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Chapter 2: Q1DC_3 (page 116)

Your friend, Dean McChesney, requested that you advise him on the effects that certain transactions will have on his business, A-Plus Travel Planners. Time is short, so you cannot journalize the transactions. Instead, you must analyze the transactions without a journal. McChesney will continue the business only if he can expect to earn a monthly net income of \(6,000. The business completed the following transactions during June:

a. McChesney deposited \)10,000 cash in a business bank account to start the company. The company issued common stock to McChesney.

b. Paid \(300 cash for office supplies.

c. Incurred advertising expense on account, \)700.

d. Paid the following cash expenses: administrative assistant’s salary, \(1,400; office rent, \)1,000.

e. Earned service revenue on account, \(8,800.

f. Collected cash from customers on account, \)1,200.

Requirements

3. Prepare a trial balance at June 30, 2018

Short Answer

Expert verified

Advertising expenses are the cost of promoting the brands and the required trial balance is prepared.

Step by step solution

01

Definition of Advertising Expense

Advertising expenses are defined as the cost incurred by the company on promoting and adverting the company or any product.

02

Opening of T-Accounts

Dean McChesney

Trial Balance

June 30, 2018

Accounts Title

Debit ($)

Credit ($)

Cash

$8,500

Accounts Receivables

$7,600

Office Supplies

$300

Accounts Payable

$700

Common Stock

$10,000

Service Revenue

$8,800

Salaries Expense

$1,400

Rent Expense

$1,000

Advertising Expense

$700

TOTAL

$19,500

$19,500

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Most popular questions from this chapter

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

The trial balance of Shawn Merry, CPA, is dated March 31, 2018: During April, the business completed the following transactions:

Cash 11,000

Office Supplies 400

Accounts Receivable 16,500

Land 30,000

Furniture 0

Automobile 0

Accounts Payable 3,800

Unearned Revenue 0

Common Stock 52,300

Dividends 0

Rent Expense 800

Salaries Expense 5,600

Service Revenue 8,200

Total Balance \( 64,300 64,300

During April, the business completed the following transactions:

Apr. 4 Collected \)2,500 cash from a client on account.

8 Performed tax services for a client on account, \(5,400.

13 Paid \)3,000 on account.

14 Purchased furniture on account, \(3,600.

15 Merry contributed his personal automobile to the business in exchange for common stock. The automobile had a market value of \)9,500.

18 Purchased office supplies on account, \(900.

19 Received \)2,700 for tax services performed on April 8.

20 Paid cash dividends of \(6,500.

21 Received \)5,700 cash for consulting work completed.

24 Received \(2,400 cash for accounting services to be completed next month.

27 Paid office rent, \)600.

28 Paid employee salary, $1,700.

Requirements

2. Open the four-column ledger accounts listed in the trial balance, together with their balances as of March 31. Use the following account numbers: Cash, 11; Accounts Receivable, 12; Office Supplies, 13; Land, 14; Furniture, 15; Automobile, 16; Accounts Payable, 21; Unearned Revenue, 22; Common Stock, 31; Dividends, 33; Service Revenue, 41; Salaries Expense, 51; and Rent Expense, 52

Roy Akins was the accounting manager at Zelco, a tire manufacturer, and he played golf with Hugh Stallings, the CEO, who was something of a celebrity in the community. The CEO stood to earn a substantial bonus if Zelco increased net income by year-end. Roy was eager to get into Hugh’s elite social circle; he boasted to Hugh that he knew some accounting tricks that could increase company income by simply revising a few journal entries for rental payments on storage units. At the end of the year, Roy changed the debits from “rent expense” to “prepaid rent” on several entries. Later, Hugh got his bonus, and the deviations were never discovered.

Requirements 1. How did the change in the journal entries affect the net income of the company at year-end?

Explain the five steps in journalizing and posting transactions.

Question: Journalizing transactions, posting journal entries to T-accounts, and preparing a trial balance

Vince York practices medicine under the business title Vince York, M.D. During July, the medical practice completed the following transactions:

Jul. 1 York contributed \(63,000 cash to the business in exchange for common stock.

5 Paid monthly rent on medical equipment, \)510.

9 Paid \(23,000 cash to purchase land to be used in operations.

10 Purchased office supplies on account, \)1,600.

19 Borrowed \(22,000 from the bank for business use.

22 Paid \)1,100 on account.

28 The business received a bill for advertising in the daily newspaper to be paid in August, \(240.

31 Revenues earned during the month included \)6,400 cash and \(6,000 on account.

31 Paid employees’ salaries \)2,200, office rent \(1,900, and utilities \)560. Record as a compound entry.

31 The business received \(1,120 for medical screening services to be performed next month.

31 Paid cash dividends of \)7,200.

The business uses the following accounts: Cash; Accounts Receivable; Office Supplies; Land; Accounts Payable; Advertising Payable; Unearned Revenue; Notes Payable; Common Stock; Dividends; Service Revenue; Salaries Expense; Rent Expense; Utilities Expense; and Advertising Expense.

Requirements 1. Journalize each transaction. Explanations are not required

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
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