Chapter 3, Problem 2PB

To determine

Prepare journal entries for each transaction.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting Equation:

The accounting equation implies the relationship between the assets, liabilities, and the stockholders equity. The balance of both the assets and the liabilities, stockholders equity must be equally balanced. The accounting equation is as follows;

$\boxed{\text{Assets = Liabilities + Stockholders Equity}}$

1. a. Journalize the issuance of common stock.

Date	Account Title and Explanation	Debit ($)	Credit ($)
	Cash (A+)	80,000
	Common stock (SE+)		80,000
	(To record the issuance of common stock to investors)

Table (1)

• Cash is an asset account. Thus, an increase in cash increases the value of asset account. Hence, debit cash account by $80,000.
• Common stock is a component of stockholder equity account. Thus, an increase in common stock increases the value of stockholders equity account. Hence, common stock account is being credited to increase its balance by $80,000.

  b. Journalize the service rendered partly for cash and partly on account.

Date	Account Title and Explanation	Debit ($)	Credit ($)
	Cash (A+)	16,000
	Accounts receivable (A+)	72,000
	Service revenue (R+, SE+)		88,000
	(To record the service performed partly for cash and partly on account)

    Table (2)

• Cash is an asset account. Thus, an increase in cash increases the value of asset account. Hence, debit cash account by $16,000.
• Accounts receivable is an asset account. Thus, an increase in accounts receivable increases the value of asset account. Hence, debit accounts receivable account by $72,000.
• Service revenue is a stockholder’s equity account. Thus, an increase in service revenue increases the value of stockholder’s equity account. Hence, service revenue account is being credited to increase its balance by $88,000.

1. c. Journalize the equipment purchased on account.

Date	Account Title and Explanation	Debit ($)	Credit ($)
	Equipment (A+)	82,000
	Notes payable (L+)		82,000
	(To record the purchase of equipment by signing a note )

Table (3)

• Equipment is an asset account. Thus, an increase in equipment increases the value of asset account. Hence, debit equipment account by $82,000.
• Notes payable is a liability account. Thus, an increase in notes payable increases the value of liability account. Hence, account payable account is being credited to increase its balance by $82,000.

1. d. Journalize the repair expense incurred on account.

Date	Account Title and Explanation	Debit ($)	Credit ($)
	Repairs and maintenance expenses (E+, SE-)	3,000
	Accounts payable (L+)		3,000
	(To record the repair expenses incurred on account)

    Table (4)

• Repairs and maintenance is an expense account which comes under retained earnings in stockholder’s equity. Thus, an increase in repairs and maintenance expense account decreases the value of stockholder’s equity account. Hence, repairs and maintenance expenses account is being debited to increase its balance by $3,000.
• Accounts payable is a liability account. Thus, an increase in accounts payable increases the value of liability account. Hence, accounts payable account is being credited to increase its balance by $3,000.

1. e. Journalize the cash received for the service rendered on account.

Date	Account Title and Explanation	Debit ($)	Credit ($)
	Cash (A+)	65,000
	Accounts receivable (A–)		65,000
	(To record the receipt of cash for the service performed on account)

    Table (5)

• Cash is an asset account. Thus, an increase in cash increases the value of asset account. Hence, debit cash account by $65,000.
• Accounts receivable is an asset account. Thus, a decrease in accounts receivable decreases the value of asset account. Hence, credit accounts receivable account by $65,000.

1. f. Journalize the amount borrowed by signing a note.

Date	Account Title and Explanation	Debit ($)	Credit ($)
	Cash (A+)	90,000
	Notes payable (L+)		90,000
	(To record the amount borrowed by signing a note)

Table (6)

• Cash is an asset account. Thus, an increase in cash increases the value of asset account. Hence, debit cash account by $90,000.
• Notes payable is a liability account. Thus, an increase in notes payable increases the value of liability account. Hence, notes payable account is being credited to increase its balance by $90,000.

1. g. Journalize the rent paid in advance.

Date	Account Title and Explanation	Debit ($)	Credit ($)
	Prepaid Rent(A+)	74,400
	Cash (A-)		74,400
	(To record the  payment of rent in advance )

Table (7)

• Prepaid rent is an asset account. Thus, an increase in prepaid rent increases the value of asset account. Hence, debit prepaid rent account by $74,400.
• Cash is an asset account. Thus, a decrease in cash decreases the value of asset account. Hence, credit cash account by $74,400.

1. h. Journalize the wages expense incurred for the current month.

Date	Account Title and Explanation	Debit ($)	Credit ($)
	Wages expenses (E+, SE–)	38,000
	Cash (A–)		38,000
	(To record the payment of wages to employees)

Table (8)

• Wages expense is a component of stockholder equity account. Thus, an increase in wages expenses decreases the value of stockholders equity account. Hence, wages expenses account is being debited to increase its balance by $38,000.
• Cash is an asset account. Thus, a decrease in cash decreases the value of asset account. Hence, credit cash account by $38,000.

1. i. Journalize the delivery expense incurred.

Date	Account Title and Explanation	Debit ($)	Credit ($)
	Delivery expenses (E+, SE–)	49,000
	Cash (A–)		49,000
	(To record the delivery expenses incurred)

Table (9)

• A delivery expense is a component of stockholder equity account. Thus, an increase in delivery expenses decreases the value of stockholders equity account. Hence, delivery expenses account is being debited to increase its balance by $1,200.
• Cash is an asset account. Thus, a decrease in cash decreases the value of asset account. Hence, credit cash account by $1,200.

1. j. Journalize the payment made for the purchase of furniture on account.

Date	Account Title and Explanation	Debit ($)	Credit ($)
	Accounts payable (L-)	2,000
	Cash (A-)		2,000
	(To record the payment made for the furniture purchased on account)

    Table (10)

• Accounts payable is a liability account. Thus, a decrease in accounts payable decreases the value of liability account. Hence, account payable account is being debited to decrease its balance by $15,000.
• Cash is an asset account. Thus, a decrease in cash account decreases the value of asset account. Hence, cash account is being credited to decrease its balance by $15,000.

1. k. No entry is required for this item, since no exchange transaction has been occurred.