Chapter 3, Problem 3.8AP

(a)

To determine

T-account:

T-account refers to an individual account, where the increases or decreases in the value of specific asset, liability, stockholder’s equity, revenue, and expenditure items are recorded.

This account is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.’ An account consists of the three main components which are as follows:

1. (a) The title of the account
2. (b) The left or debit side
3. (c) The right or credit side

To prepare: The T-accounts to enter the opening balances of TT Incorporation as on March 31, 2017.

Explanation of Solution

Prepare the T-account to enter the opening balances of TT Incorporation as follows:

Cash
Mar, 1	$16,000
Bal.	$16,000

Land
Mar, 1	$38,000
Bal.	$38,000

Building
Mar, 1	$22,000
Bal.	$22,000

Equipment
Mar, 1	$16,000
Bal.	$16,000

Accounts payable
		Mar, 1	$12,000
		Bal.	$12,000

Common stock
		Mar, 1	$80,000
		Bal.	$80,000

(b)

To determine

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.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
• Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

To journalize: the transaction as given in the book of TT Incorporation.

Answer to Problem 3.8AP

Prepare journal entries for TT Incorporation as follows:

Date	Account Title and Explanation	Debit ($)	Credit ($)
Mar 2, 2017	Rent expenses	10,000
	Accounts payable		8,000
	Cash		2,000
	(To record rent expenses incurred on account and in cash)

                                                         Table-1

Mar 3, 2017 – TT Corporation has ordered for the first three Star Trek Movies, No entry because no financial transaction has occurred.

Date	Account Title and Explanation	Debit ($)	Credit ($)
Mar 9, 2017	Cash	9,900
	Service revenue		9,900
	(To record the service performed in cash)

Table-2

Date	Account Title and Explanation	Debit ($)	Credit ($)
Mar 10, 2017	Accounts payable	2,900
	Cash		2,900
	(To record the cash paid to creditors)

Table-3

Mar 11, 2017 – TT Incorporation contracted with RL to operate the concession stand, No entry because no financial transaction has occurred.

Date	Account Title and Explanation	Debit ($)	Credit ($)
Mar 12, 2017	Advertising expenses	500
	Cash		500
	(To record the payment of advertising expenses)

                                                            Table-4

Date	Account Title and Explanation	Debit ($)	Credit ($)
Mar 20, 2017	Cash	8,300
	Service revenue		8,300
	(To record the service performed in cash)

Table-5

Date	Account Title and Explanation	Debit ($)	Credit ($)
Mar 20, 2017	Rent expenses	5,000
	Cash		5,000
	(To record the payment of  rental fees)

                                                            Table-6

Date	Account Title and Explanation	Debit ($)	Credit ($)
Mar 31, 2017	Salaries and wages expenses	3,800
	Cash		3,800
	(To record the payment of  salaries to employees)

                                                            Table-7

Date	Account Title and Explanation	Debit ($)	Credit ($)
Mar 31, 2017	Accounts receivable	750
	Cash	750
	Sales revenue		1,500
	(To record the sales made on account and in cash )

Table-8

Date	Account Title and Explanation	Debit ($)	Credit ($)
Mar 31, 2017	Cash	20,000
	Accounts receivable		20,000
	(To record the cash received from the customer )

                                                            Table-9

Explanation of Solution

Mar 2, 2017

• Rent expense is a component of stockholders equity, and decreased it hence, debit rent expenses for $10,000.
• Accounts payable is liability and increased, hence credit account payable for $8,000.
• Cash is an asset and has decreased, hence credit cash for $2,000.

Mar 9, 2017

• Cash is an asset and has increased, hence debit cash for $9,900.
• Service revenue is a component of stockholders’ equity, and has increased it, hence credit service revenue for $9,900.

Mar 10, 2017

• Accounts Payable is a liability and has decreased, hence debit accounts payable for $2,900.
• Cash is an asset and has decreased, hence credit cash for $2,900.

Mar 12, 2017

• Advertising expense is a component of stockholders’ equity, and decreased it, hence debit advertising expenses for $500.
• Cash is an asset and has decreased, hence credit cash for $500.

Mar 20, 2017

• Cash is an asset and has increased, hence debit cash for $8,300.
• Service revenue is a component of stockholders’ equity, and has increased it hence, credit service revenue for $8,300.

Mar 20, 2017

• Rent is a component of stockholders’ equity, and decreased it, hence debit rent expenses for $5,000.
• Cash is an asset and has decreased, hence credit cash for $5,000.

Mar 31, 2017

• Salaries and wages expense is a component of stockholders’ equity, and decreased it, hence debit rent expenses for $3,800.
• Cash is an asset and has decreased, hence credit cash for $3,800.

Mar 31, 2017

• Account receivable is an asset and has increased, hence debit account receivable for $700.
• Cash is an asset and has increased, hence debit cash for $750.
• Service revenue is a component of stockholders’ equity, and has increased it hence, credit service revenue for $1,500.

Mar 31, 2017

• Cash is an asset, and has increased, hence debit cash for $20,000.
• Accounts receivable is an asset, and has decreased, hence credit accounts receivable for $20,000.

(c)

To determine

To post:  the transaction to the ledger accounts of TT Incorporation as on March 31, 2017.

Explanation of Solution

Post the journal entries to the T-accounts of TT Incorporation as follows:

Accounts payable
Mar, 3	$10,900	Mar, 1 Mar, 2	$12,000  $ 8,000
Total	$10,900	Total	$20,000
		Bal.	$9,100

Rent expenses
Mar, 2	$10,000
Mar, 20	$  5,000
Bal.	$15,000

Service revenue
		Mar, 9 Mar, 20 Mar, 31	$  9,900 $  8,300 $20,000
		Bal.	$38,200

Sales revenue
		Mar, 31	$1,500
		Bal.	$1,500

Accounts receivable
Mar, 31	$750
Bal.	$750

Salaries and wages expenses
Mar, 31	$3,800
Bal.	$3,800

Advertising expenses
Mar, 12	$500
Bal.	$500

Cash
Mar, 1 Bal.	$16,000	Mar, 2	$  2,000
Mar, 9	$  9,900	Mar, 10	$10,900
Mar, 20	$  8,300	Mar, 12	$     500
Mar, 31 Mar, 31	$     750 $20,000	Mar, 20 Mar, 31	$  5,000 $ 3,800
Total	$54,950	Total	$22,200
Bal.	$32,750

 (d)

To determine

Trial balance:

Trial balance is the list 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.

To prepare:  a trial balance of TT Incorporation as on Mach 31, 2017.

Explanation of Solution

Prepare the trial balance of TT Incorporation as on March 31, 2017 as follows:

TT Incorporation
Trial balance
March 31, 2017
Particulars	Debit $	Credit $
Cash	32,750
Accounts receivable	750
Land	38,000
Buildings	22,000
Equipment	16,000
Accounts payable		9,100
Common stock		80,000
Service revenue		38,200
Sales revenue		1,500
Salaries and wages expenses	3,800
Rent expenses	15,000
Advertising expenses	500
	128,800	128,800

Table-10

Conclusion

Thus, the total of debit, and credit columns of a trial balance is $128,800 and agree.