Chapter 3, Problem 3.2PB

To determine

To prepare: The journal entries for each transaction.

Explanation of Solution

Journal:

Journal is the book of original entry. Journal consists of the day today financial transactions in a chronological order. The journal has two aspects; they are debit aspect and the credit aspect.

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. To 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 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 stockholders equity account. Hence, common stock account is being credited to increase its balance by $80,000.

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

1. c. To journalize: The equipment purchased on account.

Date	Account Title and Explanation	Debit ($)	Credit ($)
	Equipment (A+)	82,000
	Accounts payable (L+)		82,000
	(To record the purchase of equipment on account )

Table (3)

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

1. d. To 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 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 liability account. Hence, accounts payable account is being credited to increase its balance by $3,000.

1. e. To 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 cash received for the service performed on account)

Table (5)

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

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

1. g. To 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 rent amount paid in advance )

Table (7)

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

1. h. To journalize: The wages expense incurred for the current month.

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

Table (8)

• Salaries and Wages expense is a component of stockholder equity account. Thus, an increase in Salaries and Wages expenses decreases the stockholders equity account. Hence, Salaries and 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 asset account. Hence, credit cash account by $38,000.

1. i. To 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 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 asset account. Hence, credit cash account by $1,200.

1. j. To 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 accounts payable)

Table (10)

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

1. k. No entry is required for this item, as there is no exchange transaction has ocuured.