owner will result in decrease of equity and cash balance of the company. |
p. | Wages expense incurred increases the expenses in the income statement and decreases the assets of cash accounts as it results in outflow of cash. |
q. | The advertising expense is an expense which decreases the net income in the income statement and cash balance in the balance sheet. |
Explanation of Solution
Ledger Accounts
Cash Account no. 101 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
a. | J. Aracel, Capital | $100,000 | $100,000 | |
b. | Land | $6,300 | $93,700 | |
c. | Building | $55,000 | $38,700 | |
d. | Prepaid Insurance | $3,000 | $35,700 | |
e. | Engineering Fee Earned | $6,200 | $41,900 | |
f. | Drafting Equipment | $9,500 | $32,400 | |
k. | Accounts Receivable | $7,000 | $39,400 | |
l. | Wages Expense | $1,200 | $38,200 | |
m. | Accounts Payable | $1,150 | $37,050 | |
n. | Repairs Expense | $925 | $36,125 | |
o. | J. Aracel, Withdrawals | $9,480 | $26,645 | |
p. | Wages Expense | $1,200 | $25,445 | |
q. | Advertising Expense | $2,500 | $22,945 |
Accounts Receivable Account no. 106 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
g. | Engineering Fee Earned | $14,000 | $14,000 | |
i. | Engineering Fee Earned | $22,000 | $36,000 | |
k. | Cash | $7,000 | $29,000 |
Prepaid Insurance Account no. 108 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
d. | Cash | $3,000 | $3,000 |
Office Equipment Account no. 163 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
a. | J. Aracel, Capital | $5,000 | $5,000 | |
h. | Accounts Payable | $1,150 | $6,150 |
Drafting Equipment Account no. 164 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
a. | J. Aracel, Capital | $60,000 | $60,000 | |
f. | Cash | $9,500 | $69,500 | |
Notes Payable | $10,500 | $80,000 | ||
Building Account no. 170 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
c. | Cash | $55,000 | $55,000 |
Land Account no. 172 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
b. | Cash | $6,300 | $6,300 | |
Note Payable | $42,700 | $49,000 |
Accounts Payable Account no. 201 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
h. | Office Equipment | $1,150 | $1,150 | |
j. | Equipment Rental Expense | $1,333 | $2,483 | |
m. | Cash | $1,150 | $1,333 |
Notes Payable Account no. 250 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
b. | Land | $42,700 | $42,700 | |
f. | Drafting Equipment | $10,500 | $53,200 |
J. Aracel, Capital Account no. 301 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
a. | Cash | $100,000 | $100,000 | |
Office Equipment | $5,000 | $105,000 | ||
Drafting Equipment | $60,000 | $165,000 | ||
J. Aracel, Withdrawals Account no. 302 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
o. | Cash | $9,480 | $9,480 |
Engineering Fee Earned Account no. 402 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
e. | Cash | $6,200 | $6,200 | |
g. | Accounts Receivable | $14,000 | $20,200 | |
i. | Accounts Receivable | $22,000 | $42,200 |
Wages Expense Account no. 601 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
l. | Cash | $1,200 | $1,200 | |
p. | Cash | $1,200 | $2,400 |
Equipment Rental Expense Account no. 602 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
j. | Accounts Payable | $1,333 | $1,333 |
Advertising Expense Account no. 603 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
q. | Cash | $2,500 | $2,500 |
Repairs Expense Account no. 604 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
n. | Cash | $925 | $925 |
Trial Balance
ARACEL ENGINEERING COMPANY Trial Balance For the Month Ended June 30 | ||||
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 | |||
J. Aracel, Capital | $165,000 | |||
J. Aracel, Withdrawals | $9,480 | |||
Engineering Fees Earned | $42,200 | |||
Wages Expense | $2,400 | |||
Equipment Rental Expense | $1,333 | |||
Advertising Expense | $2,500 | |||
Repairs Expense | $925 | |||
Total | $261,733 | $261,733 |
Aracel Engineering Company's net income for the month ended June 30 is $35,042 and the total assets, liabilities and owners' equity amounts to $245,095.
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Chapter 2 Solutions
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