Chapter 2, Problem 8PA

Requirement 1

To determine

Prepare the journal entry to record the transactions for Incorporation P.

Answer to Problem 8PA

Prepare the journal entry to record the transactions for Incorporation P.

Date	Account Title and Explanation		Debit ($)	Credit ($)
September 1	Cash		4,700
		Service revenue		4,700
	(To record the entry for providing service for cash)
September 2	Land		6,400
		Notes payable		6,400
	(To record the entry for purchase of land with note payable)
September 4	Advertising expense		500
		Accounts payable		500
	(To record the entry for receiving invoice for current advertising)
September 8	Accounts receivable		6,000
		Service Revenue		6,000
	(To record the entry for providing service on account )
September 10	Supplies		1,100
		Accounts payable		1,100
	(To record the entry for purchase of supplies on account)
September 13	Notes payables		4,000
		Cash		4,000
	(To record the entry for payment of long-term note)
September 18	Cash		5,000
		Accounts receivable		5,000
	(To record the entry for receiving cash from customer on account)
September 20	Rent expense		900
		Cash		900
	(To record the entry for payment of  rent for current month)
September 30	Utilities expense		2,000
		Cash		2,000
	(To record the entry for payment of utilities expense)
September 30	Salaries expense		4,000
		Cash		4,000
	(To record the entry for payment of salary expense)
September 30	Dividends		1,100
		Cash		1,100
	(To record the payment of dividend)

Table (1)

Explanation of Solution

Journal:

Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

September 1

• Accounts receivable is an asset. There is an increase in the asset. So debit accounts receivable with $4,700.
• Service revenue is a revenue account and it is the component of stockholders’ equity. There is an increase in the revenue account which increases the stockholders’ equity. So credit service revenue with $4,700.

September 2

• Land is an asset. There is an increase in the asset. So debit land with $6,400.
• Notes payable is a liability. There is an increase in the liability. So credit notes payable with $6,400.

September 4

• Advertising expense is an expense account and it is the component of stockholders’ equity. There is an increase in the expense which reduces the stockholders’ equity.  So debit advertising expenses with $500.
• Accounts payable is a liability. There is an increase in the liability. So credit accounts payable with $500.

September 8

• Accounts receivable is an asset. There is an increase in the asset. So debit accounts receivable with $6,000.
• Service revenue is a revenue account and it is the component of stockholders’ equity. There is an increase in the revenue account which increases the stockholders’ equity. So credit service revenue with $6,000.

September 10

• Supplies are an asset. There is an increase in the asset. So debit supplies with $1,100.
• Accounts payable is a liability. There is an increase in the liability. So credit accounts payable with $1,100.

September 13

• Notes payable is a liability. There is a decrease in the liability. So debit notes payable with $4,000.
• Cash is an asset. There is a decrease in the asset. So credit cash with $4,000.

September 18

• Cash is an asset. There is an increase in the asset. So debit cash with $5,000.
• Accounts receivable is an asset. There is a decrease in the asset. So credit accounts receivable with $5,000.

September 20

• Rent expense is an expense account and it is a component of stockholders’ equity. There is an increase in the expense and it will decrease the stockholders’ equity. So debit rent expense with $900.
• Cash is an asset. There is a decrease in the asset. So credit asset with $900.

September 30

• Utility expense is an expense account and it is a component of stockholders’ equity. There is an increase in the expense and it will decrease the stockholders’ equity. So debit utilities expenses with $2,000.
• Cash is an asset. There is a decrease in the asset. So credit cash with $2,000.

September 30

• Salaries expense is an expense account and it is a component of stockholders’ equity. There is an increase in the expense and it will decrease the stockholders’ equity. So debit salaries expense with $4,000.
• Cash is an asset. There is a decrease in the asset. So credit cash with $4,000.

September 30

• Dividends are a component of stockholders’ equity. There is an increase in the dividend account and it will decrease the stockholders’ equity. So debit dividends with $1,100.
• Cash is an asset. There is a decrease in the asset. So credit cash with $1,100.

Requirement 2, Requirement 3:

To determine

Calculate the ending balance of each account by posting the transaction to the T-account.

Explanation of Solution

T-account:

T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.

The components of the T-account are as follows:

a) The title of the account

b) The left or debit side

c) The right or credit side

Accounts receivable account:

Accounts receivable
Opening balance	2,500
Service revenue	6,000	Cash	5,000
Total	8,500	Total	8,500
Balance September 30	3,500

Service revenue account:

Service revenue
		Cash	4,700
		Accounts receivable	6,000
		Balance September 30	10,700

Land account:

Land
Opening balance	11,200
Notes payable	6,400
Balance September 30	17,600

Cash account:

Cash
Opening balance	6,500	Note payable	4,000
Service revenue	4,700	Rent expense	900
Account receivable	5,000	Utilities expense	2,000
		Salary expense	4,000
		Dividend	1,100
Total	16,200	Total	16,200
Balance September 30	4,200

Supplies account:

supplies
Opening balance	7,600
Accounts payable	1,100
Balance September 30	8,700

Accounts payable:

Accounts payable
		Opening balance	7,200
		Advertising expense	500
		Supplies	1,100
		Balance September 30	9,100

Salaries expense account:

Salaries expense
Opening balance	0
Cash	4,000
Balance September 30	4,000

Advertising expense:

Advertising expense
Opening balance	0
Accounts payable	500
Balance September 30	500

Rent expense account:

Rent expense
Opening balance	0
Cash	900
Balance September 30	900

Utilities expense account:

Utilities expense
		Opening balance	0
		Cash	2,000
		Balance September 30	2,000

Notes payable:

Notes payable
Cash	4,000	Opening balance	3,000
		Land	6,400
Total	9,400	Total	9,400
		Balance September 30	5,400

Requirement 4:

To determine

Prepare a trial balance of Incorporation P.

Explanation of Solution

Trial balance:

Trial balance is the summary of accounts, and their debit and credit balances at a given time. It is usually prepared at end of the accounting period. Debit balances are listed in left column and credit balances are listed in right column. The totals of debit and credit column should be equal. Trial balance is useful in the preparation of the financial statements.

Prepare the trial balance of Incorporation P:

Incorporation P
Trial balance
For the month end, September 30
Accounts	Debit($)	Credit($)
Cash	4,200
Accounts receivable	3,500
supplies	8,700
Land	17,600
Accounts payable		9,100
Notes payable		5,400
Common stock		9,000
Retained earnings		8,300
Dividends	1,100
Service revenue		10,700
Salaries expense	4,000
Rent expense	900
Advertising expense	500
Utilities expense	2,000
Total	42,500	42,500

Table (2)

Conclusion

Hence, the trial balance is prepared, and the debit column and credit column of the trial balance are agreed, both having balance of $42,500.