Lecture 2 Extra Questions Answers

Question 1
Journalize the following transactions for Mercado Company for June 2020, the company’s
first month of operations. You may omit explanations for the transactions.
1. Purchased equipment on account for $6,000.
2. Billed customers $5,000 for services performed.
3. Made payment of $1,500 on account for equipment purchased earlier in the month.
4. Collected $2,400 on customer accounts.

Answer
1. Equipment.......................................................................................... 6,000
Accounts Payable...................................................................... 6,000

2. Accounts Receivable.......................................................................... 5,000

Service Revenue........................................................................ 5,000

3. Accounts Payable............................................................................... 1,500

Cash........................................................................................... 1,500

4. Cash.................................................................................................... 2,400
Accounts Receivable................................................................. 2,400

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Question 2
The transactions of the Buy It Now Store are recorded in the general journal below. You are
to post the journal entries to T-accounts.

General Journal
____________________________________________________________________________
Date Account Titles Debit
Credit
____________________________________________________________________________
2020
Aug. 5 Accounts Receivable 2,800

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 Service Revenue 2,800

10 Cash 5,000
Service Revenue 5,000

19 Rent Expense 1,000

Cash 1,000

25 Cash 1,400
Accounts Receivable 1,400

Required T Accounts
General Ledger
Cash Accounts Receivable

Service Revenue Rent Expense

Answer

General Ledger

Cash Accounts Receivable

8/10 5,000 8/19 1,000 8/5 2,800 8/25 1,400
8/25 1,400

8/31 Bal. 5,400 8/31 Bal. 1,400

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 Service Revenue Rent Expense
8/5 2,800 8/19 1,000
8/10 5,000
8/31 Bal. 7,800 8/31 Bal. 1,000

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Question 3
Prepare a corrected trial balance for Luzon Company. All accounts should have a normal
balance.

LUZON COMPANY
Trial Balance
March 31, 2020

Debit Credit
Cash € 40,000
Accounts Receivable €30,000
Prepaid Insurance 2,500
Equipment 60,000
Accounts Payable 25,000
Unearned Service Revenue 10,000
Notes Payable 20,000
Share Capital-Ordinary 54,000
Dividends 1,500
Service Revenue 55,000
Salaries and Wages Expense 15,000
Utilities Expense 5,000
Rent Expense 10,000
€142,500 €185,500

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Answer
LUZON COMPANY
Trial Balance
March 31, 2020

Debit Credit
Cash € 40,000
Accounts Receivable 30,000
Prepaid Insurance 2,500
Equipment 60,000
Accounts Payable € 25,000
Unearned Service Revenue 10,000
Notes Payable 20,000
Share Capital-Ordinary 54,000
Dividends 1,500
Service Revenue 55,000
Salaries and Wages Expense 15,000
Utilities Expense 5,000
Rent Expense 10,000
€164,000 €164,000

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Question 4
Under a double-entry system, show how each item is entered in the ledger by using debit or
credit to indicate the increase or decrease in the affected account.

Debit or Credit

1. An increase in Salaries and Wages Expense. ___________________

2. A decrease in Accounts Payable. ___________________

3. An increase in Prepaid Insurance. ___________________

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 4. An increase in Share Capital-Ordinary. ___________________

5. A decrease in Supplies. ___________________

6. An increase in Dividends. ___________________

7. An increase in Service Revenue. ___________________

8. A decrease in Accounts Receivable. ___________________

9. An increase in Rent Expense. ___________________

10. A decrease in Equipment. ___________________

Answer
1. An increase in Salaries and Wages Expense. Debit________

2. A decrease in Accounts Payable. Debit________

3. An increase in Prepaid Insurance. Debit________

4. An increase in Share Capital-Ordinary. Credit________

5. A decrease in Supplies. Credit________

6. An increase in Dividends. Debit________

7. An increase in Service Revenue. Credit________

8. A decrease in Accounts Receivable. Credit________

9. An increase in Rent Expense. Debit________

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 10. A decrease in Equipment. Credit________
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Question 5
For each of the following accounts, indicate the effects of (a) a debit and (b) the normal
account balance.
1. Notes Payable
2. Prepaid Insurance
3. Salaries and Wages Expense
4. Service Revenue
5. Equipment
6. Share Capital-Ordinary

Answer
Debit Effect Normal Balance
1. Notes Payable Decrease Credit
2. Prepaid Insurance Increase Debit
3. Salaries and Wages Expense Increase Debit
4. Service Revenue Decrease Credit
5. Equipment Increase Debit
6. Share Capital-Ordinary Decrease Credit

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Question 6
Journalize the following business transactions in general journal form. Identify each
transaction by number. You may omit explanations of the transactions.
1. The company issues ordinary shares in exchange for ₤25,000 cash.
2. Purchased ₤400 of supplies on credit.
3. Purchased equipment for ₤10,000, paying ₤3,000 in cash and signed a 30-day, ₤7,000,
note payable.
4. Real estate commissions billed to clients amount to ₤4,000.
5. Paid ₤700 in cash for the current month's rent.
6. Paid ₤200 cash on account for supplies purchased in transaction 2.
7. Received a bill for ₤600 for advertising for the current month.

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 8. Paid ₤2,200 cash for salaries.
9. The company paid dividends of ₤1,200.
10. Received a check for ₤3,000 from a client in payment on account for commissions
billed in transaction 4.

Answer

1. Cash.............................................................................................. 25,000
Share Capital-Ordinary....................................................... 25,000

2. Supplies........................................................................................ 400
Accounts Payable................................................................ 400

3. Equipment.................................................................................... 10,000
Cash..................................................................................... 3,000
Notes Payable...................................................................... 7,000

4. Accounts Receivable.................................................................... 4,000

Service Revenue.................................................................. 4,000

5. Rent Expense............................................................................... 700

Cash..................................................................................... 700

6. Accounts Payable......................................................................... 200

Cash..................................................................................... 200

7. Advertising Expense.................................................................... 600

Accounts Payable................................................................ 600

8. Salaries and Wages Expense........................................................ 2,200

Cash..................................................................................... 2,200

9. Dividends..................................................................................... 1,200
Cash..................................................................................... 1,200

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10. Bank............................................................................................. 3,000
Accounts Receivable........................................................... 3,000

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Question 7
The trial balance of Drysdale Company shown below does not balance.
DRYSDALE COMPANY
Trial Balance
June 30, 2020
—————————————————————————————————————
————
Debit
Credit
Cash.................................................................................................... ₤ 2,600
Accounts Receivable.......................................................................... 7,600
Supplies.............................................................................................. 600
Equipment.......................................................................................... 8,300
Accounts Payable............................................................................... ₤ 9,766
Share Capital-Ordinary...................................................................... 1,952
Dividends........................................................................................... 1,500
Service Revenue................................................................................. 15,200
Salaries and Wages Expense.............................................................. 3,800
Maintenance and Repairs Expense.................................................... 1,600
Totals......................................................................................... ₤26,000 ₤26,918

An examination of the ledger and journal reveals the following errors:

1. Each of the above listed accounts has a normal balance per the general ledger.
2. Cash of ₤170 received from a customer on account was debited to Cash ₤710 and credited
to Accounts Receivable ₤710.
3. A dividend of ₤300 was posted as a credit to Dividends, ₤300 and credit to Cash ₤300.
4. A debit of ₤120 was not posted to Salaries and Wages Expense.
5. The purchase of equipment on account for ₤700 was recorded as a debit to Maintenance
and Repairs Expense and a credit to Accounts Payable for ₤700.

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6. Services were performed on account for a customer, ₤310, for which Accounts
Receivable was debited ₤310 and Service Revenue was credited ₤31.
7. A payment on account for ₤225 was credited to Cash for ₤225 and credited to Accounts
Payable for ₤252.

Instructions
Prepare a correct trial balance.

Answer
DRYSDALE COMPANY
Trial Balance
June 30, 2020
————————————————————————————————————
Debit Credit

Cash [2,600 – 540 (2)]....................................................................... ₤ 2,060

Accounts Receivable [7,600 + 540 (2)]............................................. 8,140
Supplies.............................................................................................. 600
Equipment [8,300 + 700 (5)]............................................................. 9,000
Accounts Payable [9,766 – 477 (7)].................................................. ₤9,289
Share Capital-Ordinary...................................................................... 1,952
Dividends [1,500 + 300 + 300 (3)].................................................... 2,100
Service Revenue [15,200 + 279 (6)].................................................. 15,479
Salaries and Wages Expense [3,800 + 120 (4)]................................. 3,920
Maintenance and Repairs Expense [1,600 – 700 (5)]........................ 900
Totals.......................................................................................... ₤26,720 ₤26,720

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