Demonstration Problems Chapter 02 Recording Business Transactions 2-1 © 2016 Pearson Education,...
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Demonstration Problems Chapter 02 Recording Business Transactions 2-1 © 2016 Pearson Education, Inc.
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© 2016 Pearson Education, Inc. 2-3 Demonstration of E2-16 & E2-17-Req. 1 Date Accounts and ExplanationDebitCredit Jul. 2Cash20,000 Common Stock20,000 Issued common stock in exchange for cash. Cash Jul. 220,000 Common Stock 20,000Jul. 2 July 2 Received $20,000 contribution from Thomas in exchange for common stock.
Transcript of Demonstration Problems Chapter 02 Recording Business Transactions 2-1 © 2016 Pearson Education,...
Demonstration Problems
Chapter 02
Recording Business
Transactions
2-1© 2016 Pearson Education, Inc.
© 2016 Pearson Education, Inc.2-2
The following transactions occurred for Mission Cable Services.
Demonstration of E2-16 & E2-17
July 2 Received $20,000 contribution from Thomas in exchange for Common Stock
4 Paid utilities expense of $800.
5 Purchased equipment on account, $4,200.
10 Performed services for a client on account, $4,000.
12 Borrowed $14,000 cash, signing a notes payable.
19 Cash dividends of $1,000 were paid to stockholders.
21 Purchased office supplies for $1,600 and paid cash.
27 Paid the liability from July 5.
RequirementsE2-16.
E2-17.
Journalize the transactions of Mission Cable Services. Include an explanation.1. Open T-accounts for Mission Cable Services.2. Compute the July 31 balance for each account.
© 2016 Pearson Education, Inc.2-3
Demonstration of E2-16 & E2-17-Req. 1
Date Accounts and Explanation Debit CreditJul. 2 Cash 20,000
Common Stock 20,000
Issued common stock in exchange for cash.
CashJul. 2
20,000
Common Stock20,000 Jul. 2
July 2 Received $20,000 contribution from Thomas in exchange for common stock.
© 2016 Pearson Education, Inc.2-4
July 4 Paid utilities expense of $800.
Demonstration of E2-16 & E2-17-Req. 1
Date Accounts and Explanation Debit CreditJul. 4 Utilities Expense 800
Cash 800
Paid utility expense.
CashJul. 2
20,000
800 Jul. 4
Utilities ExpenseJul. 4 800
© 2016 Pearson Education, Inc.2-5
July 5 Purchased equipment on account, $4,200.
Demonstration of E2-16 & E2-17-Req. 1
Date Accounts and Explanation Debit CreditJul. 5 Equipment 4,200
Accounts Payable 4,200
Purchased equipment on account.
EquipmentJul. 5 4,200
Accounts Payable
4,200 Jul. 5
© 2016 Pearson Education, Inc.2-6
July 10 Performed services for a client on account, $4,000.
Demonstration of E2-16 & E2-17-Req. 1
Date Accounts and Explanation Debit CreditJul. 10 Accounts Receivable 4,000
Service Revenue 4,000
Performed services for client on account.
Accounts ReceivableJul. 10
4,000
Service Revenue4,000 Jul. 10
© 2016 Pearson Education, Inc.2-7
July 12 Borrowed $14,000 cash, signing a notes payable.
Demonstration of E2-16 & E2-17-Req. 1
Date Accounts and Explanation Debit CreditJul. 12 Cash 14,000
Notes Payable 14,000
Borrowed cash by signing note.
CashJul. 2 20,000 800 Jul. 4
12 14,000
Notes Payable14,000 Jul. 12
© 2016 Pearson Education, Inc.2-8
July 19 Cash dividends of $1,000 were paid to stockholders.
Demonstration of E2-16 & E2-17-Req. 1
Date Accounts and Explanation Debit CreditJul. 19 Dividends 1,000
Cash 1,000
Paid cash dividends.
CashJul. 2 20,000 800 Jul. 4
12 14,000 1,000 19
DividendsJul. 19 1,000
© 2016 Pearson Education, Inc.2-9
July 21 Purchased office supplies for $1,600 and paid cash.
Demonstration of E2-16 & E2-17-Req. 1
Date Accounts and Explanation Debit CreditJul. 21 Office Supplies 1,600
Cash 1,600
Purchased office supplies with cash.
CashJul. 2 20,000 800 Jul. 4
12 14,000 1,000 19
1,600 21
Office SuppliesJul. 21 1,600
© 2016 Pearson Education, Inc.2-10
July 27 Paid the liability from July 5.
Demonstration of E2-16 & E2-17-Req. 1
Date Accounts and Explanation Debit CreditJul. 21 Accounts Payable 4,200
Cash 4,200
Paid cash on account.
CashJul. 2 20,000 800 Jul. 4
12 14,000 1,000 191,600 21
4,200 27
Accounts PayableJul. 27 4,200 4,200 Jul. 5
© 2016 Pearson Education, Inc. 2-11
Demonstration of E2-17-Req. 2
CashJul. 2 20,000 800 Jul. 4
12 14,000 1,000 19
1,600 21
4,200 27
Bal. 26,400
Accounts ReceivableJul. 10
4,000
Bal. 4,000
Office SuppliesJul. 21 1,600
Bal. 1,600
EquipmentJul. 5 4,200
Bal. 4,200
© 2016 Pearson Education, Inc. 2-12
Demonstration of E2-17-Req. 2
Accounts PayableJul. 27 4,200 4,200 Jul. 5
0 Bal.
Notes Payable 14,000 Jul.12
14,000 Bal.
Common Stock20,000 Jul. 2
20,000 Bal.
DividendsJul. 19 1,000
Bal. 1,000
© 2016 Pearson Education, Inc. 2-13
Demonstration of E2-17-Req. 2
Service Revenue4,000 Jul.10
4,000 Bal.
Utilities ExpenseJul. 4 800
Bal. 800
© 2016 Pearson Education, Inc. 2-14
The following trial balance of Luxury Tours and Travels Service as of Mar 31, 2016, does not balance.
Demonstration of E2-27
LUXURY TOURS AND TRAVELS SERVICES Trial Balance March 31, 2016
Balance Account Title Debit Credit Cash $5,000 Accounts Receivable 3,000 Office Supplies 1,000 Computer Equipment 15,000 Accounts Payable $10,000 Utilities Payable 400 Common Stock 12,000 Dividends 8,000 Service Revenue 9,000 Salaries Expense 1,500 Rent Expenses 500 Utilities Expense 600 Total $34,600 $31,400
© 2016 Pearson Education, Inc. 2-15
Demonstration of E2-27
Investigation of the accounting records reveals that the bookkeeper:a. Recorded a $200 cash revenue transaction by debiting Accounts
Receivable. The credit entry was correct.
b. Posted a $2,250 credit to Accounts Payable as $250.
c. Did not record Utilities Expense or the related Utilities Payable in the amount of $300.
d. Understated Common Stock by $1,000.
RequirementPrepare the corrected trial balance as of March 31, 2016, complete with a heading; journal entries are not required.
© 2016 Pearson Education, Inc. 2-16
Demonstration of E2-27
LUXURY TOURS AND TRAVELS SERVICES Trial Balance March 31, 2016
Balance Correction Corrected Balance Account Title Debit Credit Debit Credit Debit Credit
Cash $5,000 $200 $5,200 Accounts Receivable 3,000 $200 2,800
a. Recorded a $200 cash revenue transaction by debiting Accounts Receivable. The credit entry was correct.
© 2016 Pearson Education, Inc. 2-17
Demonstration of E2-27
LUXURY TOURS AND TRAVELS SERVICES Trial Balance March 31, 2016
Balance Correction Corrected Balance Account Title Debit Credit Debit Credit Debit Credit
Cash $5,000 $200 $5,200 Accounts Receivable 3,000 $200 2,800
Accounts Payable $10,000 2,000 $12,000
b. Posted a $2,250 credit to Accounts Payable as $250
© 2016 Pearson Education, Inc. 2-18
Demonstration of E2-27
LUXURY TOURS AND TRAVELS SERVICES Trial Balance March 31, 2016
Balance Correction Corrected Balance Account Title Debit Credit Debit Credit Debit Credit
Cash $5,000 $200 $5,200 Accounts Receivable 3,000 $200 2,800
Accounts Payable $10,000 2,000 $12,000 Utilities Payable 400 300 700
Utilities Expense 600 300 900
c. Did not record Utilities Expense or the related Utilities Payable in the amount of $300.
© 2016 Pearson Education, Inc. 2-19
Demonstration of E2-27
LUXURY TOURS AND TRAVELS SERVICES Trial Balance March 31, 2016
Balance Correction Corrected Balance Account Title Debit Credit Debit Credit Debit Credit
Cash $5,000 $200 $5,200 Accounts Receivable 3,000 $200 2,800
Accounts Payable $10,000 2,000 $12,000 Utilities Payable 400 300 700 Common Stock 12,000 1,000 13,000
Utilities Expense 600 300 900
d. Understated Common Stock by $1,000.
© 2016 Pearson Education, Inc. 2-20
Demonstration of E2-27
LUXURY TOURS AND TRAVELS SERVICES Trial Balance March 31, 2016
Balance Correction Corrected Balance Account Title Debit Credit Debit Credit Debit Credit
Cash $5,000 $200 $5,200 Accounts Receivable 3,000 $200 2,800 Office Supplies 800 800 Computer Equipment 15,000 15,000 Accounts Payable $10,000 2,000 $12,000 Utilities Payable 400 300 700 Common Stock 12,000 1,000 13,000 Dividends 8,000 8,000 Service Revenue 9,000 9,000 Salaries Expense 1,500 1,500 Rent Expenses 500 500 Utilities Expense 600 300 900 Total $34,400 $31,400 $34,700 $34,700
© 2016 Pearson Education, Inc. 2-21
Demonstration of E2-28
PETER SCOTT, M.D. Trial Balance
30-June-16 Balance
Account Title Debit Credit Cash 50,000 Accounts Receivable 10,000 Office Supplies 4,000 Office Equipment 15,000 Building 100,000 Land 30,000 Accounts Payable 4,000 Utilities Payable 1,500 Unearned Revenue 20,000 Notes Payable 80,000 Common Stock 140,000 Dividends 75,000 Service Revenue 70,000 Salaries Expense 30,000 Utilities Expense 1,000 Advertising Expense 500 Total $315,500 $315,500
Requirement
Calculate the debt equity ratio for Peter Scott, M.D..
Peter Scott, M.D. reported the following trial balance as of June 30, 2016.
© 2016 Pearson Education, Inc. 2-22
Demonstration of E2-28
Accounts Payable $4,000 Accounts Receivable $10,000 Utilities Payable 1,500 Office Supplies 4,000 Unearned Revenue 20,000 Office Equipment 15,000 Notes Payable 80,000 Building 100,000
Cash 50,000 Land 30,000
Debt ratio ═ Total liabilities ∕ Total assets
© 2016 Pearson Education, Inc. 2-23
Demonstration of E2-28
Accounts Payable $4,000 Accounts Receivable $10,000 Utilities Payable 1,500 Office Supplies 4,000 Unearned Revenue 20,000 Office Equipment 15,000 Notes Payable 80,000 Building 100,000
Cash 50,000 Land 30,000
Liabilities Assets
Accounts Payable $4,000
Utilities Payable 1,500
Unearned Revenue 20,000
Notes Payable 80,000
© 2016 Pearson Education, Inc. 2-24
Demonstration of E2-28
Accounts Payable $4,000 Accounts Receivable $10,000 Utilities Payable 1,500 Office Supplies 4,000 Unearned Revenue 20,000 Office Equipment 15,000 Notes Payable 80,000 Building 100,000
Cash 50,000 Land 30,000
Liabilities Assets
Accounts Payable $4,000 Cash $50,000
Utilities Payable 1,500 Accounts Receivable 10,000
Unearned Revenue 20,000 Office Supplies 4,000
Notes Payable 80,000 Office Equipment 15,000
Building 100,000
Land 30,000
© 2016 Pearson Education, Inc. 2-25
Demonstration of E2-28
Accounts Payable $4,000 Accounts Receivable $10,000 Utilities Payable 1,500 Office Supplies 4,000 Unearned Revenue 20,000 Office Equipment 15,000 Notes Payable 80,000 Building 100,000
Cash 50,000 Land 30,000
Liabilities Assets
Accounts Payable $4,000 Cash $50,000
Utilities Payable 1,500 Accounts Receivable 10,000
Unearned Revenue 20,000 Office Supplies 4,000
Notes Payable 80,000 Office Equipment 15,000
Building 100,000
Land 30,000
Total liabilities $105,500 Total assets $209,000
© 2016 Pearson Education, Inc. 2-26
Demonstration of E2-28
Debt ratio ═ Total liabilities ∕ Total assets ═ $105,500 ∕ $209,000
Total Assets $209,000
Total Liabilities $105,500
© 2016 Pearson Education, Inc. 2-27
Demonstration of E2-28
Debt ratio ═ Total liabilities ∕ Total assets ═ $105,500 ∕ $209,000
═ 0.50 or 50%
Total Assets $209,000
Total Liabilities $105,500
End of Chapter 2
2-28© 2016 Pearson Education, Inc.
