Chapter 2, Problem 2.2BPR

(1)

To determine

Journal:

Journal is the book of original entry. Journal consists of the day today financial transactions in a chronological order. The journal has two aspects; they are debit aspect and the credit aspect.

Rules of debit and credit:

“An increase in an asset account, an increase in an expense account, a decrease in liability account, and a decrease in a revenue account should be debited.

Similarly, an increase in liability account, an increase in a revenue account and a decrease in an asset account, a decrease in an expenses account should be credited”.

T-account:

An account is referred to as a T-account, because the alignment of the components of the account resembles the capital letter ‘T’. An account consists of the three main components which are as follows:

• The title of the account
• The left or debit side
• The right or credit side

Trial balance:

A trial balance is the summary of all the ledger accounts. The trial balance is prepared to check the total balance of the debit column with the total of the balance of the credit column, which must be equal. The trial balance is usually prepared to check accuracy of ledger balances, and before the preparation of financial statements.

Unadjusted trial balance:

The unadjusted trial balance is the summary of all the ledger accounts that appears on the ledger accounts before making adjusting journal entries.

To journalize: The transactions of Company R for the month of August.

Explanation of Solution

The transactions of Company R for the month of August are as follows.

Date		Description	Post.Ref.	Debit ($)	Credit ($)
2016	a.	Cash		17,500
August		R’s Capital			17,500
		(To record the owner’s capital)
	b.	Supplies		2,300
		Accounts payable			2,300
		(To record the purchase of supplies on account)
	c.	Cash		13,300
		Sales commission			13,300
		(To record the receipt of sales commission)
	d.	Rent expense		3,000
		Cash			3,000
		(To record the rent paid for the month)
	e.	Accounts payable		1,150
		Cash			1,150
		(To record the payment of cash to creditors )
	f.	Dividends		1,800
		Cash			1,800
		(To record the payment of dividends)
	g.	Automobile expense		1,500
		Miscellaneous expense		400
		Cash			1,900
		(To record the payment of automobile and miscellaneous expense)
	h.	Salaries expense		2,800
		Cash			2,800
		(To record the payment of office salaries )
	i.	Supplies expenses		1,050
		Supplies			1,050
		(To record the supplies that are used)

Table (1)

(2)

To determine

To prepare: The T accounts and post the respective journal entries.

Explanation of Solution

The posting of the journal entries to the T accounts are as follows:

Cash
a.	$ 17,500		d.		$  3,000
c.	$ 13,300		e.		$  1,150
			f.		$  1,800
			g.		$  1,900
			h.		$  2,800
Total	$ 30,800		Total		$10,650
Bal.	$ 20,150
Supplies
b.		$  2,300		i.		$1,050
Bal.		$  1,250

Accounts Payable
c.	$  1,150	h.	$2,300
		Bal.	$  1,150
Common stock
		a.	$17,500
		Bal.	$17,500
Dividends
f.	$1,800
Bal.	$1,800

Sales commissions
		c.	$13,300
		Bal.	$13,300

Rent expense
d.	$3,000
Bal.	$3,000

Salaries expense
h.	$2,800
Bal.	$2,800

Automobile expense
g.	$1,500
Bal.	$1,500

Supplies expense
i.	$1,050
Bal.	$1,050

Miscellaneous expense
g.	$400
Bal.	$400

(3)

To determine

To prepare: An unadjusted trial balance of Company R at August 31, 2016.

Explanation of Solution

Prepare an unadjusted trial balance of Company R at August 31, 2016 as follows:

Company R Unadjusted Trial Balance August 31, 2016
Particulars	Debit $	Credit $
Cash	20,150
Supplies	1,250
Accounts payable		1,150
Common stock		17,500
Dividends	1,800
Sales commission		13,300
Rent expense	3,000
Salaries expense	2,800
Automobile expense	1,500
Supplies expense	1,050
Miscellaneous expense	400
Total	31,950	31,950

Table (2)

Conclusion

The debit column and credit column of the unadjusted trial balance are agreed, both having balance of $31,950.

(4)

To determine

The amount of total revenue recorded in the ledger.

Explanation of Solution

The total amount of revenue (sales commission) recorded in the ledger is $13,300.

(5)

To determine

The increase or decrease in shareholder’s equity for August.

Explanation of Solution

The increase or decrease in shareholder’s equity for August is as follows:

Particulars	$
Net income	4,550
Less: Dividends	1,800
Shareholder’s equity	2,750

Table (3)

Conclusion

The shareholder’s equity for August is $2,750.