Q42CP - Horngren'S Financial And Managerial Accounting

Question

Journalizing transactions, posting to T-accounts, and preparing a trial balance 

Problem P2-42 continues with the company introduced in Chapter 1, Canyon Canoe Company. Here you will account for Canyon Canoe Company’s transactions as it is actually done in practice. Begin by reviewing the transactions from Chapter 1. The transactions have been reprinted below.

Nov. 1 Received \(16,000 cash to begin the company and issued common stock to Amber and Zach. 

2 Signed a lease for a building and paid \)1,200 for the first month’s rent. 

3 Purchased canoes for \(4,800 on account. 

4 Purchased office supplies on account, \)750. 

7 Earned \(1,400 cash for rental of canoes. 

13 Paid \)1,500 cash for wages. 

15 Paid \(50 dividends to stockholders. 

16 Received a bill for \)150 for utilities. (Use separate payable account.) 

20 Received a bill for \(175 for cell phone expenses. (Use separate payable account.) 

22 Rented canoes to Early Start Daycare on account, \)3,000. 

26 Paid \(1,000 on account related to the November 3 purchase. 

28 Received \)750 from Early Start Daycare for canoe rental on November 22. 

30 Paid \(100 dividends to stockholders

In addition, Canyon Canoe Company completed the following transactions for December. 

Dec. 1 Amber and Zack contributed land on the river (worth \)85,000) and a small building to use as a rental office (worth \(35,000) in exchange for common stock. 

1 Prepaid \)3,000 for three months’ rent on the warehouse where the company stores the canoes. 

2 Purchased canoes signing a note payable for \(7,200 

4 Purchased office supplies on account for \)500. 

9 Received \(4,500 cash for canoe rentals to customers. 

15 Rented canoes to customers for \)3,500, but will be paid next month. 

16 Received a \(750 deposit from a canoe rental group that will use the canoes next month. 

18 Paid the utilities and telephone bills from last month. 

19 Paid various accounts payable, \)2,000. 

20 Received bills for the telephone (\(325) and utilities (\)295) which will be paid later. 

31 Paid wages of \(1,800. 31 Paid cash dividend to stockholders, \)300. 

Requirements 

1. Journalize the transactions for both November and December, using the following accounts: Cash; Accounts Receivable; Office Supplies; Prepaid Rent; Land; Building; Canoes; Accounts Payable; Utilities Payable; Telephone Payable; Unearned Revenue; Notes Payable; Common Stock; Dividends; Canoe Rental Revenue; Rent Expense; Utilities Expense; Wages Expense; and Telephone Expense. Explanations are not required. (Hint: For November transactions, refer to your answer for Chapter 1.) 

2. Open a T-account for each of the accounts. 

3. Post the journal entries to the T-accounts, and calculate account balances. Formal posting references are not required. 

4. Prepare a trial balance as of December 31, 2018. 

5. Prepare the income statement of Canyon Canoe Company for the two months ended December 31, 2018. 

6. Prepare the statement of retained earnings for the two months ended December 31, 2018. 

7. Prepare the balance sheet as of December 31, 2018. 

8. Calculate the debt ratio for Canyon Canoe Company at December 31, 2018

Step-by-Step Solution

Answer

Journal entries are passed. T-accounts are opened and prepared. The trial balance is prepared. The financial statements are prepared such as income statement, statement of owner’s equity and balance sheet. The debt ratio is computed as 0.075 or 7.5%

Step-by-Step Solution Step 1: Recording Journal Entries

Journal
Date	Particulars	Debit ($)	Credit ($)
Nov
1	Cash	$16,000
	Wilson Capital		$16,000
2	Rent Expense	$1,200
	Cash		$1,200
3	Canoes	$4,800
	Accounts Payable		$4,800
4	Office Supplies	$750
	Accounts Payable		$750
7	Cash	$1,400
	Canoe Rental Revenue		$1,400
13	Wages Expense	$1,500
	Cash		$1,500
15	Wilson, Withdrawals	$50
	Cash		$50
16	Utilities Expense	$150
	Utilities Payable		$150
20	Telephone Expense	$175
	Telephone Payable		$175
22	Accounts Receivables	$3,000
	Canoe Rental Revenue		$3,000
26	Accounts Payable	$1,000
	Cash		$1,000
28	Cash	$750
	Accounts Receivables		$750
30	Wilson, Withdrawal	$100
	Cash		$100
Dec.
1	Land	$85,000
	Building	$35,000
	Wilson, Capital		$120,000
1	Prepaid Rent	$3,000
	Cash		$3,000
2	Canoes	$7,200
	Notes Payable		$7,200
4	Office Supplies	$500
	Accounts payable		$500
9	Cash	$4,500
	Canoe Rental Revenue		$4,500
15	Accounts Receivables	$3,500
	Canoe Rental Revenue		$3,500
16	Cash	$750
	Unearned Revenue		$750
18	Utilities Payable	$150
	Telephone payable	$175
	Cash		$325
19	Accounts Payable	$2,000
	Cash		$2,000
20	Telephone Expense	$325
	Utilities Expense	$295
	Telephone Payable		$325
	Utilities Payable		$295
31	Wages Expense	$1,800
	Cash		$1,800
31	Wilson, Withdrawal	$300
	Cash		$300

Step 2: Opening T-accounts and Posting to T-account

CASH
Nov 1           $16,000	$1,200         Nov 2
Nov 7           $1,400	$1,500         Nov 13
Nov 28         $750	$50               Nov 15
Dec 9            $4,500	$1,000          Nov 26
Dec 16         $750	$100             Nov 30
	$3,000         Dec 1
	$325            Dec 18
	$2,000         Dec 19
	$1,800         Dec 31
	$300            Dec 31
Balance        $12,125

Accounts Receivable
Nov 22        $3,000	750             Nov 28
Dec 15         $3,500
Balance       $5,750

Office Supplies
Nov 4          $750
Dec 4          $500
Balance      $1,250

Prepaid Rent
Dec 1   $3,000
Balance       $3,000

Land
Dec 1         $85,000
Balance    $85,000

Building
Dec 1        $35,000
Balance      $35,000

Canoes
Nov 3          $4,800
Dec 2         $7,200
Balance       $12,000

Accounts Payable
Nov 26         $1,000	$4,800         Nov 3
Dec 19         $2,000	$750            Nov 4
	$500            Dec 4
	$3,050         Balance

Utilities Payable
Dec 18        $150	$150       Nov 16
	$295       Dec 20
	$295         Balance

Telephone Payable
Dec 18        $175	$175     Nov 20
	$325     Dec 20
	$325        Balance

Unearned Revenue
	$750    Dec 16
	$750        Balance

Notes Payable
	$7,200     Dec 2
	$7,200        Balance

Wilson, Capital
	$16,000          Nov 1
	$120,000        Dec 1
	$136,000        Balance

Wilson, Withdrawals
Nov 15    $50
Nov 30    $100
Dec 31    $300
Balance   $450

Canoe Rental Revenue
	$1,400    Nov 7
	$3,000    Nov 22
	$4,500    Dec 9
	$3,500    Dec 15
	$12,400       Balance

Rent Expense
Nov 2          $1,200
Balance      $1,200

Wages Expense
Nov 13         $1,500
Dec 31         $1,800
Balance        $3,300

Utilities Expense
Nov 16          $150
Dec 20          $295
Balance         $445

Telephone Expense
Nov 20         $175
Dec 20         $325
Balance        $500

Step 3: Preparation of Trial Balance

CANYON CANOE COMPANY
Trial Balance
December 31, 2018
Account Title	Debit ($)	Credit ($)
Cash	$12,125
Accounts Receivables	$5,750
Office Supplies	$1,250
Prepaid Rent	$3,000
Land	$85,000
Building	$35,000
Canoes	$12,000
Accounts Payable		$3,050
Utilities Payable		$295
Telephone Payable		$325
Unearned Revenue		$750
Notes Payable		$7,200
Wilson, Capital		$136,000
Wilson, Withdrawals	$450
Canoe Rental Revenue		$12,400
Rent Expense	$1,200
Wages Expense	$3,300
Utilities Expense	$445
Telephone Expense	$500
Total	$160,020	$160,020

Step 4: Preparation of Income Statement

CANYON CANOE COMPANY
Income Statement
Two months ended December 31, 2018
Particulars	Amount ($)	Amount ($)
Revenues:
Canoe Rental Revenue		$12,400
Expenses:
Wages Expense	$3,300
Rent Expense	$1,200
Telephone Expense	$500
Utilities Expense	$445
Total Expenses		$5,445
Net Income		$6,955

Step 5: Preparation of statement of Owner’s Equity

CANYON CANOE COMPANY
Statement of Owner’s Equity
Two months ended December 31, 2018
	Amount ($)
Wilson, Capital, November 1, 2018	$0
Owner contribution	$136,000
Net Income for the month	$6,955
	$142,955
Owner Withdrawals	-$450
Wilson, Capital, December 31, 2018	$142,505

Step 6: Preparation of Balance Sheet

CANYON CANOE COMPANY
Balance Sheet
December 31, 2018
Assets	Amount ($)	Liabilities	Amount ($)
Cash	$12,125	Accounts Payable	$3,050
Accounts Receivables	$5,750	Utilities Payable	$295
Office Supplies	$1,250	Telephone Payable	$325
Prepaid Rent	$3,000	Unearned Revenue	$750
Land	$85,000	Notes Payable	$7,200
Building	$35,000	Total Liabilities	$11,620
Canoes	$12,000
		Owner’s Equity
		Wilson, Capital	$142,505
Total assets	$154,125	Total liabilities and owner’s Capital	$154,125

Step 7: Computation of Debt Ratio

$\begin{array}{c}\mathbf{DebtRatio}\mathbf{=}\frac{\mathrm{TotalLiabilities}}{\mathrm{TotalAssets}}\\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\frac{\$11,620}{\$154,125}\\ \mathbf{ }\mathbf{=}\mathbf{0}\mathbf{.}\mathbf{075}\end{array}$