Chapter 2, Problem 6BPSB

1.

To determine

To Prepare: A trial balance for Gould Solutions as of the end of April.

Answer to Problem 6BPSB

Solution:

The trial balance for Gould Solutions as of the end of April is prepared as follows:

GOULD SOLUTIONS Trial Balance As of April 30
Account Title	Debit Balance (in $)	Credit Balance (in $)
Cash	19,982
Office Supplies	760
Prepaid rent	1,800
Office Equipment	12,250
Accounts Payable		12,250
R. Gould, Capital		15,000
R. Gould, Withdrawals	5,200
Consulting fees earned		20,400
Operating expenses	7,658
Total	47,650	47,650

Explanation of Solution

Given:

Roshaun Gould who is the owner of Gould Solutions completed seven transactions in April and after those seven transactions, the company’s ledger included the following accounts with normal balances:

Account Title	Balance Amount (in $)
Cash	19,982
Office Supplies	760
Prepaid rent	1,800
Office Equipment	12,250
Accounts Payable	12,250
R. Gould, Capital	15,000
R. Gould, Withdrawals	5,200
Consulting fees earned	20,400
Operating expenses	7,658

Cash is an asset of a company. Therefore, it normally has a debit balance.

Office Supplies are assets of a company. Therefore, it normally has a debit balance.

Prepaid rent is an asset of a company. Therefore, it normally has a debit balance.

Office Equipment is an asset of a company. Therefore, it normally has a debit balance.

Accounts Payable is a liability of a company. Therefore, it normally has a credit balance.

R. Gould, Capital is a part of owner’s equity. Therefore, it normally has a credit balance.

R. Gould, Withdrawals decreases the owner’s equity. Therefore, it normally has a debit balance.

Consulting fees earned is the revenue earned by the company. Therefore, it normally has a credit balance.

Operating expenses are the expenses incurred by the company. Therefore, it normally has a debit balance.

The total debit and credit balances of Gould Solutions’ trial balance as of April 30 are calculated as follows:

Formula used:

$TotalDebitBalance=SumofAllDebitBalances$

$TotalCreditBalance=SumofAllCreditBalances$

Calculation:

On adding all the debit balances, we get the following:

$\begin{array}{l}TotalDebitBalance=\$19,982+\$760+\$1,800+\$12,250+\$5,200+\$7,658\\ TotalDebitBalance=\$47,650\end{array}$

On adding all the credit balances, we get the following:

$\begin{array}{l}TotalCreditBalance=\$12,250+\$15,000+\$20,400\\ TotalCreditBalance=\$47,650\end{array}$

Therefore, the total debit and credit balances of Gould Solutions’ trial balance as of April 30 are equal. The total debit or credit balance is $47,650.

2.

To determine

To Prepare: A list that describes each of the seven most likely transactions and their amounts by analyzing the accounts and their balances.

Answer to Problem 6BPSB

Solution:

A list that describes each of the seven most likely transactions and their amounts by analyzing the accounts and their balances includes the following:

1. Roshaun Gould made an investment of $15,000 cash. The accounts impacted are cash account and R. Gould, Capital account.
2. The company purchased office equipment for $12,250 on account. The accounts impacted are office equipment account and accounts payable account.
3. The company purchased office supplies for $760 on cash. The accounts impacted are office supplies account and cash account.
4. The company paid $4,600 cash in advance for rent to be incurred in future. The accounts impacted are prepaid rent account and cash account.
5. R. Gould (owner) withdrew $5,200 cash from the company. The accounts impacted are R. Gould, Withdrawals account and cash account.
6. The company received $20,400 cash for the consulting fees earned. The accounts impacted are cash account and consulting fees earned account.
7. The company paid $7,658 cash for the operating expenses incurred. The accounts impacted are operating expenses account and cash account.

Explanation of Solution

Given:

Roshaun Gould who is the owner of Gould Solutions completed seven transactions in May and after those seven transactions, the company’s ledger included the following accounts with normal balances:

Account Title	Balance Amount (in $)	Normal Balance (debit or credit)
Cash	19,982	Debit
Office Supplies	760	Debit
Prepaid rent	1,800	Debit
Office Equipment	12,250	Debit
Accounts Payable	12,250	Credit
R. Gould, Capital	15,000	Credit
R. Gould, Withdrawals	5,200	Debit
Consulting fees earned	20,400	Credit
Operating expenses	7,658	Debit

The first transaction says that Roshaun Gould invested $18,000 cash in the business because for starting a firm some investment is needed. In this transaction, cash is debited with $18,000 and R. Gould, Capital is credited with $18,000. As we can see in the above table, R. Gould, Capital account has a credit balance amounting to $18,000.

It is noted that the balance amounts of office equipment and accounts payable are equal i.e. $12,250 and also, their normal balances are debit and credit respectively. Therefore, this makes one most likely transaction which says that office equipment amounting to $12,250 is purchased on account.

The remaining five transactions must have impacted Office supplies account, prepaid rent account, R. Gould, Withdrawals account, Consulting fees earned account, Operating expenses account and cash account. Here, except cash account, all the other five accounts could not have any transaction with one another. Therefore, all these five accounts that are Office supplies account, prepaid rent account, R. Gould, Withdrawals account, Consulting fees earned account and Operating expenses account must be having separate transactions with cash account and thereby the balance amounts of these five accounts are fully taken for carrying out these five transactions.

For office supplies account and cash account to be impacted, the transaction would be the company purchased office supplies for $760 on cash. Here, the office supplies account is debited with $760 and cash account is credited with $760.

For prepaid rent account and cash account to be impacted, the transaction would be company paid $1,800 cash in advance for the rent to be incurred in future. Here, prepaid rent account is debited with $1,800 and cash account is credited with $1,800.

For R. Gould, Withdrawals account and cash account to be impacted, the transaction would be R. Gould (owner) withdrew $5,200 cash from the company. Here, R. Gould, Withdrawals account is debited with $5,200 and cash account is credited with $5,200.

For consulting fees earned account and cash account to be impacted, the transaction would be the company received $20,400 cash for the consulting fees earned. Here, cash account is debited with $20,400 and consulting fees earned account is credited with $10,400.

For operating expenses account and cash account to be impacted, the transaction would be the company paid $7,658 cash for the operating expenses incurred. Here, operating expenses account is debited with $7,658 and cash account is credited with $7,658.

3.

To determine

To Prepare: A report of cash received and cash paid showing how the seven transactions in part 2 yield the $19,982 ending cash balance.

Answer to Problem 6BPSB

Solution:

The report of cash received and cash paid showing how the seven transactions in part 2 yield the $19,982 ending cash balance is prepared as follows:

Report of Cash Received and Cash Paid
Particulars	Amount (in $)	Total Amount (in $)
Cash Received
Owner’s Investment	15,000
Consulting fees earned	20,400
Total Cash Received		35,400
Cash Paid
Office Supplies	760
Prepaid rent	1,800
R. Gould, Withdrawals	5,200
Operating expenses	7,658
Total Cash Paid		15,418
Ending Debit Balance		19,982

Explanation of Solution

Given:

As shown in part 2, cash is received by the company in two transactions. In one transaction, the owner (Roshaun Gould) invested $15,000 cash in the business. In other transaction, the company received $20,400 cash for the consulting fees earned (by providing consulting services). Cash is debited in these two transactions.

As shown in part 2, cash is paid by the company in four transactions. Cash is credited in these four transactions. These are as follows:

1. The company paid $760 cash for office supplies purchased.
2. The company paid $1,800 cash in advance for rent to be incurred in future.
3. The owner withdrew $5,200 cash from the company.
4. The company paid $7,658 cash for the operating expenses incurred.

Cash being an asset normally has an ending debit balance i.e. its total debit balance is more than its total credit balance.

The total cash received, total cash paid and ending debit balance of cash are calculated as follows:

Formula used:

$TotalCash\mathrm{Re}ceived=AmountofOwner\text{'}sInvestment+AmountofConsultingFeesEarned$

$\begin{array}{l}TotalCashPaid=AmountofOfficeSupplies+Amountof\mathrm{Pr}epaid\mathrm{Re}nt+AmountofOwner\text{'}sWithdrawals\\ +AmountofOperatingExpenses\end{array}$

$EndingDebitBalanceofCash=TotalCash\mathrm{Re}ceived-TotalCashPaid$

Calculation:

We will put the given values in the above mentioned formulae as follows:

$\begin{array}{l}TotalCash\mathrm{Re}ceived=\$15,000+\text{}\$20,400\\ TotalCash\mathrm{Re}ceived=\$35,400\end{array}$

$\begin{array}{l}TotalCashPaid=\$760+\$1,800+\$5,200+\$7,658\\ TotalCashPaid=\$15,418\end{array}$

$\begin{array}{l}EndingDebitBalanceofCash=\$35,400-\$15,418\\ EndingDebitBalanceofCash=\$19,982\end{array}$

Therefore, total cash received and total cash paid by Gould Solutions are $35,400 and $15,418 respectively.