Exercises 2-1

E2.2 (LO 1) Selected transactions for Acosta Decor, an interior design company, in its first month of
business are as follows. Identify debits, credits, and normal
Jan. 2 Marie Acosta invested €10,000 cash in business in exchange for ordinary shares. balances.
3 Purchased used car for €3,000 cash for use in business.
9 Purchased supplies on account for €600.
11 Billed customers €2,400 for services performed.
16 Paid €350 cash for advertising.
20 Received €900 cash from customers billed on January 11.
23 Paid creditor €300 cash on balance owed.
28 Declared and paid a €1,000 cash dividend.
Instructions
For each transaction, indicate the following.
a. The basic type of account debited and credited (asset, liability, equity).
b. The specific account debited and credited (Cash, Rent Expense, Service Revenue, etc.).
c. Whether the specific account is increased or decreased.
d. The normal balance of the specific account.
Use the following format, in which the January 2 transaction is given as an example.

Account Debited Account Credited

(a) (b) (c) (d) (a) (b) (c) (d)
Basic Specific Normal Basic Specific Normal
Date Type Account Effect Balance Type Account Effect Balance
Jan. 2 Asset Cash Increase Debit Equity Share Capital— Increase Credit
Ordinary

E2.3 (LO 2) Data for Acosta Decor are presented in E2.2.

Journalize transactions.
Instructions
Journalize the transactions using journal page J1. (You may omit explanations.)
E2.4 (LO 2) The following information relates to Yansheng Real Estate.
Oct. 1 Biao Yansheng begins business as a real estate agent with a cash investment of HK$17,000 in
exchange for ordinary shares. Analyze transactions and
2 Hires a part-time administrative assistant. determine their effect on accounts.
3 Purchases supplies for HK$1,900, on account.
6 Sells a house and lot for C. Chow; bills C. Chow HK$3,800 for realty services performed.
27 Pays HK$1,300 on the balance related to the transaction of October 3.
30 Pays the administrative assistant HK$2,500 in salary for October.
Instructions
Prepare the debit-credit analysis for each transaction as illustrated in the text. E2.5
(LO 2) Transaction data for Yansheng Real Estate are presented in E2.4.
Instructions
Journalize the transactions. (You may omit explanations.)
Journalize transactions.
E2.6 (LO 2) Lennon Industries had the following transactions.
1. Borrowed €5,000 from the bank by signing a note.
2. Paid €3,900 cash for a computer.
3. Purchased €650 of supplies on account. Analyze transactions and journalize.

Instructions
a. Indicate what accounts are increased and decreased by each transaction.
b. Journalize each transaction. (Omit explanations.)
2-2 CHAPTER 2 The Recording Process

Analyze transactions and journalize.

E2.7 (LO 2) Ong Enterprises had the following selected transactions.
1. Shareholders invested NT$40,000 cash in the business in exchange for ordinary shares.
2. Paid office rent of NT$8,400.
3. Performed consulting services and billed a client NT$52,000.
4. Declared and paid a NT$7,500 dividend.

Instructions
a. Indicate the effect each transaction has on the accounting equation
(Assets = Liabilities + Equity), using plus and minus signs.
b. Journalize each transaction. (Omit explanations.)

E2.8 (LO 2) Selected transactions for Sophie’s Dog Care are as follows during the month of March. March
Journalize a series of transactions. 1 Paid monthly rent of $1,200.
3 Performed services for $160 on account.
5 Performed services for cash of $75.
8 Purchased equipment for $600. The company paid cash of $90 and the balance was on
account.
12 Received cash from customers billed on March 3.
14 Paid salaries and wages to employees of $525.
22 Paid utilities of $72.
24 Borrowed $1,500 from Grafton State Bank by signing a note.
27 Paid $220 to repair service for plumbing repairs.
28 Paid balance amount owed from equipment purchase on March 8.
30 Paid $1,800 for six months of insurance.

Instructions
Journalize the transactions. (Omit explanations.)
E2.9 (LO 2) On April 1, Adventures Travel Agency began operations. The following transactions were completed
during the month.
1. Shareholders invested $24,000 in the business in exchange for ordinary shares.
Record journal entries. 2. Obtained a bank loan for $7,000 by issuing a note payable.
3. Paid $11,000 cash to buy equipment.
4. Paid $1,200 cash for April office rent.
5. Paid $1,450 for supplies.
6. Purchased $600 of advertising in the Daily Herald, on account.
7. Performed services for $18,000: cash of $2,000 was received from customers, and the balance of
$16,000 was billed to customers on account.
8. Declared and paid a cash dividend of $400.
9. Paid the utility bill for the month, $2,000.
10. Paid Daily Herald the amount due in transaction (6).
11. Paid $40 of interest on the bank loan obtained in transaction (2).
12. Paid employees’ salaries and wages, $6,400.
13. Received $12,000 cash from customers billed in transaction (7).

Instructions
Journalize the transactions. (Omit explanations).

E2.10 (LO 3) Alma Ortiz has prepared the following list of statements about the general ledger.
1. The general ledger contains all the asset and liability accounts but no equity accounts.
2. The general ledger is sometimes referred to as simply the ledger.
3. The accounts in the general ledger are arranged in alphabetical order.
Analyze statements about the ledger.
4. Each account in the general ledger is numbered for easier identification.
5. The general ledger is a book of original entry.
 Exercises 2-3

Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.

E2.11 (LO 3, 4) Selected transactions from the journal of Wong Consultants are presented below
(amounts in ¥ thousands). Post journal entries and prepare
a trial balance.

Date Account Titles and Explanation Ref. Debit Credit

Aug. 1 Cash 5,000

Share Capital—Ordinary 5,000
(Issued shares for cash)
10 Cash 2,600 2,600
Service Revenue
(Received cash for services performed)
12 Equipment 5,000 2,300
Cash 2,700
Notes Payable
(Purchased equipment for cash
and notes payable)
Accounts Receivable 1,700
25 1,700
Service Revenue
(Billed clients for services performed)
900
31 Cash 900
Accounts Receivable
(Receipt of cash on account)

Instructions
a. Post the transactions to T-accounts.
b. Prepare a trial balance at August 31, 2020. Journalize transactions from account
E2.12 (LO 2, 4) The T-accounts below summarize the ledger of Negrete Landscaping at the end of the first data and prepare a trial balance.
month of operations (amounts in €).

Cash No. 101 Unearned Service Revenue No. 209

4/1 14,000 4/15 1,300 4/30 1,000
4/12 900 4/25 1,500
4/29 400
4/30 1,000
Accounts Receivable No. 112 Share Capital—Ordinary No. 311
4/7 3,000 4/29 400 4/1 14,000
Supplies No. 126 Service Revenue No. 400
4/4 1,800 4/7 3,000
4/12 900
Accounts Payable No. 201 Salaries and Wages Expense No. 726
4/25 1,500 4/4 1,800 4/15 1,300

Instructions
a. Prepare the complete general journal (including explanations) from which the postings to Cash were made.
b. Prepare a trial balance at April 30, 2020.
2-4 CHAPTER 2 The Recording Process

Journalize transactions from E2.13 (LO 2, 4) Presented below is the ledger for Shumway Co. (amounts in thousands of ¥).
account data and prepare a trial
balance.

Cash No. 101 Share Capital—Ordinary No. 311

10/1 3,000 10/4 400 10/1 3,000

10/10 750 10/12 1,500 10/25 2,000
10/10 4,000 10/15 350
300 Dividends No. 332
10/20 500 10/30
10/25 2,000 10/31 500 10/30 300
Accounts Receivable No. 112 Service Revenue No. 400
10/6 800 10/20 500 10/6 800
Supplies No. 126 Salaries and Wages Expense No. 726
10/20 940 10/10 750
10/4 400 10/31 500 10/20 940
Equipment No. 157 Rent Expense No. 729
10/3 2,000 10/15 350
Notes Payable No. 200
10/10 4,000
Accounts Payable No. 201
10/12 1,50010/3 2,000

Instructions
a. Reproduce the journal entries for the transactions that occurred on October 1, 10, and 20, and pro- vide
explanations for each.
b. Determine the October 31 balance for each of the accounts above, and prepare a trial balance at October
31, 2020.
E2.14 (LO 2, 3) Selected transactions for Ling Couture during its first month in business are presented below.
Sept. 1 Shareholders invested NT$10,000 cash in the business in exchange for ordinary shares.
Prepare journal entries and post
using standard account form. 5 Purchased equipment for NT$14,000 paying NT$4,000 in cash and the balance on account.
25 Paid NT$3,000 cash on balance owed for equipment.
30 Declared and paid a NT$900 dividend.
Ling’s chart of accounts shows No. 101 Cash, No. 157 Equipment, No. 201 Accounts Payable, No. 311
Share Capital—Ordinary, and No. 332 Dividends.

Instructions
a. Journalize the transactions on page J1 of the journal. (Omit explanations.)
b. Post the transactions using the standard account form.
E2.15 (LO 4) The bookkeeper for Kang Equipment Repair made a number of errors in journalizing and
posting, as described below.
1. A credit posting of $525 to Accounts Receivable was omitted.
2. A debit posting of $750 for Prepaid Insurance was debited to Insurance Expense.
Analyze errors and their effects 3. A collection from a customer of $100 in payment of its account owed was journalized and posted as a
debit to Cash $100 and a credit to Service Revenue $100.
on trial balance.
4. A credit posting of $415 to Property Taxes Payable was made twice.
5. A cash purchase of supplies for $250 was journalized and posted as a debit to Supplies $25 and a credit to
Cash $25.
6. A debit of $625 to Advertising Expense was posted as $652.
 Problems 2-
Instructions
For each error:
a. Indicate whether the trial balance will balance.
b. If the trial balance will not balance, indicate the amount of the difference.
c. Indicate the trial balance column that will have the larger total.
Consider each error separately. Use the following form, in which error (1) is given as an example.
(a) (b) (c)
Error In Balance Difference Larger Column
(1) No $525 debit
E2.16 (LO 4) The accounts in the ledger of Overnite Delivery Service contain the following balances on July
31, 2020 (amounts in thousands). Prepare a trial balance.
Accounts Receivable ¥ 7,640 Prepaid Insurance ¥ 1,968
Accounts Payable Cash 8,394 Maintenance and Repairs Expense 961
Equipment Service Revenue
? Dividends 10,610
45,360 700
Gasoline Expense 758 Share Capital—Ordinary 38,000
Utilities Expense 523 Salaries and Wages Expense 4,428
Notes Payable 17,000 Salaries and Wages Payable 815

Instructions
Prepare a trial balance with the accounts arranged as illustrated in the chapter and fill in the missing amount
for Cash.
E2.17 (LO 2, 3, 4) Beyers Security provides security services. Selected transactions for Beyers are pre- sented
below.
Oct. 1 Received $66,000 cash in the business in exchange for ordinary shares. Journalize transactions, post
2 Hired part-time security consultant. Salary will be $2,000 per month. First day of work will be transac- tions to T-accounts, and
October 15.
prepare trial balance.
4 Paid one month of rent for building for $2,000.
7 Purchased equipment for $18,000, paying $4,000 cash and the balance on account.
8 Paid $500 for advertising.
10 Received bill for equipment repair cost of $390.
12 Provided security services for event for $3,200 on account.
16 Purchased supplies for $410 on account.
21 Paid balance due from October 7 purchase of equipment.
24 Received and paid utility bill for $148.
27 Received payment from customer for October 12 services performed.
31 Paid employee salaries and wages of $5,100.

Instructions
a. Journalize the transactions. Do not provide explanations.
b. Post the transactions to T-accounts.
c. Prepare a trial balance at October 31, 2020. (Hint: Compute ending balances of T-accounts first.)

Problems
Journalize a series of transactions.
P2.1 (LO 1, 2) Feng Disc Golf Course was opened on March 1. The following selected events and
transactions occurred during March (amounts in thousands).
Mar. 1 Lee Feng invested ¥20,000 cash in the business in exchange for ordinary shares.
3 Purchased Rainbow Golf Land for ¥15,000 cash. The price consists of land ¥12,000, build- ing
¥2,000, and equipment ¥1,000. (Make one compound entry.)
5 Paid advertising expenses of ¥900.
6 Paid cash ¥600 for a one-year insurance policy.
10 Purchased golf discs and other equipment for ¥1,050 from Wang Company payable in 30
days.
2-40 CHAPTER 2 The Recording

Mar. 18 Received ¥1,100 in cash for golf fees (Feng records golf fees as service revenue).
19 Sold 150 coupon books for ¥10 each. Each book contains 4 coupons that enable the holder to play
one round of disc golf.
25 Declared and paid a ¥800 cash dividend.
30 Paid salaries of ¥250.
30 Paid Wang Company in full.
31 Received ¥2,700 cash for golf fees.
Feng Disc Golf uses the following accounts: Cash, Prepaid Insurance, Land, Buildings, Equipment,
Accounts Payable, Unearned Service Revenue, Share Capital—Ordinary, Dividends, Service Revenue,
Advertising Expense, and Salaries and Wages Expense.

Instructions
Journalize the March transactions.
P2.2 (LO 1, 2, 3, 4) Emily Stansbury is a licensed dentist. During the first month of the operation of her
business, the following events and transactions occurred.
April 1 Invested €20,000 cash in her business in exchange for ordinary shares.
Journalize transactions, post, 1 Hired a secretary-receptionist at a salary of €700 per week payable monthly.
and prepare a trial balance. 2 Paid office rent for the month €1,100.
3 Purchased dental supplies on account from Dazzle Company €4,000.
10 Performed dental services and billed insurance companies €5,100.
11 Received €1,000 cash advance from Leah Mataruka for an implant.
20 Received €2,100 cash for services performed from Michael Santos.
30 Paid secretary-receptionist for the month €2,800.
30 Paid €2,400 to Dazzle for accounts payable due.
Emily uses the following chart of accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 126 Supplies,
No. 201 Accounts Payable, No. 209 Unearned Service Revenue, No. 311 Share Capital— Ordinary, No. 400
Service Revenue, No. 726 Salaries and Wages Expense, and No. 729 Rent Expense.

Instructions
a. Journalize the transactions.
b. Post to the ledger accounts.
c. Prepare a trial balance on April 30, 2020.
P2.3 (LO 1, 2, 3, 4) Kochi Services was formed on May 1, 2020. The following transactions took place during
the first month (amounts in thousands).
Transactions on May 1:
c. Trial balance totals €29,800 1. Rahul Shah invested 40,000 cash in the company in exchange for ordinary shares.
Journalize transactions, post, and 2. Hired two employees to work in the warehouse. They will each be paid a salary of 3,050 per month.
prepare a trial balance. 3. Signed a 2-year rental agreement on a warehouse; paid 24,000 cash in advance for the first year.
4. Purchased furniture and equipment costing 30,000. A cash payment of 10,000 was made imme- diately;
the remainder will be paid in 6 months.
5. Paid 1,800 cash for a one-year insurance policy on the furniture and equipment.
Transactions during the remainder of the month:
6. Purchased basic office supplies for 420 cash.
7. Purchased more office supplies for 1,500 on account.
8. Total revenues earned were 20,000– 8,000 cash and 12,000 on account.
9. Paid 400 to suppliers for accounts payable due.
10. Received 3,000 from customers in payment of accounts receivable.
11. Received utility bills in the amount of 380, to be paid next month.
12. Paid the monthly salaries of the two employees, totaling 6,100.

Instructions
a. Prepare journal entries to record each of the events listed. (Omit explanations.)
b. Post the journal entries to T-accounts.
c. Prepare a trial balance as of May 31, 2020.

c. Trial balance totals 81,480

 Problems 2-
P2.4 (LO 4) The trial balance of De Bortoli Co. shown below does not balance. Prepare a correct trial balance.
De Bortoli Co.
Trial Balance
June 30, 2020

Debit Credit
Cash $ 3,340
Accounts Receivable $ 2,812
Supplies 1,200
Equipment 2,600
Accounts Payable 3,666
Unearned Service Revenue 1,100
Share Capital—Ordinary 8,000
Dividends 800
Service Revenue 2,480
Salaries and Wages Expense 3,200
Utilities Expense 810
$12,522 $17,486

Each of the listed accounts has a normal balance per the general ledger. An examination of the ledger and journal
reveals the following errors.
1. Cash received from a customer in payment of its account was debited for $580, and Accounts
Receivable was credited for the same amount. The actual collection was for $850.
2. The purchase of a computer on account for $710 was recorded as a debit to Supplies for $710 and a credit
to Accounts Payable for $710.
3. Services were performed on account for a client for $980. Accounts Receivable was debited for
$980, and Service Revenue was credited for $98.
4. A debit posting to Salaries and Wages Expense of $700 was omitted.
5. A payment of a balance due for $306 was credited to Cash for $306 and credited to Accounts Payable
for $360.
6. A dividend of $600 cash was debited to Salaries and Wages Expense for $600 and credited to Cash
for $600.
Trial balance totals $15,462
Instructions
Prepare a correct trial balance. (Hint: It helps to prepare the correct journal entry for the transaction
described and compare it to the mistake made.) Journalize transactions, post, and
P2.5 (LO 1, 2, 3, 4) The Sun Theater will begin operations in March. The Sun will be unique in that it will prepare a trial balance.
show only triple features of sequential theme movies. As of March 1, the ledger of Sun showed No. 101
Cash W3,000, No. 140 Land W24,000, No. 145 Buildings (concession stand, projection room, ticket booth,
and screen) W10,000, No. 157 Equipment W10,000, No. 201 Accounts Payable W7,000, and No. 311 Share
Capital—Ordinary W40,000. During the month of March, the following events and transactions occurred
(amounts in thousands).
Mar. 2 Rented the three Kung Fu Panda movies to be shown for the first 3 weeks of March. The film
rental was W3,500; W1,500 was paid in cash and W2,000 will be paid on March 10.
3 Ordered three Batman movies to be shown the last 10 days of March. It will cost W200 per
night.
9 Received W4,300 cash from admissions.
10 Paid balance due on Kung Fu Panda movies rental and W2,100 on March 1 accounts payable.
11 Sun Theater contracted with So Bin to operate the concession stand. Bin is to pay 15% of gross
concession receipts, payable monthly, for the rental of the concession stand.
12 Paid advertising expenses W900.
20 Received W5,000 cash from customers for admissions.
20 Received the Batman movies and paid the rental fee of W2,000.
31 Paid salaries of W3,100.
31 Received statement from So Bin showing gross receipts from concessions of W6,000 and the
balance due to Starr Theater of W900 (W6,000 × 15%) for March. Bin paid one-half the balance
due and will remit the remainder on April 5.
31 Received W9,000 cash from customers for admissions.
2-42 CHAPTER 2 The Recording

In addition to the accounts identified above, the chart of accounts includes No. 112 Accounts Receivable, No. 400
Service Revenue, No. 429 Rent Revenue, No. 610 Advertising Expense, No. 726 Salaries and Wages
Expense, and No. 729 Rent Expense.

Instructions
a. Enter the beginning balances in the ledger. Insert a check mark (✓) in the reference column of the ledger
for the beginning balance.
b. Journalize the March transactions. Sun records admission revenue as service revenue, rental of the
concession stand as rent revenue, and film rental expense as rent expense.
c. Post the March journal entries to the ledger. Assume that all entries are posted from page 1 of the journal.
d. Prepare a trial balance on March 31, 2020.

d. Trial balance totals W64,100

Expand Your Critical Thinking

Financial Reporting Problem: TSMC, Ltd. (TWN)

CT2.1 The financial statements of TSMC are presented in Appendix A. The notes accompanying the
statements contain the following selected accounts. The complete annual report, including the notes to the
financial statements, is available at the company’s website.
Accounts (Trade) Payable Tax Payable
Accounts (Trade) Receivable Interest Expense (finance cost)
Property, Plant, and Equipment Inventories

Instructions
a. Answer the following questions.
1. What is the increase and decrease side for each account?
2. What is the normal balance for each account?
b. Identify the probable other account in the transaction and the effect on that account when:
1. Accounts (Trade) Receivable is decreased.
2. Accounts (Trade) Payable is decreased.
3. Inventories are increased.
c. Identify the other account(s) that ordinarily would be involved when:
1. Interest Expense is increased.
2. Property, Plant, and Equipment is increased.

Comparative Analysis Problem: Nestlé SA (CHE) vs. Delfi Limited (SGP)

CT2.2 Nestlé’s financial statements are presented in Appendix B. Financial statements of Delfi Limited
are presented in Appendix C.
Instructions
a. Based on the information contained in the financial statements, determine the normal balance of the listed
accounts for each company.
Nestlé Delfi Limited
1. Inventory 1. Accounts (Trade) Receivable
2. Property, Plant, and Equipment 2. Cash and Cash Equivalents
3. Accounts (Trade) Payable 3. Cost of Sales (expense)
4. Interest Expense (finance cost) 4. Sales (revenue)
b. Identify the other account ordinarily involved when:
1. Accounts (Trade) Receivable is increased.
2. Salaries and Wages Payable is decreased.