Chapter 2

The following accounts appeared in recent financial statements of Continental Airlines: \(\begin{array}{ll}\text { Accounts Payable } & \text { Flight Equipment } \\\ \text { Aircraft Fuel Expense } & \text { Landing Fees } \\ \text { Air Traffic Liability } & \text { Passenger Revenue } \\ \text { Cargo and Mail Revenue } & \text { Purchase Deposits for Flight Equipment } \\ \text { Commissions } & \text { Spare Parts and Supplies }\end{array}\) Identify each account as either a balance sheet account or an income statement account. For each balance sheet account, identify it as an asset, a liability, or owner's equity. For each income statement account, identify it as a revenue or an expense.

Clarendon Interiors is owned and operated by Corey Krum, an interior decorator. In the ledger of Clarendon Interiors, the first digit of the account number indicates its major account classification (1–-assets, 2-liabilities, 3 -owner's equity, 4 -revenues, 5 - expenses). The second digit of the account number indicates the specific account within each of the preceding major account classifications. Match each account number with its most likely account in the list below. The account numbers are \(11,12,13,21,31,32,41,51,52\), and 53 . \(\begin{array}{ll}\text { Accounts: } & \\ \text { Accounts Payable } & \text { Fees Earned } \\ \text { Accounts Receivable } & \text { Land } \\ \text { Cash } & \text { Miscellaneous Expense } \\ \text { Corey Krum, Capital } & \text { Supplies Expense } \\ \text { Corey Krum, Drawing } & \text { Wages Expense }\end{array}\)

The Inflorescence School is a newly organized business that teaches people how to inspire and influence others. The list of accounts to be opened in the general ledger is as follows: \(\begin{array}{lll}\text { Accounts Payable } & \text { Millard Fillmore, Capital } & \text { Supplies } \\ \text { Accounts Receivable } & \text { Millard Fillmore, Drawing } & \text { Supplies Expense } \\ \text { Cash } & \text { Miscellaneous Expense } & \text { Unearned Rent } \\ \text { Equipment } & \text { Prepaid Insurance } & \text { Wages Expense } \\ \text { Fees Earned } & \text { Rent Expense } & \end{array}\) List the accounts in the order in which they should appear in the ledger of The Inflorescence School and assign account numbers. Each account number is to have two digits: the first digit is to indicate the major classification ( 1 for assets, etc.), and the second digit is to identify the specific account within each major classification (11 for Cash, etc.).

During the month, Orion Labs Co. has a substantial number of transactions affecting each of the following accounts. State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries. 1\. Accounts Payable 5\. Heidi Ibach, Drawing 2\. Accounts Receivable 6\. Insurance Expense 3\. Cash 7\. Supplies Expense 4\. Fees Earned

Identify each of the following accounts of Universal Services Co. as asset, liability, owner's equity, revenue, or expense, and state in each case whether the normal balance is a debit or a credit. a. Accounts Payable f. Fees Earned b. Accounts Receivable g. Office Equipment c. Cash h. Rent Expense d. Cindy Yost, Capital i. Supplies e. Cindy Yost, Drawing j. Wages Expense

As of January 1, Seth Fite, Capital, had a credit balance of \(\$ 10,500\). During the year, withdrawals totaled \(\$ 4,000\) and the business incurred a net loss of \(\$ 8,000\). a. Calculate the balance of Seth Fite, Capital, as of the end of the year. b. Assuming that there have been no recording errors, will the balance sheet prepared at December 31 balance? Explain.

During the month, Wembley Co. received \(\$ 212,500\) in cash and paid out \(\$ 183,750\) in cash. a. Do the data indicate that Wembley Co. eamed \(\$ 28,750\) during the month? Explain. b. If the balance of the cash account is \(\$ 36,300\) at the end of the month, what was the cash balance at the beginning of the month?

a. On April 1, the cash account balance was \(\$ 7,850\). During April, cash receipts totaled \(\$ 41,850\) and the April 30 balance was \(\$ 9,150\). Determine the cash payments made during April. b. On July 1 , the accounts receivable account balance was \(\$ 15,500\). During July, \(\$ 61,000\) was collected from customers on account. Assuming the July 31 balance was \(\$ 17,500\), determine the fees billed to customers on account during July. c. During January, \(\$ 40,500\) was paid to creditors on account and purchases on account were \(\$ 57,700\). Assuming the January 31 balance of Accounts Payable was \(\$ 38,000\), determine the account balance on January \(1 .\)

The Zuni Co. has the following accounts in its ledger: Cash; Accounts Receivable; Supplies; Office Equipment; Accounts Payable; Gayle McCall, Capital; Gayle McCall, Drawing; Fees Earned; Rent Expense; Advertising Expense; Utilities Expense; Miscellaneous Expense. Journalize the following selected transactions for August 2005 in a two-column journal. Journal entry explanations may be omitted. August 1. Paid rent for the month, \(\$ 1,500\). 2\. Paid advertising expense, \(\$ 700\). 4\. Paid cash for supplies, \(\$ 1,050\). 6\. Purchased office equipment on account, \(\$ 7,500\). 8\. Received cash from customers on account, \(\$ 3,600\). 12\. Paid creditor on account, \(\$ 1,150\). 20\. Withdrew cash for personal use, \(\$ 1,000\). 25\. Paid cash for repairs to office equipment, \(\$ 500\). 30\. Paid telephone bill for the month, \(\$ 195\). 31\. Fees earned and billed to customers for the month, \(\$ 10,150\). 31\. Paid electricity bill for the month, \(\$ 380\).

The following selected transactions were completed during May of the current year: 1\. Billed customers for fees earned, \(\$ 12,190\). 2\. Purchased supplies on account, \(\$ 1,250\). 3\. Received cash from customers on account, \(\$ 9,150\). 4\. Paid creditors on account, \(\$ 750\). a. Journalize the above transactions in a two-column journal, using the appropriate number to identify the transactions. Journal entry explanations may be omitted. b. Post the entries prepared in (a) to the following T accounts: Cash, Supplies, Accounts Receivable, Accounts Payable, Fees Earned. To the left of each amount posted in the accounts, place the appropriate number to identify the transactions.

The accounts in the ledger of Haleakala Park Co. as of March 31, 2006, are listed in alphabetical order as follows. All accounts have normal balances. The balance of the cash account has been intentionally omitted. \(\begin{array}{lrlr}\text { Accounts Payable } & \$ 18,710 & \text { Notes Payable } & \$ 40,000 \\ \text { Accounts Receivable } & 37,500 & \text { Prepaid Insurance } & 3,000 \\ \text { Cash } & ? & \text { Rent Expense } & 60,000 \\ \text { Fees Earned } & 310,000 & \text { Supplies } & 2,100 \\\ \text { Insurance Expense } & 6,000 & \text { Supplies Expense } & 7,900 \\\ \text { Land } & 85,000 & \text { Unearned Rent } & 9,000 \\ \text { Miscellaneous Expense } & 8,900 & \text { Utilities Expense } & 41,500 \\\ \text { Neil Orzeck, Capital } & 86,640 & \text { Wages Expense } & 175,000 \\\ \text { Neil Orzeck, Drawing } & 20,000 & & \end{array}\) Prepare a trial balance, listing the accounts in their proper order and inserting the missing figure for cash.

Indicate which of the following errors, each considered individually, would cause the trial balance totals to be unequal: a. A payment of \(\$ 7,000\) for equipment purchased was posted as a debit of \(\$ 700\) to Equipment and a credit of \(\$ 700\) to Cash. b. Payment of a cash withdrawal of \(\$ 12,000\) was journalized and posted as a debit of \(\$ 21,000\) to Salary Expense and a credit of \(\$ 12,000\) to Cash. c. A fee of \(\$ 1,850\) earned and due from a client was not debited to Accounts Receivable or credited to a revenue account, because the cash had not been received. d. A payment of \(\$ 1,475\) to a creditor was posted as a debit of \(\$ 1,475\) to Accounts Payable and a debit of \(\$ 1,475\) to Cash. e. A receipt of \(\$ 325\) from an account receivable was journalized and posted as a debit of \(\$ 325\) to Cash and a credit of \(\$ 325\) to Fees Earned.

The following errors occurred in posting from a two-column journal: 1\. A debit of \(\$ 1,250\) to Supplies was posted twice. 2\. A debit of \(\$ 3,575\) to Wages Expense was posted as \(\$ 3,557\). 3\. A credit of \(\$ 4,175\) to Accounts Payable was not posted. 4\. A debit of \(\$ 400\) to Accounts Payable was posted as a credit. 5\. An entry debiting Accounts Receivable and crediting Fees Earned for \(\$ 6,000\) was not posted. 6\. A credit of \(\$ 350\) to Cash was posted as \(\$ 530\). 7\. A debit of \(\$ 1,000\) to Cash was posted to Miscellaneous Expense. Considering each case individually (i.e., assuming that no other errors had occurred), indicate: (a) by "yes" or "no" whether the trial balance would be out of balance; (b) if answer to (a) is "yes," the amount by which the trial balance totals would differ; and (c) whether the debit or credit column of the trial balance would have the larger total. Answers should be presented in the following form, with error (1) given as an example:

The following errors took place in journalizing and posting transactions: a. A withdrawal of \(\$ 15,000\) by Gerald Owen, owner of the business, was recorded as a debit to Wages Expense and a credit to Cash. b. Rent of \(\$ 4,500\) paid for the current month was recorded as a debit to Rent Expense and a credit to Prepaid Rent. Journalize the entries to correct the errors. Omit explanations.

The following errors took place in journalizing and posting transactions: a. A \(\$ 550\) purchase of supplies on account was recorded as a debit to Miscellaneous Expense and a credit to Prepaid Rent. b. Cash of \(\$ 3,750\) received on account was recorded as a debit to Accounts Payable and a credit to Cash. Journalize the entries to correct the errors. Omit explanations.