Chapter 2
Transaction Analysis
Check Points
(5 min.) CP 2-1 Hickman’s payment was not an expense.
Hickman acquired an asset, Equipment, because the computer is an economic resource of the business.
(5 min.) CP 2-2
a. $12,800
b. $ 3,000
c. $56,300
d. $ 500
e. $ 5,800 [Service revenue of $8,500 ($5,500 + $3,000) – Total
expenses of $2,700 ($1,100 + $1,200 + $400) = Net income of $5,800]
e. $ 500
Chapter 2 Transaction Analysis 57
(5-10 min.) CP 2-3
(5 min.) CP 2-4 Increased total assets: May 1 (Cash)
May 1 (Medical supplies)
May 3 (Cash, Accounts receivable) Increased total liabilities: May 1 (Accounts payable) Decreased total assets: May 2 (Cash)
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(10 min.) CP 2-5
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Apr. 15 Cash……………………………………50,000
Note Payable………………………50,000 Borrowed money from the bank.
22 Accounts Receivable……………….9,000
S ervice Revenue………………….9,000 Performed service on account.
28 Cash……………………………………6,000
Accounts Receivable…………….6,000 Received cash on account.
29 Utilities Expense (600)
Accounts Payable (600)
Received utility bill.
30 Salary Expense………………………3,000
Cash…………………………………3,000 Paid salary expense.
30 Interest Expense (300)
Cash (300)
Paid interest expense.
Chapter 2 Transaction Analysis 59
(10-15 min.) CP 2-6 Req. 1
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Supplies………………………………..2,000
Accounts Payable…………………2,000 Purchased supplies on account.
Accounts Payable (500)
Cash (500)
Paid cash on account.
Req. 2
Req. 3
Biaggi’s business owes $1,500, as shown in the Accounts Payable account.
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(10-15 min.) CP 2-7 Req. 1
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Accounts Receivable………………..1,200
Service Revenue…………………..1,200 Performed service on account.
Cash (500)
Accounts Receivable (500)
Received cash on account.
Req. 2
Req. 3
a. The Center earned $1,200: Service Revenue
b. Total assets $1,200: Cash………………….. $ 500
Accounts receivable. 700
Total assets………….$1,200
Chapter 2 Transaction Analysis 61
(10 min.) CP 2-8
Old Navy
Trial Balance
December 31, 20X8
ACCOUNT DEBIT CREDIT
Millions
Cash……………………….…...$ 2
Other assets (9)
Accounts payable……………$ 1
Other liabilities (2)
Stockholders’ equity (2)
Revenues (30)
Expenses……………………... 24 ___
Total……………………….……$35 $35
Old Navy’s net income:$6 million ($30 – $24)
(10 min.) CP 2-9 1. Total assets = $53,800 ($33,300 + $2,000 + $500 +
$18,000)
2. Total liabilities = $100
3. Total stockholders’ equity = $53,700 ($53,800 – $100)
4. Net income = $5,800 ($8,500 – $1,100 – $1,200 – $400) 62
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(10 min.) CP 2-10 1. Total debits = $121,600 ($58,600 + $81,000 – $18,000)
Total credits = $ 58,600
Difference = $ 63,000 ($121,600 – $58,600)
$63,000 / 9 = $7,000 (an integer), which suggests either a transposition or a slide
2. Total debits = $76,600 ($58,600 + $20,000 – $2,000)
Total credits = $58,600
Difference = $18,000 ($76,600 – $58,600)
$18,000 / 9 = $2,000 (original amount of accounts
receivable)
3. Total debits = $56,600 ($58,600 – $ 2,000)
Total credits = $60,600 ($58,600 + $ 2,000)
Difference = $ 4,000 ($60,600 – $56,600)
$4,000 / 2 = $2,000 (original amount of accounts receivable) Chapter 2 Transaction Analysis 63
(10 min.) CP 2-11
F 1. Journal A. Using up assets in the
course of operating a
G 2. Receivable business
E 3. Owners’ equity B. Always a liability
H 4. Debit C. Revenues – Expenses
A 5. Expense D. Grouping of accounts
C 6. Net income E. Assets – Liabilities
D 7. Ledger F. Record of transactions
J 8. Posting G. Always an asset
I 9. Normal balance H. Left side of an account
B 10. Payable I. Side of an account where
increases are recorded
J. Copying data from the
journal to the ledger
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(5 min.) CP 2-12
Total debits = $350,000 ($250,000 + $100,000)
Total credits = $350,000 ($100,000 + $250,000)
Chapter 2 Transaction Analysis 65
Exercises
(10-15 min.) E 2-1 TO: Home Office
FROM: Store Manager
During the first week, I borrowed $320,000 on a note payable. I used the store’s beginning cash plus the borrowed money to purchase land, a building, copy equipment, and supplies. After all these transactions, the store’s balance sheet appears as follows:
Kinko’s
Oklahoma City Store
Balance Sheet
Date
ASSETS LIABILITIES
Cash $ 80,000* Note payable $320,000 Supplies 10,000
Copy equipment 60,000 STOCKHOLDERS’ EQUITY Land 90,000 Common stock 40,000 Building 120,000 Total liabilities and ________ Total assets $360,000 stockholders’ equity $360,000 _____
*$40,000 + $320,000 – $90,000 – $120,000 – $60,000 – $10,000 = $80,000
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(5-10 min.) E 2-2 a. Issuance of stock
Revenue transaction
b. Purchase of asset on account
Borrow money
c. Purchase of asset for cash
Sale of asset for cash
Collection of an account receivable
d. Payment of dividends to owners
Expense transaction
e. Pay a liability
(Answers may vary.)
(10-15 min.) E 2-3
a. Increased assets (cash)
b. No effect on total assets. Increase in land offsets the
decrease in cash.
c. Increased assets (cash)
d. Decreased assets (cash)
e. Increased assets (equipment)
f. Increased assets (merchandise inventory)
g. Decreased assets (cash)
h. No effect on total assets. Increase in cash offsets the
decrease in accounts receivable.
i. No effect (a personal transaction)
j. No effect on total assets. Increase in cash offsets the decrease in land.
Chapter 2 Transaction Analysis 67
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68 (10-20 min.) E 2-4
Req. 1
Analysis of Transactions
ASSETS = LIABILITIES + STOCKHOLDERS’ EQUITY
Date
Cash + Accounts Receivable + Medical Supplies + Land = Accounts Payable + Note Payable + Common
Stock +
Retained Earnings
Equity Transaction
Oct. 6
40,000 40,000 Issued stock 9 (30,000) 30,000
12 2,000 2,000
15 Not a transaction of the business. 15-31 4,000 4,000 8,000 Service revenue 15-31
(1,400) (1,400) Salary expense (1,000) (1,000) Rent expense (300) (300) Utilities expense 31 500 (500) 31 10,000 10,000 31 (1,500) (1,500) Bal. 20,300 4,000 1,500 30,000 500 10,000 40,000 5,300
55,800 55,800
(continued) E 2-4 Req. 2
a. $55,800
b. $4,000
c. $10,500 ($500 + $10,000)
d. $45,300 ($55,800 – $10,500, or $40,000 + $5,300)
e. $5,300 (Revenue, $8,000 minus total expenses of $2,700,
equals net income, $5,300.)
Chapter 2 Transaction Analysis 69
(10-15 min.) E 2-5
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Oct. 6 Cash………………………………………..40,000
Common Stock……………………….40,000 Issued stock to owner.
9 Land………………………………………...30,000
Cash…………………………………….30,000 Purchased land.
12 Medical Supplies…………………………2,000
Accounts Payable……………………2,000 Purchased supplies on account.
15 Not a transaction of the business.
15-31 Cash………………………………………..4,000
Accounts Receivable……………………4,000
Service Revenue……………………..8,000 Performed service for cash and on account.
15-31 Salary Expense…………………………..1,400
Rent Expense……………………………..1,000
Utilities Expense (300)
Cash…………………………………….2,700 Paid expenses.
31 Cash (500)
Medical Supplies (500)
Sold supplies.
31 Cash………………………………………..10,000
Note Payable…………………………..10,000 Borrowed money.
31 Accounts Payable……………………….1,500
Cash…………………………………….1,500 Paid on account.
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(10-15 min.) E 2-6 Req. 1
Total assets = $145 million ($100 + $60 – $55 + $35 + $26 –
$21)
Req. 2
Company owes $41 million [$60 – $55 + $35 + $22 – $21]
Req. 3
Net income = $4 million ($26 – $22)
Chapter 2 Transaction Analysis 71
(10-20 min.) E 2-7 Req. 1 (journal entries)
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Aug. 1 Cash……………………………………………19,500
Common Stock…………………………...19,500 Issued common stock to owner.
2 Office Supplies (800)
Accounts Payable (800)
Purchased office supplies on account.
4 Land……………………………………………14,000
Cash………………………………………..14,000 Paid cash for land.
6 Cash……………………………………………2,000
Service Revenue…………………………2,000 Performed services for cash.
9 Accounts Payable (100)
Cash (100)
Paid cash on account.
17 Accounts Receivable……………………….1,200
Service Revenue…………………………1,200 Performed service on account.
23 Cash (900)
Accounts Receivable (900)
Received cash on account.
31 Salary Expense………………………………1,000
Rent Expense (500)
Cash………………………………………..1,500 Paid cash expenses.
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(continued) E 2-7 Req. 2
Ending cash = $6,800
($19,500 – $14,000 + $2,000 – $100 + $900 – $1,500)
Expects to collect on account = $300 ($1,200 – $900)
Total liabilities = $700 ($800 – $100)
Net income (profit) = $1,700 ($2,000 + $1,200 – $1,000 – $500)
Chapter 2 Transaction Analysis 73
(20-30 min.) E 2-8 Req. 1
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(continued) E 2-8 Req. 2
Coaxial Electronic Systems, Inc.
Trial Balance
August 31, 20X6
ACCOUNT DEBIT CREDIT Cash…………………………...$ 6,800
Accounts receivable (300)
Office supplies (800)
Land…………………………...14,000
Accounts payable…………..$ 700
Common stock………………19,500
Service revenue……………..3,200
Salary expense………………1,000
Rent expense (500)
Total…………………………...$23,400 $23,400
Req. 3
Total assets ($6,800 + $300 + 800 + $14,000)........ $21,900 Total liabilities. (700)
Total stockholders’ equity ($21,900 –$700)……… $21,200
Chapter 2 Transaction Analysis 75
(10-15 min.) E 2-9
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
1. Cash…………………………………..10,000
Common Stock…………………..10,000 Issued common stock.
2. Cash…………………………………..7,000
Note Payable……………………..7,000 Borrowed money; signed note payable.
3. Land…………………………………..31,000
Cash………………………………..8,000
Note Payable……………………..23,000 Purchased land by paying cash
and signing a note payable.
4. Supplies (600)
Accounts Payable (600)
Purchased supplies on account.
5. Cash (100)
Supplies (100)
Sold supplies for cash.
6. Equipment……………………………6,000
Cash………………………………..6,000 Paid cash for equipment.
7. Accounts Payable (300)
Cash (300)
Paid cash on account.
Cash balance = $2,800 ($10,000 + $7,000 – $8,000 + $100 – $6,000 – $300)
Company owes $30,300 ($7,000 + $23,000 + $600 – $300)
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