Chapter 2, Problem 61BPSB

Problem 2-6B The Accounting Cycle

Sweetwater Temporary Clerical Help Service opened for business in June 2019. From the opening until the end of the year. Sweetwater engaged in the activities described below. So that a realistic trial balance can be prepared, the events described below are aggregations of many individual events.

1. Sold 10,000 shares of common stock for $4.50 per share.
2. Purchased office equipment from Furniture Max Inc. for $18,110 cash.
3. Received $112,880 from clients for services provided.
4. Paid wages $87,300.
5. Borrowed $20,000 from the Bank of America on a 3-year note payable.
6. Paid office rent of $10,200
7. Purchased office supplies on credit for $2,120 from Office Supply Inc.
8. Paid $1,200 toward the payable established in Transaction g.
9. Paid utility charges incurred during the year of $3,250.

Required:

1. Analyze the events for their effect on the accounting equation.

2. Prepare journal entries. (Note: Ignore the date because these events are aggregations of individual events)

3. Post the journal entries to T-accounts.

4. Prepare a trial balance at December 31, 2019.

To determine

Accounting Equation:

The accounting equation explains that the assets must be equal to the liabilities and stockholders’ equity on the occurrence of a business transaction. The dual aspect concept of accounting signifies that on each transaction the elements of the accounting equations are affected equally.

Requirement 1

Determine:

Analyze the events for their effect on the accounting equation.

Answer to Problem 61BPSB

Accounting Equation
Asset = Liabilities + Stockholders’ Equity
a.	$45,000		$45,000
b.	18,710
	(18,710)
c.	112,880		112,880
d.	(87,300)		(87,300)
e.	20,000	20,000
f.	(10,200)		(10,200)
g.	2,120	2,120
h.	(1,200)	(1,200)
i.	(3,250)		(3,250)

Explanation of Solution

Accounting Equation
Asset = Liabilities + Stockholders’ Equity
a.	Increase		Increase
b.	Increase
	Decrease
c.	Increase		Increase
d.	Decrease		Decrease
e.	Increase	Increase
f.	Decrease		Decrease
g.	Increase	Increase
h.	Decrease	Decrease
i.	Decrease		Decrease

To determine

Journal Entries:

Journal entries are medium of recording business transactions. A business enterprise must record all the business transaction to evaluate net income or loss and analyze the financial performance of a company during a specified accounting period.

Requirement 2

To Prepare:

Prepare journal entries for the transaction during 2019.

Answer to Problem 61BPSB

Events	Accounts and Explanation	Debit	Credit
a.	Cash	$45,000
	Common Stock		$45,000
b.	Equipment	18,710
	Cash		18,710
c.	Cash	112,880
	Service Revenue		112,880
d.	Wages Expense	87,300
	Cash		87,300
e.	Cash	20,000
	Notes Payable		20,000
f.	Rent Expense	10,200
	Cash		10,200
g.	Supplies
	Accounts Payable	2,120
			2,120
h.	Accounts Payable	1,200
	Cash		1,200
i.	Utilities Expense	3,250
	Cash		3,250

Explanation of Solution

Accounting Equation
Asset = Liabilities + Stockholders’ Equity
a.	Increase (Cash)		Increase (Common Stock)
b.	Increase (Equipment)
	Decrease (Cash)
c.	Increase (Cash)		Increase (Service Revenue)
d.	Decrease (Cash)		Decrease (Wages Expense)
e.	Increase (Cash)	Increase (Notes Payable)
f.	Decrease (Cash)		Decrease (Rent Expense)
g.	Increase (Supplies)	Increase (Accounts Payable)
h.	Decrease (Cash)	Decrease (Accounts Payable)
i.	Decrease (Cash)		Decrease (Utilities Expense)

To determine

Introduction:

T-accounts as its name derived from shape of the account, is representation of business transaction in their respective account. It helps in organizing and analyzing the transaction according to their similar nature of account.

Requirement 3

Prepare:

Posting the journal entries to T-accounts.

Answer to Problem 61BPSB

Accounts	Balance
Cash	$57,220
Supplies	2,120
Equipment	18,710
Accounts Payable	920
Notes Payable	20,000
Common Stock	45,000
Service Revenue	112,880
Rent Expense	10,200
Utilities Expense	3,250
Wages Expense	87,300

Explanation of Solution

Cash

a. 45,000 c. 112,880 e. 20,000	b. 18,710 d. 87,300 f. 10,200 h. 1,200 i. 3,250
Bal. 57,220

Supplies

g. 2,120
Bal. 2,120

Equipment

b. 18,710
Bal. 18,710

Accounts Payable

h. 1,200	g. 2,120
	Bal. 920

Notes Payable

	e. 20,000
	Bal. 20,000

Common Stock

	a. 45,000
	Bal. 45,000

Service Revenue

	c. 112,880
	Bal. 112,880

Rent Expense

f. 10,200
Bal. 10,200

Utilities Expense

i. 3,250

Wages Expense

d. 87,300
Bal. 87,300

To determine

Trial Balance:

A financial statement which integrates all the balance of ledger accounts is termed as a trial balance. The total balance of debit and credit in trial balance should be equal at end of an accounting period.

Requirement 3

Prepare:

Prepare the trial balance as of December 31, 2019.

Answer to Problem 61BPSB

The total balance of the trial balance for the year ending December 31, 2019 is $178,800.

Explanation of Solution

Sweetwater Temporary Clerical Help ServiceTrial Balance December 31, 2019
Accounts	Debit	Credit
Cash	$57,220
Supplies	2,120
Equipment	18,710
Accounts Payable		$920
Notes Payable		20,000
Common Stock		45,000
Service Revenue		112,880
Rent Expense	10,200
Utilities Expense	3,250
Wages Expense	87,300
Total	$178,800	$178,800