Gen Combo Loose Leaf Financial Accounting; Connect Access Card
Gen Combo Loose Leaf Financial Accounting; Connect Access Card
18th Edition
ISBN: 9781264094295
Author: williams
Publisher: MCG
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Chapter 3, Problem 2AP

a.

To determine

Prepare an analysis of each of the transactions.

a.

Expert Solution
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Explanation of Solution

1. (a) The asset account (Accounts receivable) is increased. Increase in asset account is recorded by a debit. Hence, debit Accounts receivable account with $2,500.

(b) Revenue has been earned and it is increased. Increase in revenue account in turn increases the owners’ equity account. Increase in owners’ equity account is recorded by credit. Hence, credit Testing service revenue account with $2,500.

2. (a) The asset account (Testing supplies) is increased. Increase in asset account is recorded by a debit. Hence, debit Testing supplies account with $3,800.

(b) The asset account (Cash) is decreased. Decrease in asset account is recorded by a credit. Hence, credit Cash account with $3,800.

3. (a) The liability account (Accounts payable) is decreased. Decrease in liability account is recorded by a debit. Hence, debit Accounts payable account with $100.

(b) The asset account (Testing supplies) is decreased. Decrease in asset account is recorded by a credit. Hence, credit Testing supplies account with $100.

4. (a) The asset account (Cash) is increased. Increase in asset account is recorded by a debit. Hence, debit Cash account with $20,000.

(b) The owners’ equity account (Capital stock) is increased. Increase in owners’ account is recorded by a credit. Hence, credit Capital stock account with $20,000.

5. (a) The asset account (Cash) is increased. Increase in asset account is recorded by a debit. Hence, debit Cash account with $600.

(b) The asset account (Accounts receivable) is decreased. Decrease in asset account is recorded by a credit. Hence, credit Accounts receivable account with $600.

6. (a) The liability account (Accounts payable) is decreased. Decrease in liability account is recorded by a debit. Hence, debit Accounts payable account with $2,900.

(b) The asset account (Cash) is decreased. Decrease in asset account is recorded by a credit. Hence, credit Cash account with $2,900.

7. (a) Dividend account is increased. Increase in dividend account in turn decreases the owners’ equity account (Retained earnings). Decrease in owners’ equity account is recorded by debit. Hence, debit Dividend account with $6,800.

(b) The asset account (Cash) is decreased. Decrease in asset account is recorded by a credit. Hence, credit Cash account with $6,800.

Working Note:

Calculate the outstanding accounts payable.

(Outstanding accountspayable)=(Purchase of testing supplies on accountCashpaidTesting supplies returned)=$3,800$800$100=$2,900

b.

To determine

Prepare journal entries to record the transactions.

b.

Expert Solution
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Explanation of Solution

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Prepare journal entries to record the transactions as follows:

DateAccount title and ExplanationPost ref.

Debit

 (in $)

Credit (in $)
August 1Accounts receivable2,500
     Service revenue2,500
(To record the services provided on account)
August 3Testing supplies3,800
     Cash800
     Accounts Payable3,000
(To record the purchase of testing supplies)
August 5 Accounts payable100
Testing supplies100
(To record the return of testing supplies)
August 17 Cash20,000
Capital stock20,000
(To record the issue of the capital stock)
August 22Cash600
Accounts receivable600
(To record the cash collected from accounts receivable)
August 29Accounts payable2,900
Cash2,900
(To record the payment made to creditors on account)
 
August 29Dividends 6,800
     Cash6,800
(To record the cash dividend paid)

Table (1)

Services provided on account:

  • Accounts receivable is an asset account and it is increased. Hence, debit Accounts receivable account.
  • Service revenue is a revenue account and it is increased which increases the owners’ equity account. Hence, credit the service revenue account.

Purchase of Testing Supplies:

  • Testing supplies is the asset account and it is increased. Hence, debit Testing supplies account.
  • Cash is an asset account and it is decreased. Hence, credit cash account.
  • Accounts payable is a liability account and it is increased. Hence, credit Accounts payable account.

Return of Testing Supplies:

  • Accounts payable is a liability account and it is decreased. Hence, debit Accounts payable account.
  • Testing supplies is an asset account and it is decreased. Hence, credit Testing supplies account.

Issued Capital stock:

  • Cash is an asset account and it is increased. Hence, debit cash account.
  • Capital stock is the owners’ equity account and it is increased. Hence, credit capital stock account.

Collected Accounts receivable:

  • Cash is an asset account and it is increased. Hence, debit cash account.
  • Accounts receivable is an asset account and it is decreased. Hence, credit Accounts receivable account.

Paid Accounts payable:

  • Accounts payable is a liability account and it is decreased. Hence, debit Accounts payable account.
  • Cash is an asset account and it is decreased. Hence, credit cash account.

Paid Cash Dividend:

  • Dividends account is increased. Hence, debit dividends account.
  • Cash is an asset account and it is decreased. Hence, credit cash account.

c.

To determine

Explain the manner in which the realization principle influences the manner in which the August 1 billing to customers is recorded in the accounting records.

c.

Expert Solution
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Explanation of Solution

Realization principle:

Realization principle states that, under the accrual basis of accounting, revenue must be recorded when a business has significantly completed the process of revenue generation. This means that revenue must be recognized only when the revenue generated is realized or realizable and earned.

According to the realization principle, the revenue should be recorded in the accounting records, once the service has been rendered and the revenue has been earned, irrespective of whether cash is received or not. On August 1, the company has rendered service to the customers and the revenue has been earned. Hence, the company has to record the revenue in the accounting records.

d.

To determine

Explain the manner in which the matching principle influences the manner in which the August 3 purchase of testing supplies is recorded in the accounting records.

d.

Expert Solution
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Explanation of Solution

Matching Principle:

This accounting principle states that a company should recognize expenses in the same period those expenses are incurred to earn revenues.

According to the matching principle, the expense incurred in a particular accounting period should be matched with the revenues earned in the same period. On August 3, the company has purchased testing supplies. These supplies purchased are used in the same accounting period and they earn revenue which is matched with the expense incurred to purchase them in the same accounting period. Hence, the company has to record the purchase of testing supplies as the asset on August 3.

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Chapter 3 Solutions

Gen Combo Loose Leaf Financial Accounting; Connect Access Card

Ch. 3 - 3. State briefly the rules of debit and credit as...Ch. 3 - Prob. 4DQCh. 3 - 5. What requirement is imposed by the double-entry...Ch. 3 - Prob. 6DQCh. 3 - Prob. 7DQCh. 3 - Prob. 8DQCh. 3 - Prob. 9DQCh. 3 - 10. When do accountants consider revenue to be...Ch. 3 - Prob. 11DQCh. 3 - Prob. 12DQCh. 3 - Prob. 13DQCh. 3 - 14. How do dividends affect owners’ equity? Are...Ch. 3 - Prob. 15DQCh. 3 - Prob. 1BECh. 3 - BRIEF EXERCISE 3.2 Recording Transactions in a...Ch. 3 - BRIEF EXERCISE 3.3 Recording Transactions Wagner...Ch. 3 - BRIEF EXERCISE 3.4 Debit and Credit Rules Five...Ch. 3 - BRIEF EXERCISE 3.5 Changes in Retained...Ch. 3 - Prob. 6BECh. 3 - BRIEF EXERCISE 3.7 When Is Revenue Realized? The...Ch. 3 - Prob. 8BECh. 3 - Prob. 9BECh. 3 - BRIEF EXERCISE 3.10 Matching Principle Harley...Ch. 3 - Prob. 1ECh. 3 - Prob. 2ECh. 3 - EXERCISE 3.3 Relationship between Journal and...Ch. 3 - EXERCISE 3.4 Preparing a Trial Balance Using the...Ch. 3 - EXERCISE 3.5 Relationship between Net Income and...Ch. 3 - EXERCISE 3.6 Effects of Transactions on the...Ch. 3 - EXERCISE 3.7 Effect of Transactions on the...Ch. 3 - EXERCISE 3.8 Preparing Journal Entries for...Ch. 3 - Prob. 9ECh. 3 - Prob. 10ECh. 3 - Prob. 11ECh. 3 - Prob. 12ECh. 3 - EXERCISE 3.13 Analyzing Transactions Listed as...Ch. 3 - Prob. 14ECh. 3 - Prob. 15ECh. 3 - PROBLEM 3.1A Journalizing Transactions Glenn...Ch. 3 - Prob. 2APCh. 3 - PROBLEM 3.3A Analyzing and Journalizing...Ch. 3 - Prob. 4APCh. 3 - Prob. 5APCh. 3 - Prob. 6APCh. 3 - Prob. 7APCh. 3 - Prob. 8APCh. 3 - Prob. 1BPCh. 3 - Prob. 2BPCh. 3 - Prob. 3BPCh. 3 - Prob. 4BPCh. 3 - Prob. 5BPCh. 3 - Prob. 6BPCh. 3 - Prob. 7BPCh. 3 - PROBLEM 3.8B Analyzing the Effects of Accounting...Ch. 3 - Prob. 1CTCCh. 3 - CASE 3.2 Measuring Income Fairly Kim Morris...Ch. 3 - Prob. 3CTC
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