Skip to main content
Business LibreTexts

2.17: Problems

  • Page ID
    48924
  • Problem A The transactions of Lightning Package Delivery Company for March 2010 follow:

    Mar. 1 The company was organized and issued capital stock for USD 300,000 cash.

    2 Paid USD 6,000 as the rent for March on a completely furnished building.

    5 Paid cash for delivery trucks, USD 180,000.

    6 Paid USD 4,000 as the rent for March on two forklift trucks.

    9 Paid USD 2,200 for supplies received and used in March.

    12 Performed delivery services for customers who promised to pay USD 27,000 at a later date.

    20 Collected cash of USD 4,500 from customers on account (see March 12 entry).

    21 Received a bill for USD 1,200 for advertising in the local newspaper in March.

    27 Paid cash for gas and oil consumed in March, USD 450.

    31 Paid USD 2,400 salaries to employees for March.

    31 Received an order for services at USD 12,000. The services will be performed in April.

    31 Paid cash dividend, USD 1,000.

    Prepare the journal entries required to record these transactions in the general journal of the company.

    Problem B Economy Laundry Company had the following transactions in August 2010:

    Aug. 1 Issued capital stock for cash, USD 150,000.

    3 Borrowed USD 40,000 from the bank on a note.

    4 Purchased cleaning equipment for USD 25,000 cash.

    6 Performed services for customers who promised to pay later, USD 16,000.

    7 Paid this month's rent on a building, USD 2,800.

    10 Collections were made for the services performed on August 6, USD 3,200.

    14 Supplies were purchased on account for use this month, USD 3,000.

    17 A bill for USD 400 was received for utilities for this month.

    25 Laundry services were performed for customers who paid immediately, USD 22,000.

    31 Paid employee salaries, USD 6,000.

    31 Paid cash dividend, USD 2,000.

    a. Prepare journal entries for these transactions.

    b. Post the journal entries to T-accounts. Enter the account number in the Posting Reference column of the journal as you post each amount. Use the following account numbers:

    Acct.

     

    No.

    Account Title

    100

    Cash

    103

    Accounts receivable

    170

    Equipment

    200

    Accounts payable

    201

    Notes payable

    300

    Capital stock

    320

    Dividends

    400

    Service revenue

    507

    Salaries expense

    511

    Utilities expense

    515

    Rent expense

    518

    Supplies expense

    c. Prepare a trial balance as of 2010 August 31.

    Problem C Clean-Sweep Janitorial, Inc., a company providing janitorial services, was organized 2010 July 1. The following account numbers and titles constitute the chart of accounts for the company:

     

     

     

     

     

     

    Acct.

     

    No.

    Account Title

    100

    Cash

    103

    Accounts receivable

    150

    Trucks

    160

    Office equipment

    170

    Equipment

    200

    Accounts payable

    201

    Notes payable

    300

    Capital stock

    310

    Retained earnings

    320

    Dividends

    400

    Service revenue

    506

    Gas and oil expense

    507

    Salaries expense

    511

    Utilities expense

    512

    Insurance expense

    515

    Rent expense

    518

    Supplies expense

    July 1 The company issued USD 600,000 of capital stock for cash.

    5 Office space was rented for July, and USD 5,000 was paid for the rental.

    8 Desks and chairs were purchased for the office on account, USD 28,800.

    10 Equipment was purchased for USD 50,000; a note was given, to be paid in 30 days.

    15 Purchased trucks for USD 150,000, paying USD 120,000 cash and giving a 60-day note to the dealer for USD 30,000.

    July 18 Paid for supplies received and already used, USD 2,880.

    23 Received USD 17,280 cash as service revenue.

    27 Insurance expense for July was paid, USD 4,500.

    30 Paid for gasoline and oil used by the truck in July, USD 576.

    31 Billed customers for janitorial services rendered, USD 40,320.

    31 Paid salaries for July, USD 51,840.

    31 Paid utilities bills for July, USD 5,280.

    31 Paid cash dividends, USD 9,600.

    a. Prepare general ledger accounts for all of these accounts except Retained Earnings. The Retained Earnings account has a beginning balance of zero and maintains this balance throughout the period.

    b. Journalize the transactions given for July 2010 in the general journal.

    c. Post the journal entries to ledger accounts.

    d. Prepare a trial balance as of 2010 July 31.

    Problem D Trim Lawn, Inc., is a lawn care company. Thus, the company earns its revenue from sending its trucks to customers' residences and certain commercial establishments to care for lawns and shrubbery. Trim Lawn's trial balance at the end of the first 11 months of the year follows:

     

    TRIM LAWN, INC.

     

     

     

    Trial Balance

     

     

     

    2010 November 30

     

     

    Acct.

     

     

     

    No.

    Account Title

    Debits

    Credits

    100

    Cash

    $ 63,740

     

    103

    Accounts Receivable

    88,600

     

    150

    Trucks

    102,900

     

    160

    Office Furniture

    8,400

     

    200

    Accounts Payable

     

    $ 33,600

    300

    Capital Stock

     

    30,000

    310

    Retained Earnings, 2010 January 1

     

    30,540

    400

    Service Revenue

     

    371,010

    505

    Advertising Expense

    18,300

     

    506

    Gas an d Oil Expense

    21,900

     

    507

    Salaries Expense

    65,850

     

    511

    Utilities Expense

    2,310

     

    515

    Rent Expense

    15,000

     

    518

    Supplies Expense

    75,600

     

    531

    Entertainment Expense

    2,550

     

     

     

    $465,150

    $465,150

     

    Dec. 2 Paid rent for December, USD 3,000.

    5 Paid the accounts payable of USD 33,600.

    8 Paid advertising for December, USD 1,500.

    10 Purchased a new office desk on account, USD 1,050.

    13 Purchased USD 240 of supplies on account for use in December.

    15 Collected cash from customers on account, USD 75,000.

    20 Paid for customer entertainment, USD 450.

    24 Collected an additional USD 6,000 from customers on account.

    26 Paid for gasoline used in the trucks in December, USD 270.

    28 Billed customers for services rendered, USD 79,500.

    30 Paid for more December supplies, USD 12,000.

    31 Paid December salaries, USD 15,300.

    31 Paid a USD 4,000 cash dividend. (The Dividends account is No. 320.)

    a. Open three-column general ledger accounts for each of the accounts in the trial balance under the date of 2010 December 1. Place the word Balance in the explanation space of each account. Also open an account for Dividends, No. 320.

    b. Prepare entries in the general journal for the preceding transactions for December 2010.

    c. Post the journal entries to three-column general ledger accounts.

    d. Prepare a trial balance as of 2010 December 31.

    Problem E Marc Miller prepared the following trial balance from the ledger of the Quick-Fix TV Repair Company. The trial balance did not balance.

     

    QUICK-FIX REPAIR COMPANY

     

     

     

    Trial Balance

     

     

     

    2010 December 31

     

     

    Acct.

     

     

     

    No.

    Account Title

    Debits

    Credits

    100

    Cash

    $ 69,200

     

    103

    Accounts Receivable

    60,800

     

    160

    Office Furniture

    120,000

     

    172

    Office Equipment

    48,000

     

    200

    Accounts Payable

     

    $ 32,400

    300

    Capital Stock

     

    180,000

    310

    Retained Earnings

     

    80,000

    320

    Dividends

    28,800

     

    400

    Service Revenue

     

    360,000

    507

    Salaries Expense

    280,000

     

    515

    Rent Expense

    40,000

     

    568

    Miscellaneous Expense

    7,200

     

     

     

    $654,000

    $652,400

     

    The difference in totals in the trial balance caused Miller to carefully examine the company's accounting records. In searching back through the accounting records, Miller found that the following errors had been made:

    • One entire entry that included a USD 10,000 debit to Cash and a USD 10,000 credit to Accounts Receivable was never posted.

    • In computing the balance of the Accounts Payable account, a credit of USD 3,200 was omitted from the computation.

    • In preparing the trial balance, the Retained Earnings account balance was shown as USD 80,000. The ledger account has the balance at its correct amount of USD 83,200.

    • One debit of USD 2,400 to the Dividends account was posted as a credit to that account.

    • Office equipment of USD 12,000 was debited to Office Furniture when purchased.

    Prepare a corrected trial balance for the Quick-Fix TV Repair Company as of 2010 December 31. Also, write a description of the effect(s) of each error.