Chapter 2, Problem 8PB

1

To determine

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

Answer to Problem 8PB

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

Date	Account Title and Explanation		Debit ($)	Credit ($)
November 1	Cash		13,000
		Common stock		13,000
	(To record the entry for issue of common stock  for cash)
November 2	Equipment		3,500
		Notes payable		3,500
	(To record the entry for purchase of land with note payable)
November 4	Supplies		1,000
		Accounts payable		1,000
	(To record the entry for purchase of supplies on account)
November 10	Accounts receivable		9,000
		Service Revenue		9,000
	(To record the entry for providing service on account )
November 15	Accounts payable		1,100
		Cash		1,100
	(To record the entry for payment made to creditors)
November 20	Salaries expense		3,000
		Cash		3,000
	(To record the entry for payment of salaries expenses)
November 22	Cash		11,000
		Service revenue		11,000
	(To record the entry for providing service on account)
November 24	Notes payable		1,400
		Cash		1,400
	(To record the entry for payment of  notes payable)
November 26	Cash		7,000
		Accounts receivable		7,000
	(To record the entry for receiving cash on account)
November 28	utilities expense		1,100
		Cash		1,100
	(To record the entry for payment of utility expense)
November 30	Rent expense		5,000
		Cash		5,000
	(To record the payment of rent expense)

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.

November 1

• Cash is an asset. There is an increase in the asset. So debit the cash account with $13,000.
• Common stock is a component of stockholders’ equity. There is an increase in the common stock which increases the stockholders’ equity. So credit the common stock with $13,000.

November 2

• Equipment is an asset. There is an increase in the asset. So debit the equipment account with.$3,500
• Notes payable is a liability. There is an increase in the liability. So credit the cash account with $3,500.

November 4

• Supplies are an asset. There is an increase in the asset. So debit supplies account with $1,000.
• Accounts payable is a liability. There is an increase in the liability. So credit accounts payable account with $1,000.

November 10

• Accounts receivable is an asset. There is an increase in the asset. So debit accounts receivable with $9,000.
• 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 $9,000.

November 15

• Accounts payable is a liability. There is an increase in the liability. So debit accounts payable with $1,100.
• Cash is an asset. There is a decrease in the asset. So credit cash account with $1,100.

November 20

• Salaries expenses are an expense account and it is a component of the stockholders’ equity. There is an increase in expenses which reduces the stockholders’ equity. So debit salaries expense account with $3,000.
• Cash is an asset. There is a decrease in the asset. So credit cash account with $3,000.

November 22

• Cash is an asset. There is an increase in the asset. So debit cash account with $11,000.
• Service revenue is a revenue account and it is a component of stockholders’ equity. There is an increase in the revenue account which increases the stockholders’ equity. So credit service revenue account with $11,000.

November 24

• Notes payable is a liability. There is a decrease in the liability. So debit notes payable with $1,400.
• Cash is an asset. There is a decrease in the asset. So credit cash account with $1,400.

November 26

• Cash is an asset account. There is an increase in the asset. So debit cash account with $7,000.
• Accounts receivable is an asset. There is a decrease in the asset. So credit accounts receivable with $7,000.

November 28

• Utilities 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 expense with $1,100.
• Cash is an asset. There is a decrease in the asset. So credit cash account with $1,100.

November 30

• 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 $5,000.
• Cash is an asset. There is a decrease in the asset. So credit cash account with $5,000.

2, 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

Prepare T-account:

Accounts receivable account:

Accounts receivable
Opening balance	6,000
Service revenue	9,000	Cash	7,000
Total	15,000	Total	15,000
Balance November 30	2,600

Service revenue account:

Service revenue
		Accounts receivable	9,000
		cash	11,000
		Balance November 30	20,000

Equipment account:

Equipment
Opening balance	9,400
Notes payable	3,500
Balance November 30	12,900

Cash account:

Cash
Opening balance	3,200	Accounts  payable	1,100
Common stock	13,000	salaries expense	3,000
Service revenue	11,000	Notes payable	1,400
		utilities expense	1,100
		Rent expense	5,000
Total	34,200	Total	34,200
Balance November 30	22,600

Supplies account:

supplies
Opening balance	700
Accounts payable	1,000
Balance November 30	1,700

Accounts payable:

Accounts payable
		Opening balance	2,000
Cash	1,100	Supplies	1,000
		Balance November 30	1,900

Salaries expense account:

Salaries expense
Opening balance	0
Cash	3,000
Balance November 30	3,000

Rent expense:

Rent expense
Opening balance	0
cash	5,000
Balance November 30	5,000

Notes payable account:

Notes payable
		Opening balance	4,000
Cash	1,400	Equipment	3,500
Total	7,500	Total	7,500
		Balance November 30	6,100

Common stock account:

Common stock
		Opening balance	7,000
		Cash	13,000
		Balance November 30	20,000

Retained earnings account:

Retained earnings account
		Opening balance	900
		Balance November 30	900

4

To determine

Prepare a trial balance of Incorporation BE.

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 BE:

Incorporation BE
Trial balance
For the month end November 30
Accounts	Debit($)	Credit($)
Cash	22,600
Accounts receivable	2,600
supplies	1,700
Equipment	12,900
Accounts payable		1,900
Notes payable		6,100
Common stock		20,000
Retained earnings		900
Service revenue		20,000
Salaries expense	3,000
Rent expense	5,000
Utilities expense	1,100
Total	48,900	48,900

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 $48,900.