Chapter 02 - Analyzing and Recording Transactions

Demonstration Problem
Chapter Two

Record the following transactions of Speedy Computer Service, owned by

Bill Smith, for the month of March 2015.

March 1. Bill Smith invested $3,000 cash in his business.

15. Bill provided services and received cash amounting to $5,400

from customers.

16. Purchased supplies on account, $100.

17. Paid for gas and oil, $800.

18. Paid salaries, 5,000.

21. Provided service on credit, $600.

28. Bill provided services and received cash amounting to $6,000.

29. Paid for truck and equipment rental, $2,500.

30. Bill withdrew $2,000 for personal use.

Required:

1. Record the above transactions in general journal form.

2. Prepare a trial balance after posting the entries to t-accounts (you

can make your own t-accounts).

3. prepare an income statement from trial balance

4. Prepare a statement of stockholders’ equity from the trial balance and

income statement

5. Prepare a balance sheet using the trial balance totals and the
statement of owner’s equity
Explain why the company’s cash balance does not agree with net income.

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 Chapter 02 - Analyzing and Recording Transactions

Solution: Alternate Demonstration Problem

Chapter Two
GENERAL JOURNAL

DATE ACCOUNT TITLES AND P.R. DEBIT CREDIT

EXPLANATION
March 1 Cash 3 0 0 0 00
Bill Smith, Capital 3 0 0 0 00

15 Cash 5 4 0 0 00
Service Fees Earned 5 4 0 0 00

16 Supplies 1 0 0 00
Accounts Payable 1 0 0 00

17 Gas and Oil Expense 8 0 0 00

Cash 8 0 0 00

18 Salaries Expense 5 0 0 0 00
Cash 5 0 0 0 00

21 Accounts Receivable 6 0 0 00
Service Fees Earned 6 0 0 00

28 Cash 6 0 0 0 00
Service Fees Earned 6 0 0 0 00

29 Equipment Rental Expense 2 5 0 0 00

Cash 2 5 0 0 00

30 B. Smith, Withdrawals 2 0 0 0 00
Cash 2 0 0 0 00

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Chapter 02 - Analyzing and Recording Transactions

Speedy Computer Service

Trial Balance
March 31, 2015
Cash 4 1 0 0 00
Accounts Receivable 6 0 0 00
Supplies 1 0 0 00
Accounts Payable 1 0 0 00
B. Smith, Capital 3 0 0 0 00
B. Smith, Withdrawals 2 0 0 0 00
Service Fees Earned 1 2 0 0 0 00
Gas & Oil Expense 8 0 0 00
Equipment Rental Expense 2 5 0 0 00
Salaries Expense 5 0 0 0 00
Totals 1 5 1 0 0 00 1 5 1 0 0 00

3. Speedy Computer Service

Income Statement
For the month ended March 31, 2015

Fees Earned............................................................... $12,000

Expenses:
Equipment Rental Expense................................ $2,500
Gas & Oil Expense.............................................. 800
Salary Expense.................................................... 5,000
Total expenses.................................................... 8,300
Net income................................................................. $ 3,700

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Chapter 02 - Analyzing and Recording Transactions

4. Speedy Computer Service

Statement of Owner’s Equity
For the month ended March 31, 2015

Beginning Capital $0
Add: Investments $3,000
Net Income 3,700 6,700
Total 6,700
Less: Owner Withdrawal 2,000
Ending Capital balance $4,700

5. Speedy Computer Service

Balance Sheet
March 31, 2015

Assets Liabilities and Owner’s Equity

Cash.................................. $4,100 Accounts payable ........... $ 100

Accts Receivable............. 600 B. Smith, Capital.............. 3, 700
Supplies........................... 100
Total liabilities and
Total Assets..................... $4,800 owner’s equity............. $4,800

6. First, note that the cash investment ($2,000) and cash withdrawal
($2,000) affect the cash balance but do not affect the amount of net
income earned during the period. Also, revenues in the amount of $600
(March 21) are reflected in the net income figure, but have not yet been
collected. As such, these revenues did not impact the cash balance.

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