Exercises

Exercise A  Prepare the journal entry required for each of the following transactions:

1. Cash was received for services performed for customers, $1,200.
2. Services were performed for customers on account, $4,200.

Exercise B Prepare the journal entry required for each of the following transactions:

1. Common stock was issued for $ 100,000.
2. Purchased machinery for cash, $ 30,000.

Exercise C Prepare the journal entry required for each of the following transactions:

1. Capital stock was issued for $ 200,000 cash.
2. A $ 30,000 loan was arranged with a bank. The bank increased the company’s checking account by $ 30,000 after management of the company signed a written promise to return the $ 30,000 in 30 days.
3. Cash was received for services performed for customers, $ 700.
4. Services were performed for customers on account, $ 1,200.

Exercise D For each of the following unrelated transactions, give the journal entry to record the transaction. Then show how the journal entry would be posted to T-accounts. You need not include explanations or account numbers.

1. Capital stock was issued for $ 100,000 cash.
2. Salaries for a period were paid to employees, $ 24,000.
3. Services were performed for customers on account, $ 40,000.

Exercise E  Prepare journal entries to record each of the following transactions for Sanchez Company. Use the letter of the transaction in place of the date. Include an explanation for each entry.

1. Capital stock was issued for cash, $ 300,000.
2. Purchased trucks by signing a note bearing no interest, $ 210,000.
3. Earned service revenue on account, $ 4,800.
4. Collected the account receivable resulting from transaction (c), $ 4,800.
5. Paid the note payable for the trucks purchased, $ 210,000.
6. Paid utilities for the month in the amount of $ 1,800.
7. Paid salaries for the month in the amount of $ 7,500.
8. Incurred supplies expenses on account in the amount of $ 1,920.
9. Purchased another truck for cash, $ 48,000.
10. Performed delivery services on account, $ 24,000.

Exercise F Using the data in the previous problem, post the entries to T-accounts. Write the letter of the transaction in the account before the dollar amount. Determine a balance for each account.

Exercise G Using your answer for the previous exercise, prepare a trial balance. Assume the date of the trial balance is March 31.

Problems

Problem A The transactions of Lightning Package Delivery Company for March follow:

Mar. 1 The company was organized and issued capital stock for $ 300,000 cash.

2 Paid $ 6,000 as the rent for March on a completely furnished building.

5 Paid cash for delivery trucks, $ 180,000.

6 Paid $ 4,000 as the rent for March on two forklift trucks.

9 Paid $ 2,200 for supplies received and used in March.

12 Performed delivery services for customers who promised to pay $ 27,000 at a later date.

20 Collected cash of $ 4,500 from customers on account (see March 12 entry).

21 Received a bill for $ 1,200 for advertising in the local newspaper in March.

27 Paid cash for gas and oil consumed in March, $ 450.

31 Paid $ 2,400 salaries to employees for March.

31 Received an order for services at $ 12,000. The services will be performed in April.

31 Paid cash dividend, $ 1,000.

Prepare the journal entries required to record these transactions in the general journal of the company.

Problem B Economy Laundry Company had the following transactions in August:

Aug. 1 Issued capital stock for cash, $ 150,000.

3 Borrowed $ 40,000 from the bank on a note.

4 Purchased cleaning equipment for $ 25,000 cash.

6 Performed services for customers who promised to pay later, $ 16,000.

7 Paid this month’s rent on a building, $ 2,800.

10 Collections were made for the services performed on August 6, $ 3,200.

14 Supplies were purchased on account for use this month, $ 3,000.

17 A bill for $ 400 was received for utilities for this month.

25 Laundry services were performed for customers who paid immediately, $ 22,000.

31 Paid employee salaries, $ 6,000.

31 Paid cash dividend, $ 2,000.

Required:

1. Prepare journal entries for these transactions.
2. Post the journal entries to T-accounts. Enter the account number in the Posting Reference column of the journal as you post each amount. Use the following account numbers:

3.  Prepare a trial balance as of August 31.

Problem C Clean-Sweep Janitorial, Inc., a company providing janitorial services, was organized July 1. The following account numbers and titles constitute the chart of accounts for the company:

July 1 The company issued $ 600,000 of capital stock for cash.

5 Office space was rented for July, and $ 5,000 was paid for the rental.

8 Desks and chairs were purchased for the office on account, $ 28,800.

10 Equipment was purchased for $ 50,000; a note was given, to be paid in 30 days.

15 Purchased trucks for $ 150,000, paying $ 120,000 cash and giving a 60-day note to the dealer for $ 30,000.

July 18 Paid for supplies received and already used, $ 2,880.

23 Received $ 17,280 cash as service revenue.

27 Insurance expense for July was paid, $ 4,500.

30 Paid for gasoline and oil used by the truck in July, $ 576.

31 Billed customers for janitorial services rendered, $ 40,320.

31 Paid salaries for July, $ 51,840.

31 Paid utilities bills for July, $ 5,280.

31 Paid cash dividends, $ 9,600.

1. Journalize the transactions given for July in the general journal.
2. Post the journal entries to ledger accounts.
3. Prepare a trial balance as of  July 31.

Problem D Trim Lawn, Inc., is a lawn care company. Thus, the company earns its revenue from sending its trucks to customers’ residences and certain commercial establishments to care for lawns and shrubbery. Trim Lawn’s trial balance at the end of the first 11 months of the year follows:

Dec. 2 Paid rent for December, $ 3,000.

5 Paid the accounts payable of $ 33,600.

8 Paid advertising for December, $ 1,500.

10 Purchased a new office desk on account, $ 1,050.

13 Purchased $ 240 of supplies on account for use in December.

15 Collected cash from customers on account, $ 75,000.

20 Paid for customer entertainment, $ 450.

24 Collected an additional $ 6,000 from customers on account.

26 Paid for gasoline used in the trucks in December, $ 270.

28 Billed customers for services rendered, $ 79,500.

30 Paid for more December supplies, $ 12,000.

31 Paid December salaries, $ 15,300.

31 Paid a $ 4,000 cash dividend. (The Dividends account is No. 320.)

1. Prepare entries in the general journal for the preceding transactions for December.
2. Post the journal entries to three-column general ledger accounts.
3. Prepare a trial balance as of  December 31.

Problem E Marc Miller prepared the following trial balance from the ledger of the Quick-Fix TV Repair Company. The trial balance did not balance.

The difference in totals in the trial balance caused Miller to carefully examine the company’s accounting records. In searching back through the accounting records, Miller found that the following errors had been made:

• One entire entry that included a $ 10,000 debit to Cash and a $ 10,000 credit to Accounts Receivable was never posted.
• In computing the balance of the Accounts Payable account, a credit of $ 3,200 was omitted from the computation.
• In preparing the trial balance, the Retained Earnings account balance was shown as $ 80,000. The ledger account has the balance at its correct amount of $ 83,200.
• One debit of $ 2,400 to the Dividends account was posted as a credit to that account.
• Office equipment of $ 12,000 was debited to Office Furniture when purchased.

Prepare a corrected trial balance for the Quick-Fix TV Repair Company as of December 31. Also, write a description of the effect(s) of each error.

Alternate problems

Alternate problem A Speedy Laundry Company, Inc., entered into the following transactions in August:

Aug. 1 Received cash for capital stock issued to owners, $ 400,000.

3 Paid rent for August on a building and laundry equipment rented, $ 3,000.

6 Performed laundry services for $ 2,000 cash.

8 Secured an order from a customer for laundry services of $ 7,000. The services are to be performed next month.

13 Performed laundry services for $ 6,300 on account for various customers.

15 Received and paid a bill for $ 430 for supplies used in operations.

23 Cash collected from customers on account, $ 2,600.

31 Paid $ 2,400 salaries to employees for August.

31 Received the electric and gas bill for August, $ 385, but did not pay it at this time.

31 Paid cash dividend, $ 1,000.

Prepare journal entries for these transactions in the general journal.

Alternate problem B The transactions listed below are those of Reliable Computer Repair, Inc., for April:

Apr. 1 Cash of $ 500,000 was received for capital stock issued to the owners.

3 Rent was paid for April, $ 3,500.

6 Trucks were purchased for $ 56,000 cash.

7 Office equipment was purchased on account from Wagner Company for $ 76,800.

14 Salaries for first two weeks were paid, $ 12,000.

15 $ 28,000 was received for services performed.

18 An invoice was received from Roger’s Gas Station for $ 400 for gas and oil used during April.

23 A note was arranged with the bank for $ 80,000. The cash was received, and a note promising to return the $ 80,000 on 2010 May 30, was signed.

29 Purchased trucks for $ 73,600 by signing a note.

30 Salaries for the remainder of April were paid, $ 14,400.

1. Prepare journal entries for these transactions.
2. Post the journal entries to T-accounts. Enter the account number in the Posting Reference column of the journal as you post each amount. Use the following account numbers:

3.  Prepare a trial balance as of  April 30.

Alternate problem C Rapid Pick Up & Delivery, Inc., was organized January 1. Its chart of accounts is as follows:

Jan. 1 The company received $ 560,000 cash and $ 240,000 of office furniture in exchange for $ 800,000 of capital stock.

2 Paid garage rent for January, $ 6,000.

4 Purchased computers on account, $ 13,200.

6 Purchased delivery trucks for $ 280,000; payment was made by giving cash of $ 150,000 and a 30-day note for the remainder.

Jan 12 Purchased insurance for January on the delivery trucks. The cost of the policy, $ 800, was paid in cash.

15 Received and paid January utilities bills, $ 960.

15 Paid salaries for first half of January, $ 3,600.

17 Cash received for delivery services to date amounted to $ 1,800.

20 Received bill for gasoline purchased and used in January, $ 180.

23 Purchased delivery trucks for cash, $ 108,000.

25 Cash sales of delivery services were $ 2,880.

27 Purchased a copy machine on account, $ 3,600.

31 Paid salaries for last half of January, $ 4,800.

31 Sales of delivery services on account amounted to $ 11,400.

31 Paid for repairs to a delivery truck, $ 1,120.

1. Prepare general ledger accounts for all these accounts except Retained Earnings. The Retained Earnings account has a beginning balance of zero and maintains this balance throughout the period.
2. Journalize the transactions given for  January in the general journal.
3. Post the journal entries to ledger accounts.
4. Prepare a trial balance as of January 31.

Alternate problem 4 The trial balance of California Tennis Center, Inc., at the end of the first 11 months of its fiscal year follows:

Dec. 1 Paid building rent for December, $ 4,000.

2 Paid vendors on account, $ 18,000.

5 Purchased land for cash, $ 10,000.

7 Sold memberships on account for December, $ 27,000.

10 Paid the note payable of $ 15,000, plus interest of $ 150.

13 Cash collections from customers on account, $ 36,000.

19 Received a bill for repairs, $ 225.

24 Paid the December utilities bill, $ 180.

28 Received a bill for December advertising, $ 1,650.

29 Paid the equipment repair bill received on the 19th, $ 225.

30 Gave tennis lessons for cash, $ 4,500.

30 Paid salaries, $ 6,000.

30 Sales of memberships on account since December 7, $ 18,000 (for the month of December).

30 Costs paid in entertaining customers in December, $ 350.

30 Paid dividends of $ 1,500. (The Dividends account is No. 320.)

1. Prepare entries in the general journal for the transactions during December.
2. Post the journal entries to ledger accounts.
3. Prepare a trial balance as of December 31.

Alternate problem E Bill Baxter prepared a trial balance for Special Party Rentals, Inc., a company that rents tables, chairs, and other party supplies. The trial balance did not balance. The trial balance he prepared was as follows:

In trying to f ind out why the trial balance did not balance, Baxter discovered the following errors:

Equipment was understated (too low) by $ 12,000 because of an error in addition in determining the balance of that account in the ledger.

A credit of $ 4,800 to Accounts Receivable in the journal was not posted to the ledger account at all.

A debit of $ 16,000 for a semiannual dividend was posted as a credit to the Capital Stock account.

The balance of $ 12,000 in the Advertising Expense account was entered as $ 1,200 in the trial balance.

Miscellaneous Expense (Account No. 568), with a balance of $ 3,200, was omitted from the trial balance.

Prepare a corrected trial balance as of 2010 December 31. Also, write a description of the effect(s) of each error.

Beyond the numbers—Critical thinking

Business decision case A John Jacobs lost his job as a carpenter with a contractor when a recession hit the construction industry. Jacobs had been making $ 50,000 per year. He decided to form his own company, Jacobs Corporation, and do home repairs.

The following is a summary of the transactions of the business during the first three months of operations in 2010:

Jan. 15 Stockholders invested $ 40,000 in the business.

Feb. 25 Received payment of $ 4,400 for remodeling a basement into a recreation room. The homeowner purchased all of the building materials.

Mar. 5 Paid cash for an advertisement that appeared in the local newspaper, $ 150.

Apr. 10 Received $ 7,000 for converting a room over a garage into an office for a college professor. The professor purchased all of the materials for the job.

11 Paid gas and oil expenses for automobile, $ 900.

12 Miscellaneous business expenses were paid, $ 450.

15 Paid dividends of $ 2,000.

1. Prepare journal entries for these transactions.
2. Post the journal entries to T-accounts.
3. How profitable is this new venture? Should Jacobs stay in this business?

Annual report analysis B Refer to the Annual Report of The Limited, Inc. in the Annual Report Appendix. Perform horizontal and vertical analyses of the liabilities and stockholder’s equity sections of the balance sheets for the two most recent years shown. Horizontal analysis involves showing the dollar amount and percentage increase or decrease of the latest year over the preceding year amounts. Vertical analysis involves showing the percentage of total liabilities and stockholder’s equity that each account represents as of the balance sheet dates. Write comments on any important changes between the two years that are evidence of decisions made by management.

Annual report analysis C In The Home Depot’s recent Annual Report, the following passages appear:

Write answers to the following questions:

1. Do you think The Home Depot management regards its employees more as expenses or assets? Explain.
2. What does The Home Depot regard as its most valuable asset? Explain your answer.
3. Is The Home Depot permitted to list its human resources as assets on its balance sheet? Why or why not?
4. Could its philosophy regarding its employees be the major factor in its outstanding financial performance? Explain.

Ethics case – Writing experience D Refer to “An ethical perspective: Financial deals, Inc.”. Write out the answers to the following questions:

1. What motivated Larry to go along with unethical and illegal actions? Explain.
2. What are Larry’s options now? List each possibility.
3. What would you do if you were Larry? Describe in detail.
4. What do you think the real Larry did? Describe in detail.

Group project E In teams of two or three students, interview in person or by speakerphone a new staff member who has worked for a CPA firm for only one or two years. Seek information on the advantages and disadvantages of working for a CPA firm. Also, inquire about the nature of the work and the training programs offered by the firm for new employees. As a team, write a memorandum to the instructor summarizing the results of the interview. The heading of the memorandum should contain the date, to whom it is written, from whom, and the subject matter.

Group project F With one or two other students and using library resources, write a report on the life of Luca Pacioli, sometimes referred to as the father of accounting. Pacioli was a Franciscan monk who wrote a book on double-entry accounting in 1494. Be careful to cite sources and treat direct quotes properly. (If you do not know how to do this, ask your instructor.)

Using the Internet—A view of the real world

Visit the following website:

http://www.roberthalf.com

Click on Job Seekers. Read the information and write a memo to your instructor about your search and what you learned about certain jobs in accounting.

Visit the following website:

http://www.sec.gov

Investigate this site for anything of interest. Write a memo to your instructor about your search.

Write answers to the following questions:

1. Do you think The Home Depot management regards its employees more as expenses or assets? Explain.
2. What does The Home Depot regard as its most valuable asset? Explain your answer.
3. Is The Home Depot permitted to list its human resources as assets on its balance sheet? Why or why not?
4. Could its philosophy regarding its employees be the major factor in its outstanding financial performance? Explain.

Ethics case – Writing experience D Refer to “An ethical perspective: Financial deals, Inc.”. Write out the answers to the following questions:

1. What motivated Larry to go along with unethical and illegal actions? Explain.
2. What are Larry’s options now? List each possibility.
3. What would you do if you were Larry? Describe in detail.
4. What do you think the real Larry did? Describe in detail.

Group project E In teams of two or three students, interview in person or by speakerphone a new staff member who has worked for a CPA firm for only one or two years. Seek information on the advantages and disadvantages of working for a CPA firm. Also, inquire about the nature of the work and the training programs offered by the firm for new employees. As a team, write a memorandum to the instructor summarizing the results of the interview. The heading of the memorandum should contain the date, to whom it is written, from whom, and the subject matter.

Group project F With one or two other students and using library resources, write a report on the life of Luca Pacioli, sometimes referred to as the father of accounting. Pacioli was a Franciscan monk who wrote a book on double-entry accounting in 1494. Be careful to cite sources and treat direct quotes properly. (If you do not know how to do this, ask your instructor.)

Using the Internet—A view of the real world

Visit the following website:

http://www.roberthalf.com

Click on Job Seekers. Read the information and write a memo to your instructor about your search and what you learned about certain jobs in accounting.

Visit the following website:

http://www.sec.gov

Investigate this site for anything of interest. Write a memo to your instructor about your search.