Financial Accounting, 8th Edition
Financial Accounting, 8th Edition
8th Edition
ISBN: 9780078025556
Author: Robert Libby, Patricia Libby, Daniel Short
Publisher: McGraw-Hill Education
Question
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Chapter 9, Problem 2P

1.

To determine

Prepare journal entries to record each of the given transactions.

1.

Expert Solution
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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.

Accounting rules for journal entries:

  • To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
  • To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.

Prepare journal entry to record the purchase of merchandise for resale on account.

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

January

8

Purchase14,860
Accounts payable14,860
(To record the purchase merchandise for resale)

(Table 1)

  • Purchase is an asset and there is an increase in the value of the assets. Hence, debit the purchase by $14,860.
  • Accounts payable is a liability and there is an increase in the value of liability. Hence, credit liability by $14,860.

Prepare journal entry to record the payment for the purchase made.

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

January

17

Accounts payable14,860
Cash14,860
(To record the payment made for the purchase)

(Table 2)

  • Accounts payable is a liability and there is a decrease in the value of liability. Hence, debit liability by $14,860.
  • Cash is an asset and there is a decrease in the value of asset. Hence, credit the asset by $14,860.

Prepare journal entry to record the amount borrowed from the Bank N for a general use; by signing a 12 month, 8% annual interest bearing note for the money.

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

April 1Cash35,000
Notes payable35,000
(To record the borrowing of money on a short term)

(Table 3)

  • Cash is an asset and there is an increase in the value of the asset. Hence, debit the cash by $35,000.
  • Notes payable is a liability and there is an increase in the value of liability. Hence, credit the notes payable by $35,000.

Prepare journal entry to record the purchase of merchandise for resale on account.

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

June 8Purchase17,420
Accounts payable17,420
(To record the purchase merchandise for resale)

(Table 4)

  • Purchase is an asset and there is an increase in the value of the assets. Hence, debit the purchase by $17,420.
  • Accounts payable is a liability and there is an increase in the value of liability. Hence, credit liability by $17,420.

Prepare journal entry to record the payment for the purchase made.

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

July 5Accounts payable17,420
Cash17,420
(To record the payment made for the purchase)

(Table 5)

  • Accounts payable is a liability and there is a decrease in the value of liability. Hence, debit liability by $17,420.
  • Cash is an asset and there is a decrease in the value of asset. Hence, credit the asset by $17,420.

Prepare journal entry to record the rented office space and collecting of six month’s rent in advance amounting to $6,000.

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

August 1Cash6,000
Deferred Rent Revenue6,000
(To record the collecting of six month’s rent in advance amounting to $6,000)

(Table 6)

  • Cash is an asset and there is an increase in the value of the asset. Hence, debit the cash by $6,000.
  • Deferred Rent Revenue is a liability and there is an increase in the value of liability. Hence, credit the deferred revenue by $6,000.

Prepare journal entry to record the deposit from customer as a guarantee to return trailer borrowed for 30 days.

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

December

20

Cash100
Deposit on trailer100
(To record the customer deposit a guarantee to return trailer borrowed for 30 days)

(Table 7)

  • Cash is an asset and there is an increase in the value of the asset. Hence, debit the cash by $100.
  • Deposit on trailer is a liability and there is an increase in the value of liability. Hence, credit the deferred revenue by $100.

Prepare journal entry to record the wages earned but not yet paid on December 31.

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

December 31Wages expense9,500
Wages payable9,500
(To record the wages earned but not yet paid on December 31.)

(Table 8)

  • Wages expense is a component of stockholder’s equity; there is a decrease in the value of equity and increase in the value of expense. Hence, debit the wages expense by $9,500.
  • Wages payable is a liability and there is an increase in the value of equity. Hence, credit the wages payable by $9,500.

2.

To determine

Prepare adjusting entries required on December31, 2014.

2.

Expert Solution
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Explanation of Solution

Adjusting entries:

Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle.  The purpose of adjusting entries is to adjust the revenue, and the expenses during the period in which they actually occurs.

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

December 31,2014Interest expense2,100
Interest  payable (1)2,100
(To record the adjusting entry for interest payable on December 31.)

(Table 9)

  • Interest expense is a component of stockholder’s equity; there is a decrease in the value of equity and increase in the value of expense. Hence, debit the interest expense by $2,100.
  • Interest payable is a liability and there is an increase in the value of equity. Hence, credit the interest payable by $2,100.

Working Note:

Interest Payable = (Principal Amount× Annual Interest rate× Number of period)=$35,000×8%×9(April 1 to December 31)12=$2,100 (1)

3.

To determine

Identify the total amount of liabilities arising from the transactions that will be reported on the December 31, 2014 balance sheet.

3.

Expert Solution
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Explanation of Solution

Identify the total amount of liabilities arising from the transactions that will be reported on the fiscal year-end balance sheet:

Balance Sheet

December 31, 2014

ParticularsAmount in $
Current Liabilities:
Notes payable , short term35,000
Deposit on trailer1,00
Wages payable9,500
Interest payable2,100
Deferred Revenue1,000
Total Current Liabilities47,700

(Table 11)

4.

To determine

Identify whether the operating cash flows increase, decrease or are not affected for the given transactions.

4.

Expert Solution
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Explanation of Solution

Identify whether the operating cash flow increase, decrease or are not affected for the given transactions:

DateTransactionEffect
January 8thPurchase of merchandise for resale on accountNo Effect
January 17thPayment for the purchase madeDecrease
April 1Borrowing of money on a short termNo Effect
June 3Purchase merchandise for resaleNo Effect
July 5Payment made for the purchaseDecrease
August 1Collecting of six month’s rent in advance amounting to $6,000Increase
December 20Customer deposit a guarantee to return trailer borrowed for 30 daysIncrease
December 31Wages earned but not yet paid on December 31No Effect

(Table 12)

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Chapter 9 Solutions

Financial Accounting, 8th Edition

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