Concept explainers
1.
Prepare the
1.
![Check Mark](/static/check-mark.png)
Answer to Problem 19E
Prepare the journal entry to record the transactions for Company GW.
Date | Account Title and Explanation | Debit($) | Credit($) |
January 1 | Cash | 42,000 | |
Common Stock | 42,000 | ||
(To record the issuance of common stock) | |||
January 5 | Land | 24,000 | |
Notes Payable | 24,000 | ||
(To record the purchase of land on signing a note) | |||
January 9 | Equipment | 9,000 | |
Cash | 9,000 | ||
(To record the purchase of storage container equipment for cash) | |||
January 12 | No entry | ||
January 18 | Cash | 13,000 | |
Service revenue | 13,000 | ||
(To record the rental fees received for the month) | |||
January 23 | Supplies | 3,000 | |
Accounts payable | 3,000 | ||
(To record the purchase of office supplies on account) | |||
January 31 | Salaries expense | 9,000 | |
Cash | 9,000 | ||
(To record the payment of salaries expense in cash) |
Table (1)
Explanation of Solution
Journal:
Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.
Issuance of common stock on January1:
- Cash is an asset account, and it is increased. Therefore, debit Cash account.
- Common stock is a component of shareholder’s equity, and it is increased. Therefore, credit common stock account.
Purchase of land on signing a note on January 5:
- Land is an asset account, and it is increased. So, debit the Land account.
- Note Payable is a liability account, and it is increased. So, credit the Note Payable account.
Purchase of storage container equipment for cash on January 9:
- Equipment is the asset account, and it is increased. Hence, debit it.
- Cash is the asset account, and it is increased. Hence, credit it.
Hiring three employees per month on January 12:
- Hiring the employees does not have any impact on the financial statements. Hence, no journal entry is needed for this transaction.
Receipt of rental fees for the month on January 18:
- Cash is an asset account and it is increased. Hence, debit Cash account.
- Service Revenue is a revenue account, which is a component of
stockholders’ equity , is increased. This in turn increases the stockholders’ equity. Hence, credit the Service Revenue account.
Purchase of office supplies on account on January 23:
- Supplies are the asset account and have a debit balance in nature. Since the supplies has purchased, the value of asset has increased. So, debit the Supplies account.
- Accounts Payable is a liability account and credit in nature. Since the payment of purchased supplies have not made, the liability has arises. So, credit the Accounts Payable account.
Payment of salaries expense for the current month on January 31:
- Salaries and Wages Expense is an expense account and debit in nature. Since the expense related to salaries of employees has incurred, the value of expense is increased. So, debit the Salaries and Wages Expense.
- Cash is an asset account and debit in nature. Since the amount has paid for the salaries and wages of the employees, the value of asset has decreased. So, credit the Cash account.
2.
Compute the ending balance of each account by
2.
![Check Mark](/static/check-mark.png)
Explanation of Solution
T-account:
T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.
The components of the T-account are as follows:
a) The title of the account
b) The left or debit side
c) The right or credit side
Cash account:
Cash | |||
0 | |||
(1) | 42,000 | ||
(3) | 9,000 | ||
(5) | 13,000 | ||
(7) | 9,000 | ||
Balance | 37,000 |
Common stock account:
Common Stock | |||
0 | |||
(1) | 42,000 | ||
Balance | 42,000 |
Land account:
Land | |||
0 | |||
(2) | 24,000 | ||
Balance | 24,000 |
Notes Payable account:
Notes Payable | |||
0 | |||
(2) | 24,000 | ||
Balance | 24,000 |
Equipment account:
Equipment | |||
0 | |||
(3) | 9,000 | ||
Balance | 9,000 |
Service Revenue account:
Service Revenue | |||
0 | |||
(5) | 13,000 | ||
Balance | 13,000 |
Supplies account:
Supplies | |||
0 | |||
(6) | 3,000 | ||
Balance | 3,000 |
Accounts Payable account:
Notes Payable | |||
0 | |||
(6) | 3,000 | ||
Balance | 3,000 |
Salaries Expense account:
Salaries Expense | |||
0 | |||
(7) | 9,000 | ||
Balance | 9,000 |
3.
Prepare a
3.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Trial balance:
A trial balance is the summary of all the ledger accounts. Debit balances are listed in left column and credit balances are listed in right column of the trial balance. The totals of debit and credit column should be equal. The trial balance is usually prepared to check the accuracy of ledger accounts balances, before the preparation of financial statements.
Prepare the trial balance of Company GW:
Company GW | ||
Trial balance | ||
For the month end, January 31 | ||
Accounts | Debit($) | Credit($) |
Cash | 37,000 | |
Supplies | 3,000 | |
Land | 24,000 | |
Equipment | 9,000 | |
Accounts payable | 3,000 | |
Notes Payable | 24,000 | |
Common stock | 42,000 | |
Service revenue | 13,000 | |
Salaries expense | 9,000 | |
Total | $82,000 | $82,000 |
Table (2)
Hence, the trial balance is prepared, and the debit column and credit column of the trial balance are agreed, both having balance of $82,000.
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