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(1)
To indicate: The effect of given transactions, on the
(1)
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Explanation of Solution
Accounting equation is expressed as shown below:
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Effect of transaction occurred on January 2:
Assets | = | Liabilities | + | Stockholders’ Equity |
Cash (–$20,000) | Notes Payable (+$230,000) | |||
Equipment (+$250,000) |
Table (1)
Prepare journal entry for the transaction occurred on January 2.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
January | 2 | Equipment | 250,000 | |||
Cash | 20,000 | |||||
Notes Payable | 230,000 | |||||
(To record purchase of equipment) |
Table (2)
Description:
- Equipment is an asset account. Since equipment is bought, asset account increased, and an increase in asset is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
- Notes Payable is a liability account. Since the amount to be paid increased, liability increased, and an increase in liability is credited.
Effect of transaction occurred on January 3:
Assets | = | Liabilities | + | Stockholders’ Equity |
Equipment (+$20,000) | Accounts Payable (+$20,000) |
Table (3)
Prepare journal entry for the transaction occurred on January 3.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
January | 3 | Equipment | 20,000 | |||
Accounts Payable | 20,000 | |||||
(To record purchase of equipment) |
Table (4)
Description:
- Equipment is an asset account. Since equipment is bought, asset account increased, and an increase in asset is debited.
- Accounts Payable is a liability account. Since the amount to be paid increased, liability increased, and an increase in liability is credited.
Effect of transaction occurred on January 30:
Assets | = | Liabilities | + | Stockholders’ Equity |
Cash (–$20,000) | Accounts Payable (–$20,000) |
Table (5)
Prepare journal entry for the transaction occurred on January 30.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
January | 30 | Accounts Payable | 20,000 | |||
Cash | 20,000 | |||||
(To record payment of on account purchases) |
Table (6)
Description:
- Accounts Payable is a liability account. Since the amount to be paid is paid, liability decreased, and a decrease in liability is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Effect of transaction occurred on February 1:
Assets | = | Liabilities | + | Stockholders’ Equity |
Cash (–$800) | Repairs and Maintenance Expense (–$800) |
Table (7)
Prepare journal entry for the transaction occurred on February 1.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
February | 1 | Repairs and Maintenance Expense | 800 | |||
Cash | 800 | |||||
(To record payment of expense) |
Table (8)
Description:
- Repairs and Maintenance Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Effect of transaction occurred on March 1:
Assets | = | Liabilities | + | Stockholders’ Equity |
Cash (–$3,600) | ||||
Licensing Rights (+$3,600) |
Table (9)
Prepare journal entry for the transaction occurred on March 1.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
March | 1 | Licensing Rights | 3,600 | |||
Cash | 3,600 | |||||
(To record purchase of licensing rights) |
Table (10)
Description:
- Licensing Rights is an asset account. Since licensing rights are bought, asset account increased, and an increase in asset is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
(2)
The depreciation expense and amortization expense as on March 31
(2)
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Explanation of Solution
Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset.
Amortization expense: The expense which reflects the usage of intangible asset by the way of reducing the cost of the asset over the estimated useful definite life, is referred to as amortization expense.
Formula for amortization expense:
Double-declining-balance method: The depreciation method which assumes that the consumption of economic benefits of long-term asset is high in the early years but gradually declines towards the end of its useful life, is referred to as double-declining-balance method.
Formula for double-declining-balance depreciation method:
Determine the depreciation expense for the equipmentfor 3 months (from January2 to March 31) under double-declining-balancemethod, if cost of machine is $270,000, useful life is 5 years, and
Determine amortization expense for 1 month (from March 1 to March 31), if cost of licensing right is $3,600, and useful life is 2 years.
(3)
To journalize: The entries for depreciation expense and amortization expense
(3)
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Explanation of Solution
Prepare journal entry for the depreciation expense and amortization expense as on March 31 (Refer to Requirement (2) for the expense values).
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
March | 31 | Depreciation Expense | 27,000 | |||
Amortization Expense | 150 | |||||
Accumulated Depreciation–Equipment | 27,000 | |||||
Accumulated Amortization | 150 | |||||
(To record depreciation expense) |
Table (11)
Description:
- Depreciation Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Amortization Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Accumulated Depreciation–Equipment is a contra-asset account, and contra-asset accounts would have a normal credit balance, hence, the account is credited.
- Accumulated Amortization is a contra-asset account, and contra-asset accounts would have a normal credit balance, hence, the account is credited.
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Chapter 9 Solutions
Fundamentals Of Financial Accounting
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