Summary Business Accounting

Accounting 25th Edition Solution




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CHAPTER 2
ANALYZING TRANSACTIONS

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© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

, DISCUSSION QUESTIONS

1. An account is a form designed to record changes in a particular asset, liability, owner’s equity,
revenue, or expense. A ledger is a group of related accounts.
2. The terms debit and credit may signify either an increase or a decrease, depending upon the nature of
the account. For example, debits signify an increase in asset and expense accounts but a decrease in
liability, owner’s capital, and revenue accounts.
3. a. Assuming no errors have occurred, the credit balance in the cash account resulted from drawing
checks for $1,850 in excess of the amount of cash on deposit.
b. The $1,850 credit balance in the cash account as of December 31 is a liability owed to the bank. It
is usually referred to as an “overdraft” and should be classified on the balance sheet as a liability.
4. a. The revenue was earned in October.
b. (1) Debit Accounts Receivable and credit Fees Earned or another appropriately titled revenue
account in October.
(2) Debit Cash and credit Accounts Receivable in November.
5. No. Errors may have been made that had the same erroneous effect on both debits and credits, such
as failure to record and/or post a transaction, recording the same transaction more than once, and
posting a transaction correctly but to the wrong account.
6. The listing of $9,800 is a transposition; the listing of $100 is a slide.
7. a. No. Because the same error occurred on both the debit side and the credit side of the trial
balance, the trial balance would not be out of balance.
b. Yes. The trial balance would not balance. The error would cause the debit total of the trial balance
to exceed the credit total by $90.
8. a. The equality of the trial balance would not be affected.
b. On the income statement, total operating expenses (salary expense) would be overstated by
$7,500, and net income would be understated by $7,500. On the statement of owner’s equity, the
beginning and ending capital would be correct. However, net income and withdrawals would be
understated by $7,500. These understatements offset one another, and, thus, ending owner’s
equity is correct. The balance sheet is not affected by the error.
9. a. The equality of the trial balance would not be affected.
b. On the income statement, revenues (fees earned) would be overstated by $300,000, and net
income would be overstated by $300,000. On the statement of owner’s equity, the beginning
capital would be correct. However, net income and ending capital would be overstated by
$300,000. The balance sheet total assets is correct. However, liabilities (notes payable) is
understated by $300,000, and owner’s equity is overstated by $300,000. The understatement of
liabilities is offset by the overstatement of owner’s equity, and, thus, total liabilities and owner’s
equity is correct.
10. a. From the viewpoint of Surety Storage, the balance of the checking account represents an asset.
b. From the viewpoint of Ada Savings Bank, the balance of the checking account represents a
liability.




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© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

, CHAPTER 2 Analyzing Transactions


PRACTICE EXERCISES
PE 2–1A
1. Debit and credit entries, normal debit balance
2. Credit entries only, normal credit balance
3. Debit and credit entries, normal credit balance
4. Credit entries only, normal credit balance
5. Credit entries only, normal credit balance
6. Debit entries only, normal debit balance


PE 2–1B
1. Debit and credit entries, normal credit balance
2. Debit and credit entries, normal debit balance
3. Debit entries only, normal debit balance
4. Debit entries only, normal debit balance
5. Debit entries only, normal debit balance
6. Credit entries only, normal credit balance


PE 2–2A
Feb. 12 Office Equipment 18,000
Cash 7,000
Accounts Payable 11,000


PE 2–2B
Sept. 30 Office Supplies 2,500
Cash 800
Accounts Payable 1,700




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© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

, CHAPTER 2 Analyzing Transactions


PE 2–3A
July 9 Accounts Receivable 12,000
Fees Earned 12,000


PE 2–3B
Aug. 13 Cash 9,000
Fees Earned 9,000


PE 2–4A
Jan. 25 Jay Nolan, Drawing 16,000
Cash 16,000


PE 2–4B
June 30 Dawn Pierce, Drawing 11,500
Cash 11,500


PE 2–5A
Using the following T account, solve for the amount of cash receipts (indicated
by ? below).
Cash
Feb. 1 Bal. 14,750 93,400 Cash payments
Cash receipts ?
Feb. 28 Bal. 15,200

$15,200 = $14,750 + Cash receipts – $93,400
Cash receipts = $15,200 + $93,400 – $14,750 = $93,850


PE 2–5B
Using the following T account, solve for the amount of supplies expense
(indicated by ? below).
Supplies
Aug. 1 Bal. 1,025 ? Supplies expense
Supplies purchased 3,110
Aug. 31 Bal. 1,324

$1,324 = $1,025 + $3,110 – Supplies expense
Supplies expense = $1,025 + $3,110 – $1,324 = $2,811




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© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.