CHAPTER 2 SOLUTIONS

EXERCISE 2-1

1. False. An account is an accounting record of a specific asset, liability, or owner’s equity item.

2. False. An account shows increases and decreases in the item it relates to.

3. False. Each asset, liability, and owner’s equity item has a separate account.

4. False. An account has a left, or debit side, and a right, or credit side.

5. True.
EXERCISE 2-2

Account Debited Account Credited

(a) (b) (c) (d) (a) (b) (c) (d)
Basic Specific Norma Basic Specific Norma
Transactio Type Account Effect l Type Account Effect l
n Balanc Balanc
e e
Jan. 2 Asset Cash Increase Debit Owner’s Owner’s Increase Credit
Equity Capital
3 Asset Equipmen Increase Debit Asset Cash Decreas Debit
t e
9 Asset Supplies Increase Debit Liability Accounts Increase Credit
Payable
11 Asset Accounts Increase Debit Owner’s Service Increase Credit
Receivabl Equity Revenue
e
16 Owner’s Advertisin Increase Debit Asset Cash Decreas Debit
Equity g e
Expense
20 Asset Cash Increase Debit Asset Accounts Decreas Debit
Receivabl e
e
 23 Liability Accounts Decreas Credit Asset Cash Decreas Debit
Payable e e
28 Owner’s Owner’s Increase Debit Asset Cash Decreas Debit
Equity Drawings e

EXERCISE 2-7

(a) Assets = Liabilities + Owner’s Equity

1. + + (Investment)
2. – – (Expense)
3. + + (Revenue)
4. – – (Drawings)

(b) 1. Cash ....................................................................... 4,000

Owner’s Capital .............................................. 4,000
2. Rent Expense ......................................................... 950
Cash ................................................................ 950
3. Accounts Receivable............................................... 5,200
Service Revenue.............................................. 5,200
4. Owner’s Drawings .................................................. 750
Cash ................................................................ 750
EXERCISE 2-12

(a)
General Journal J1
Date Account Titles and Explanation Ref. Debit Credit
Sept. 1 Cash 101 10,000
Owner’s Capital .............................. 301 10,000

5 Equipment .............................................. 157 12,000

Cash ............................................... 101 4,000
Accounts Payable ........................... 201 8,000

25 Accounts Payable ................................... 201 3,000

Cash ............................................... 101 3,000

30 Owner’s Drawings .................................. 306 700

Cash ............................................... 101 700
EXERCISE 2-12 (Continued)

(b)
Cash No. 101
Date Explanation Ref. Debit Credit Balance
Sept. 1 J1 10,000 10,000
5 J1 4,000 6,000
25 J1 3,000 3,000
30 J1 700 2,300

Equipment No. 157

Date Explanation Ref. Debit Credit Balance
Sept. 5 J1 12,000 12,000

Accounts Payable No. 201

Date Explanation Ref. Debit Credit Balance
Sept. 5 J1 8,000 8,000
25 J1 3,000 5,000

Owner’s Capital No. 301

Date Explanation Ref. Debit Credit Balance
Sept. 1 J1 10,000 10,000
Owner’s Drawings No. 306
Date Explanation Ref. Debit Credit Balance
Sept. 30 J1 700 700

PROBLEM 2-1A

J1
Date Account Titles and Explanation Ref. Debit Credit
Apr. 1 Cash 35,000
Owner’s Capital .................................. 35,000
(Owner’s investment of cash
in business)

4 Land 27,000
Cash .................................................... 27,000
(Purchased land for cash)

8 Advertising Expense .................................... 1,800

Accounts Payable................................ 1,800
(Incurred advertising
expense on account)

11 Salaries and Wages Expense ........................ 1,500

 Cash .................................................... 1,500
(Paid salaries)

12 No entry—Not a transaction.

13 Prepaid Insurance ....................................... 1,650

Cash .................................................... 1,650
(Paid for one-year
insurance policy)

17 Owner’s Drawings ....................................... 1,000

Cash .................................................... 1,000
(Withdrew cash for personal
use)

20 Cash 6,800
Service Revenue ................................. 6,800
(Received cash for services
provided)
PROBLEM 2-1A (Continued)

Date Account Titles and Explanation Ref. Debit Credit

Apr. 25 Cash ........................................................... 2,500
Unearned Service Revenue ...................... 2,500
(Received cash for future
services)

30 Cash ........................................................... 8,900

Service Revenue ................................. 8,900
(Received cash for services
provided)

30 Accounts Payable ....................................... 900

Cash .................................................... 900
(Paid creditor on account)
 PROBLEM 2-2A

(a)
J1
Date Account Titles and Explanation Ref. Debit Credit
May 1 Cash ............................................................ 101 20,000
Owner’s Capital .................................. 301 20,000
(Owner’s investment of cash
in business)

2 No entry—not a transaction.

3 Supplies ...................................................... 126 2,500

Accounts Payable................................ 201 2,500
(Purchased supplies on
account)

7 Rent Expense .............................................. 729 900

Cash .................................................... 101 900
(Paid office rent)

11 Accounts Receivable.................................... 112 3,200

Service Revenue ................................. 400 3,200
(Billed client for services
provided)
12 Cash ........................................................... 101 3,500
Unearned Service Revenue ................. 209 3,500
(Received cash for future
services)

17 Cash ........................................................... 101 1,200

Service Revenue ................................. 400 1,200
(Received cash for services
provided)

31 Salaries and Wages Expense ........................ 726 2,000

Cash .................................................... 101 2,000
(Paid salaries)
PROBLEM 2-2A (Continued)

Date Account Titles and Explanation Ref. Debit Credit

May 31 Accounts Payable ($2,500 X 60%) .................... 201 1,500
Cash................................................... 101 1,500
(Paid creditor on account)

(b)

Cash No. 101

Date Explanation Ref. Debit Credit Balance
May 1 J1 20,000 20,000
7 J1 900 19,100
12 J1 3,500 22,600
17 J1 1,200 23,800
31 J1 2,000 21,800
31 J1 1,500 20,300

Accounts Receivable No. 112

Date Explanation Ref. Debit Credit Balance
May 11 J1 3,200 3,200

Supplies No. 126

Date Explanation Ref. Debit Credit Balance
May 3 J1 2,500 2,500

Accounts Payable No. 201

Date Explanation Ref. Debit Credit Balance
May 3 J1 2,500 2,500
31 J1 1,500 1,000

Unearned Service Revenue No. 209

Date Explanation Ref. Debit Credit Balance
May 12 J1 3,500 3,500
PROBLEM 2-2A (Continued)

Owner’s Capital No. 301

Date Explanation Ref. Debit Credit Balance
May 1 J1 20,000 20,000

Service Revenue No. 400

Date Explanation Ref. Debit Credit Balance
May 11 J1 3,200 3,200
17 J1 1,200 4,400

Salaries and Wages Expense No. 726

Date Explanation Ref. Debit Credit Balance
May 31 J1 2,000 2,000

Rent Expense No. 729

Date Explanation Ref. Debit Credit Balance
May 7 J1 900 900

(c) DESIREE CLARK, CPA

Trial Balance
 May 31, 2012

Debit Credit
Cash .......................................................................... $20,300
Accounts Receivable ................................................. 3,200
Supplies .................................................................... 2,500
Accounts Payable ...................................................... $ 1,000
Unearned Service Revenue ....................................... 3,500
Owner’s Capital......................................................... 20,000
Service Revenue ........................................................ 4,400
Salaries and Wages Expense...................................... 2,000
Rent Expense ............................................................ 900
$28,900 $28,900