Chapter D, Problem 3PSA

Denzel Brooks opened a web consulting business called Venture Consultants and completed the following transactions in March.
Mar. 1 Brooks invested $150,000 cash along with $22,000 in office equipment in the company in exchange lor common stock.
2 The company prepaid $6,000 cash for six months’ rent for an office. Hint: Debit Prepaid Rent for $6,000.
3 The company made credit purchases of office equipment for $3,000 and office supplies for $1,200. Payment is due within 10 days.
6 The company completed services for a client and immediately received $4,000 cash.
9 The company completed a $7,500 project for a client, who must pay within 30 days.
12 The company paid $4,200 cash to settle the account payable created on March 3.
19 The company paid $5,000 cash for the premium on a 12-month insurance policy. Hint: Debit Prepaid Insurance for $5,000.
22 The company received $3,500 cash as partial payment for the work completed on March 9.
25 The company completed work for another client for $3,820 on credit.
29 The company paid a $5,100 cash dividend.
30 The company purchased $600 of additional office supplies on credit.
31 The company paid $500 cash for this month’s utility bill.

Problem D-3A
Preparing and posting journal entries; preparing a trial balance
C3 C4 A1 PI P2
Required
1. Prepare general journal entries to record these transactions (use the account titles listed in part 2).
2. Open the following ledger accounts—their account numbers are in parentheses (use the balance column format): Cash (101); Accounts Receivable (106); Office Supplies (124); Prepaid Insurance (128); Prepaid Rent (131); Office Equipment (163); Accounts Payable (201); Common Stock (307); Dividends (319); Services Revenue (403); and Utilities Expense (690). Post the journal entries from part 1 to the ledger accounts and enter the balance after each posting.
3. Prepare a trial balance as of the end of March.

Check (2] Ending balances: Cash, $136,700; Accounts Receivable, $7,820; Accounts Payable, $600

(3) Total debits, $187,920

To determine

Concept introduction:

General Entries:

General entries are the primary records of business transactions. As we know that every business transaction need to be recorded in the books of account, but this recording starts with recording in general journal and recording in general journal is done through journal entries.

Hence, we can say that in the general entries every transaction is recorded primarily by debiting one side and by crediting other side of the business transaction.

Requirement 1:

General journal entries to record transactions.

Answer to Problem 3PSA

General Journal
Date	Accounts Title & Explanation	PR	Debit	Credit
March 1	Cash	101	$150,000
	Office Equipment	163	$22,000
	Common stock	307		$172,000
	(For recording investment of cash and office equipment in the company in exchange of common stock)
March 2	Prepaid Rent	131	$6,000
	Cash	101		$6,000
	(For recording payment of rent for 12 months)
March 3	Office Equipment	163	$3,000
	Office Supplies	124	$1,200
	Accounts Payable	201		$4,200
	(For recording credit purchase of office equipment and office supplies)
March 6	Cash	101	$4,000
	Service Revenue	403		$4,000
	(For recording service revenue)
March 9	Accounts Receivable	106	$7,500
	Service Revenue	403		$7,500
	(For recording completed services)
March 12	Accounts Payable	201	$4,200
	Cash	101		$4,200
	(For recording payment to accounts receivable)
March 19	Prepaid Insurance	128	$5,000
	Cash	101		$5,000
	(For recording prepaid insurance payment)
March 22	Cash	101	$3,500
	Accounts Receivable	106		$3,500
	(For recording receipt of cash from the accounts receivable)
March 25	Accounts Receivable	106	$3,820
	Service Revenue	403		$3,820
	(For recording completed services on credit)
March 29	Dividends	319	$5,100
	Cash	101		$5,100
	(For recording payment of cash dividends)
March 30	Office Supplies	124	$600
	Accounts Payable	201		$600
	(For recording office supplies on credit)
March 31	Utilities Expense	690	$500
	Cash	101		$500
	(For recording payment of utility bill)

Explanation of Solution

General Journal
Date	Accounts Title & Explanation	PR	Debit	Credit
March 1	Cash	101	$150,000
	Office Equipment	163	$22,000
	Common stock	307		$172,000
	(For recording investment of cash and office equipment in the company in exchange of common stock)
March 2	Prepaid Rent	131	$6,000
	Cash	101		$6,000
	(For recording payment of rent for 12 months)
March 3	Office Equipment	163	$3,000
	Office Supplies	124	$1,200
	Accounts Payable	201		$4,200
	(For recording credit purchase of office equipment and office supplies)
March 6	Cash	101	$4,000
	Service Revenue	403		$4,000
	(For recording service revenue)
March 9	Accounts Receivable	106	$7,500
	Service Revenue	403		$7,500
	(For recording completed services)
March 12	Accounts Payable	201	$4,200
	Cash	101		$4,200
	(For recording payment to accounts receivable)
March 19	Prepaid Insurance	128	$5,000
	Cash	101		$5,000
	(For recording prepaid insurance payment)
March 22	Cash	101	$3,500
	Accounts Receivable	106		$3,500
	(For recording receipt of cash from the accounts receivable)
March 25	Accounts Receivable	106	$3,820
	Service Revenue	403		$3,820
	(For recording completed services on credit)
March 29	Dividends	319	$5,100
	Cash	101		$5,100
	(For recording payment of cash dividends)
March 30	Office Supplies	124	$600
	Accounts Payable	201		$600
	(For recording office supplies on credit)
March 31	Utilities Expense	690	$500
	Cash	101		$500
	(For recording payment of utility bill)

1. When investment is made in exchange of common stock, then cash account and office equipment account will be debited and common stock account will be credited because at the time of receipt, cash account and office equipment account need to be debited. Common stock is credited because it is a liability and liability need to be credited.

2. Prepaid rent is treated as asset that is why prepaid rent account is debited while cash account will be credited because cash is gone out from business.

3. Office equipment and office supplies both are assets that is why at the time of purchase these accounts will be debited while accounts payable account will be credited because it is a liability.

4. At the time of receipt, cash account will be debited because cash comes in to business while service revenue account will be credited because revenues need to be credited.

5. When services are performed on credit then accounts receivable account is debited and service revenue account is credited.

6. At the time of payment to accounts payable, accounts payable account will be debited because liability is decreased while cash account will be credited because cash is gone out the business.

7. When insurance premium is paid for next 12 months then prepaid insurance account will be debited because it is an asset account while cash account will be credited because cash is gone out from the business.

8. At the time of cash receipt from accounts receivable, cash account is debited because cash comes in to the business while accounts receivable account is credited because balance of account receivable is decreased.

9. When dividend is paid then dividend account will be debited because it is an expense while cash account will be crdited because cash is gone out from business.

10. When utility bill is paid then utilities expense account will be debited because it is an expense while cash account will be credited because cash is gone out from the business.

To determine

Concept introduction:

General Entries:

General entries are the primary records of business transactions. As we know that every business transaction need to be recorded in the books of account, but this recording starts with recording in general journal and recording in general journal is done through journal entries.

Hence, we can say that in the general entries every transaction is recorded primarily by debiting one side and by crediting other side of the business transaction.

Requirement 2:

Ledger accounts.

Answer to Problem 3PSA

Cash Account No. 101
Date	PR	Debit	Credit	Balance
March 1	G1	$150,000		$150,000
March 2	G1		$6,000	$144,000
March 6	G1	$4,000		$148,000
March 12	G1		$4,200	$143,800
March 19	G1		$5,000	$138,800
March 22	G1	$3,500		$142,300
March 29	G1		$5,100	$137,200
March 31	G1		$500	$136,700

Accounts Receivable Account No. 106
Date	PR	Debit	Credit	Balance
March 9	G1	$7,500		$7,500
March 22	G1		$3,500	$4,000
March 25	G1	$3,820		$7,820

Office Supplies Account No. 124
Date	PR	Debit	Credit	Balance
March 3	G1	$1,200		$1,200
March 30	G1	$600		$1,800

Prepaid Insurance Account No. 128
Date	PR	Debit	Credit	Balance
March 19	G1	$5,000		$5,000

Prepaid Rent Account No. 131
Date	PR	Debit	Credit	Balance
March 2	G1	$6,000		$6,000

Office Equipment Account No. 163
Date	PR	Debit	Credit	Balance
March 1	G1	$22,000		$22,000
March 3	G1	$3,000		$25,000

Accounts Payable Account No. 201
Date	PR	Debit	Credit	Balance
March 3	G1		$4,200	$4,200
March 12	G1	$4,200		$0
March 30	G1		$600	$600

Common Stock Account No. 307
Date	PR	Debit	Credit	Balance
March 1	G1		$172,000	$172,000

Dividends Account No. 319
Date	PR	Debit	Credit	Balance
March 29	G1	$5,100		$5,100

Service Revenue Account No. 403
Date	PR	Debit	Credit	Balance
March 6	G1		$4,000	$4,000
March 9	G1		$7,500	$11,500
March 25	G1		$3,820	$15,320

Utilities Expense Account No. 690
Date	PR	Debit	Credit	Balance
March 31	G1	$500		$500

Explanation of Solution

Cash Account No. 101
Date	PR	Debit	Credit	Balance
March 1	G1	$150,000		$150,000
March 2	G1		$6,000	$144,000
March 6	G1	$4,000		$148,000
March 12	G1		$4,200	$143,800
March 19	G1		$5,000	$138,800
March 22	G1	$3,500		$142,300
March 29	G1		$5,100	$137,200
March 31	G1		$500	$136,700

As we know that in case of cash account debit side increase the ending balance while credit side decrease the ending balance.

Accounts Receivable Account No. 106
Date	PR	Debit	Credit	Balance
March 9	G1	$7,500		$7,500
March 22	G1		$3,500	$4,000
March 25	G1	$3,820		$7,820

As we know that in case of accounts receivable account debit side increase the ending balance while credit side decrease the ending balance of this account.

Office Supplies Account No. 124
Date	PR	Debit	Credit	Balance
March 3	G1	$1,200		$1,200
March 30	G1	$600		$1,800

As we know that in case of office supplies account debit side increase the ending balance while credit side decrease the ending balance of this account.

Prepaid Insurance Account No. 128
Date	PR	Debit	Credit	Balance
March 19	G1	$5,000		$5,000

As we know that in case of prepaid insurance account debit side increase the ending balance while credit side decrease the ending balance of this account.

Prepaid Rent Account No. 131
Date	PR	Debit	Credit	Balance
March 2	G1	$6,000		$6,000

As we know that in case of prepaid rent account debit side increase the ending balance while credit side decrease the ending balance of this account.

Office Equipment Account No. 163
Date	PR	Debit	Credit	Balance
March 1	G1	$22,000		$22,000
March 3	G1	$3,000		$25,000

As we know that in case of office equipment account debit side increase the ending balance while credit side decrease the ending balance of this account.

Accounts Payable Account No. 201
Date	PR	Debit	Credit	Balance
March 3	G1		$4,200	$4,200
March 12	G1	$4,200		$0
March 30	G1		$600	$600

As we know that in case of accounts payable account credit side increase the ending balance while debit side decrease the ending balance of this account.

Common Stock Account No. 307
Date	PR	Debit	Credit	Balance
March 1	G1		$172,000	$172,000

As we know that in case of common stock account credit side increase the ending balance while debit side decrease the ending balance of this account.

Dividends Account No. 319
Date	PR	Debit	Credit	Balance
March 29	G1	$5,100		$5,100

As we know that in case of dividend account debit side increase the ending balance while credit side decrease the ending balance of this account because it is an expense.

Service Revenue Account No. 403
Date	PR	Debit	Credit	Balance
March 6	G1		$4,000	$4,000
March 9	G1		$7,500	$11,500
March 25	G1		$3,820	$15,320

As we know that in case of service account credit side increase the ending balance while debit side decrease the ending balance of this account.

Utilities Expense Account No. 690
Date	PR	Debit	Credit	Balance
March 31	G1	$500		$500

As we know that in case of utilities expense account debit side increase the ending balance while credit side decrease the ending balance of this account because it is an expense.

To determine

Concept introduction:

General Entries:

General entries are the primary records of business transactions. As we know that every business transaction need to be recorded in the books of account, but this recording starts with recording in general journal and recording in general journal is done through journal entries.

Hence, we can say that in the general entries every transaction is recorded primarily by debiting one side and by crediting other side of the business transaction.

Requirement 3:

Trial balance as of the end of March.

Answer to Problem 3PSA

Trial Balance
As on March 31
	Debit	Credit
Cash	$136,700
Accounts receivable	$7,820
Office supplies	$1,800
Prepaid insurance	$5,000
Prepaid rent	$6,000
Office equipment	$25,000
Accounts payable		$600
Common stock		$172,000
Dividends	$5,100
Service revenue		$15,320
Utilities expense	$500
Totals	$187,920	$187,920

Explanation of Solution

1. All expenses and losses have debit balance, that is why these are shown in the debit column of the trial balance.

2. All revenues and gains have credit balance, that is why these are shown in the credit column of the trial balance.

3. All assets have debit balance, that is why these are shown in the debit column of the trial balance.

4. Liabilities and equity have credit balance, that is why these are shown in the credit column of the trial balance.

Trial Balance
As on March 31
	Debit	Credit
Cash	$136,700
Accounts receivable	$7,820
Office supplies	$1,800
Prepaid insurance	$5,000
Prepaid rent	$6,000
Office equipment	$25,000
Accounts payable		$600
Common stock		$172,000
Dividends	$5,100
Service revenue		$15,320
Utilities expense	$500
Totals	$187,920	$187,920