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Chapter 2: 20E (page 96)

Question: E2-20 Analyzing transactions from T-accounts The first nine transactions of North-West Airplane Repair have been posted to the T-accounts. Provide an explanation for each of the nine transactions. Learning Objective 3 Total Debits $191,800 Cash (1) 370,000 (3) 260,000 (9) 21,000 360,000 (2) 1,200 (5) 1,500 (6) 3,900 (7) 7,000 (8) ASSETS Accounts Payable LIABILITIES EQUITY Retained Earnings Notes Payable Office Supplies Building Common Stock Contributed Capital Dividends Salaries Expense Property Tax Expense Service Revenue Rent Expense = + = + − + + − (4) 1,500 (2) 360,000 (5) 1,200 1,50 (4) 0 260,000 (3) 370,000 (1) (8) 7,000 21,000 (9) (7) 1,400 (7) 2,500 (6) 1,5

Short Answer

Expert verified

The service revenue is revenue received for providing services and the explanation for each transaction is provided in step 2.

Step by step solution

01

Step-by-Step SolutionStep 1: Definition of service revenue

The service revenue is defined as the amount of money received by the business in exchange for providing services to the clients

02

Explanation of each transaction

Transaction

Explanation

1

Issue of common stock for cash

2

Purchase of building using cash

3

Cash raised using notes payable

4

Office supplies purchased on credit

5

Cash paid $1,200 against accounts payable

6

Property tax expense paid using cash

7

Rent and salaries expenses paid

8

Cash dividends paid

9

Services are provided for cash.

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Most popular questions from this chapter

Correcting errors in a trial balance

The trial balance of Beautiful Tots Child Care does not balance.

Account Title Debit Credit

Office Supplies 1,000

Cash 7,900

Accounts Receivable 6,700

Prepaid Insurance 300

Equipment 91,500

Accounts Payable 3,400

Notes Payable 45,000

Common Stock 57,000

Dividends 5,000

Service Revenue 12,350

Rent Expense 750

Salaries Expense 4,400

Total Balance \( 117,550 \) 117,750

The following errors are detected:

a. Cash is understated by \(1,500.

b. A \)4,100 debit to Accounts Receivable was posted as a credit.

c. A \(1,400 purchase of office supplies on account was neither journalized nor posted.

d. Equipment was incorrectly transferred from the ledger as \)91,500. It should have been transferred as \(83,000.

e. Salaries Expense is overstated by \)700.

f. A \(300 cash payment for advertising expense was neither journalized nor posted.

g. A \)200 cash dividend was incorrectly journalized as \(2,000.

h. Service Revenue was understated by \)4,100.

i. A 12-month insurance policy was posted as a $1,900 credit to Prepaid Insurance. Cash was posted correctly.

Prepare the corrected trial balance as of August 31, 2018. Journal entries are not required.

Identifying accounts Consider the following accounts and identify each account as an asset (A), liability (L), or equity (E). a. Notes Receivable b. Common Stock c. Prepaid Insurance d. Notes Payable e. Rent Revenue f. Taxes Payable g. Rent Expense h. Furniture i. Dividends j. Unearned Revenue

Better Days Ahead, a charitable organization, has a standing agreement with First National Bank. The agreement allows Better Days Ahead to overdraw its cash balance at the bank when donations are running low. In the past, Better Days Ahead managed funds wisely and rarely used this privilege. Jacob Henson has recently become the president of Better Days Ahead. To expand operations, Henson acquired office equipment and spent large amounts on fundraising. During Henson’s presidency, Better Days Ahead has maintained a negative bank balance of approximately $10,000.

What is the ethical issue in this situation, if any?

State why you approve or disapprove of Henson’s management of Better Days Ahead’s funds.

Consider the following accounts and identify each as an asset (A), liability (L), or equity (E). 1. Rent Expense 6. Accounts Payable 2. Common Stock 7. Unearned Revenue 3. Furniture 8. Notes Receivable 4. Service Revenue 9. Dividends 5. Prepaid Insurance 10. Insurance Expense

Journalizing transactions, posting journal entries to four-column accounts, and preparing a trial balance

Terrence Murphy opened a law office on January 1, 2018. During the first month of operations, the business completed the following transactions:

Jan. 1 Murphy contributed \(78,000 cash to the business, Terrence Murphy, Attorney. The business issued common stock to Murphy.

3 Purchased office supplies, \)600, and furniture, \(1,700, on account.

4 Performed legal services for a client and received \)1,000 cash.

7 Purchased a building with a market value of \(130,000, and land with a market value of \)25,000. The business paid \(25,000 cash and signed a note payable to the bank for the remaining amount.

11 Prepared legal documents for a client on account, \)400.

15 Paid assistant’s semimonthly salary, \(1,120.

16 Paid for the office supplies purchased on January 3 on account.

18 Received \)2,700 cash for helping a client sell real estate.

19 Defended a client in court and billed the client for \(1,800.

25 Received a bill for utilities, \)600. The bill will be paid next month.

29 Received cash on account, \(1,500.

30 Paid \)1,200 cash for a 12-month insurance policy starting on February 1.

30 Paid assistant’s semimonthly salary, \(1,120.

31 Paid monthly rent expense, \)1,800.

31 Paid cash dividends of $2,200.

Requirements

2. Open the following four-column accounts including account numbers: Cash, 101; Accounts Receivable, 111; Office Supplies, 121; Prepaid Insurance, 131; Land, 141; Building, 151; Furniture, 161; Accounts Payable, 201; Utilities Payable, 211; Notes Payable, 221; Common Stock, 301; Dividends, 311; Service Revenue, 411; Salaries Expense, 511; Rent Expense, 521; and Utilities Expense, 531.
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