1.
Prepare journal entries to record each of the given transactions.
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.
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
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
January 8 | Inventory | 14,860 | |
Accounts payable | 14,860 | ||
(To record the purchase merchandise for resale) |
(Table 1)
- Inventory is an asset and there is an increase in the value of the assets. Hence, debit the inventory 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.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
January 17 | Accounts payable | 14,860 | |
Cash | 14,860 | ||
(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.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
April 1 | Cash | 35,000 | |
Notes payable | 35,000 | ||
(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.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
June 8 | Inventory | 17,420 | |
Accounts payable | 17,420 | ||
(To record the purchase merchandise for resale) |
(Table 4)
- Inventory is an asset and there is an increase in the value of the assets. Hence, debit the inventory 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.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
July 5 | Accounts payable | 17,420 | |
Cash | 17,420 | ||
(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.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
August 1 | Cash | 6,000 | |
Deferred Rent Revenue | 6,000 | ||
(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.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
December 20 | Cash | 100 | |
Deposit on trailer | 100 | ||
(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.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
December 31 | Wages expense | 9,500 | |
Wages payable | 9,500 | ||
(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.
Prepare
2.
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.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
December 31 | Interest expense | 2,100 | |
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:
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
December 31 | Deferred rent revenue | 5,000 | |
Rent revenue (2) | 5,000 | ||
(To record the adjusting entry for rent revenue on December 31.) |
(Table 10)
- Deferred rent revenue is a liability and there is a decrease in the value of liability. Hence, debit deferred rent revenue by $5,000.
- Rent revenue is a component of stockholder’s equity and there is an increase in the value of equity. Hence, credit rent revenue by $5,000.
Working Note:
3.
Identify the total amount of liabilities arising from the transactions that will be reported on the fiscal year-end balance sheet.
3.
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 | |
Particulars | Amount in $ |
Current Liabilities: | |
Notes payable , short term | 35,000 |
Deposit on trailer | 1,00 |
Wages payable | 9,500 |
Interest payable | 2,100 |
Deferred Revenue | 1,000 |
Total Current Liabilities | 47,700 |
(Table 11)
4.
Identify whether the operating
4.
Explanation of Solution
Identify whether the operating cash flow increase, decrease or are not affected for the given transactions:
Date | Transaction | Effect |
January 8th | Purchase of merchandise for resale on account | No Effect |
January 17th | Payment for the purchase made | Decrease |
April 1 | Borrowing of money on a short term | No Effect |
June 3 | Purchase merchandise for resale | No Effect |
July 5 | Payment made for the purchase | Decrease |
August 1 | Collecting of six month’s rent in advance amounting to $6,000 | Increase |
December 20 | Customer deposit a guarantee to return trailer borrowed for 30 days | Increase |
December 31 | Wages earned but not yet paid on December 31 | No Effect |
(Table 12)
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Chapter 9 Solutions
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