Skip to main content
Business LibreTexts

2.9: Exercises

  • Page ID
    28734
    • girl-160172__340.png
    • Contributed by Henry Dauderis and David Annand
    • Athabasca University
    • Sourced from Lyryx Learning

    EXERCISE 2–1 (LO1) Accounts

    Below is a list of various accounts:

    a. b.
    Unearned consulting fees Vehicles
    Prepaid insurance Depreciation expense
    Office supplies Interest income
    Notes receivable Interest expense
    Insurance fee revenue Furniture
    Unearned insurance fee revenue Utilities payable
    Salary and benefits expense Unearned rent revenue
    Small tools and supplies Retained earnings
    Service fees earned Salaries and benefits payable
    Service fees revenue Compensation expense
    Notes payable Interest earned
    Buildings Meals and mileage expense
    Rent payable Unearned service fees
    Share capital Equipment

    Required:

    1. Identify each account as either an asset (A), liability (L), equity (E), revenue (R), or expense (E).
    2. Identify whether the normal balance of each account is a debit (DR) or credit (CR).

    EXERCISE 2–2 (LO1) Accounts

    Required: Using the list from EXERCISE 2–1, identify if a debit or credit is needed to decrease the normal balance of each account.

    EXERCISE 2–3 (LO2)

    Required: Record the debit and credit for each of the following transactions (transaction 1 is done for you):

    Assets Liabilities Equity
    Debit Credit Debit Credit Debit Credit
    (increase) (decrease) (decrease) (increase) (decrease) (increase)
    1. Purchased a $10,000 truck on credit. 10,000 10,000
    2. Borrowed $5,000 cash from the bank.
    3. Paid $2,000 of the bank loan in cash.
    4. Paid $600 in advance for a one-year insurance policy.
    5. Received $500 in advance from a renter for next month's rental of office space.

    EXERCISE 2–4 (LO2)

    Required: Record the debit and credit in the appropriate account for each of the following transactions (transaction 1 is done for you):

    Debit Credit
    1. Issued share capital for cash.

    Cash

    Share Capital
    2. Purchased equipment on credit.
    3. Paid for a one-year insurance policy.
    4. Billed a customer for repairs completed today.
    5. Paid this month's rent.
    6. Collected the amount billed in transaction 4 above.
    7. Collected cash for repairs completed today.
    8. Paid for the equipment purchased in transaction 2 above.
    9. Signed a union contract.
    10. Collected cash for repairs to be made for customers next month.
    11. Transferred this month's portion of prepaid insurance that was used to Insurance Expense.

    EXERCISE 2–5 (LO2) Using T-accounts

    Below are various transactions for the month of August, 2016, for BOLA Co. This is their first month of operations.

    1. Issued share capital in exchange for $3,000 cash.
    2. Received an invoice from the utilities company for electricity in the amount of $200.
    3. Bank approved a loan and deposited $10,000 into the company's bank account.
    4. Paid employee salaries in the amount of $2,000.
    5. Received repair services worth $5,000 from a supplier in exchange for a note due in thirty days.
    6. Completed service work for a European customer. Invoiced $8,000 EURO (European funds). The Canadian currency equivalent is $12,000 CAD. (hint: Recall the monetary unit principle.)
    7. Completed $7,000 of service work for a customer on account.
    8. Purchased $1,000 of equipment, paying cash.
    9. Received $8,000 EURO ($12,000 CAD) cash for service work done regarding item (6).
    10. Rent of $5,000 cash was paid for the current month's rent.
    11. Made a payment of $1,500 cash as a loan payment regarding item (3). The payment covered $150 for interest expense and the balance of the cash payment was to reduce the loan balance owing.
    12. Reimbursed $25 in cash to an employee for use of his personal vehicle for company business for a business trip earlier that day.
    13. Received a cash of $5,000 regarding the service work for item (7).
    14. Vehicle worth $30,000 purchased in exchange for $10,000 cash and $20,000 note due in six months.
    15. Paid the full amount of the utilities invoice regarding item (2).
    16. Purchased $3,000 of furniture on account.
    17. Completed $2,000 of service work for a customer and collected cash.
    18. Received a cheque in the amount of $2,000 from a customer for service work to be done in two months.
    19. Purchased office supplies for $3,000 on account.
    20. Completed a project for a customer and billed them $8,000 for the service work.
    21. Purchased a laptop computer for $2,500 in exchange for a note payable.
    22. September rent of $5,000 was paid two weeks in advance, on August 15.

    Required: Create a separate T-account for each asset, liability, equity, revenue and expense account affected by the transactions above. Record the various transactions debits and credits into the applicable T-account (similar to the two T-accounts shown in Section 2.1, under the heading T-accounts, for Cash and Accounts payable). Calculate and record the ending balance for each T-account. (Hint: Include the reference to the transaction number for each item in the T-accounts, to make it easier to review later, if the accounts contain any errors.)

    EXERCISE 2–6 (LO3) Preparing a Trial Balance

    Required: Using the T-accounts prepared in EXERCISE 2–5, prepare an August 31, 2016, trial balance for the company based on the balances in the T-accounts.

    EXERCISE 2–7 (LO3) Preparing Financial Statements

    Required: Using the trial balance in EXERCISE 2–6, prepare the August 31, 2016, income statement, statement of changes in equity and the balance sheet for the company based on the balances in the T-accounts.

    EXERCISE 2–8 (LO2)

    Watch Video

    Required: Post the following transactions to the appropriate accounts:

    1. Issued share capital for $5,000 cash (posted as an example).
    2. Paid $900 in advance for three months' rent, $300 for each month.
    3. Billed $1,500 to customers for repairs completed today.
    4. Purchased on credit $2,000 of supplies to be used next month.
    5. Borrowed $7,500 from the bank.
    6. Collected $500 for the amount billed in transaction (3).
    7. Received a $200 bill for electricity used to date (the bill will be paid next month).
    8. Repaid $2,500 of the bank loan.
    9. Used $800 of the supplies purchased in transaction (4).
    10. Paid $2,000 for the supplies purchased in transaction (4).
    11. Recorded the use of one month of the rent paid for in transaction (2).
    Cash Bank Loan Share Capital Repair Revenue
    (1) 5,000 (1) 5,000
    Accounts Receivable Accounts Payable Electricity Expense
    Prepaid Expense Rent Expense
    Unused Supplies Supplies Expense

    EXERCISE 2–9 (LO3)

    The following Trial Balance was prepared from the books of Cross Corporation at its year-end, December 31, 2015. After the company's bookkeeper left, the office staff was unable to balance the accounts or place them in their proper order. Individual account balances are correct, but debits may be incorrectly recorded as credits and vice-versa.

    Account Title Account Balances
    Debits Credits
    Cash $120,400
    Commissions Earned 5,000
    Share Capital $170,000
    Accounts Payable 30,000
    Insurance Expense 100
    Land 8,000
    Building 120,000
    Rent Expense 1,000
    Accounts Receivable 26,000
    Unused Supplies 6,000
    Supplies Expense 300
    Loan Payable 80,000
    Salaries Expense 3,000
    Telephone Expense 200

    Totals

    $161,700 $408,300

    Required: Prepare a corrected Trial Balance showing the accounts in proper order and balances in the correct column. List expenses in alphabetical order. Total the columns and ensure total debits equal total credits.

    EXERCISE 2–10 (LO4)

    Watch Video

    Required: Prepare journal entries for each of the following transactions:

    1. Issued share capital for $3,000 cash.
    2. Purchased $2,000 of equipment on credit.
    3. Paid $400 cash for this month's rent.
    4. Purchased on credit $4,000 of supplies to be used next month.
    5. Billed $2,500 to customers for repairs made to date.
    6. Paid cash for one-half of the amount owing in transaction (d).
    7. Collected $500 of the amount billed in transaction (e).
    8. Sold one-half of the equipment purchased in transaction 2 above for $1,000 in cash.

    EXERCISE 2–11 (LO2,4)

    Required: Prepare the journal entries and likely descriptions of the eleven transactions that were posted to the following General Ledger accounts for the month ended January 31, 2015. Do not include amounts. For instance, the first entry would be:

    General Journal
    Date Account/Explanation F Debit Credit
    Cash XX
    Share Capital XX
    (1) To record issuance of share capital
    Cash Bank Loan Share Capital Repair Revenue
    1 2 11 1 3
    3 5 4
    8 10
    11
    Accounts Receivable Accounts Payable

    Electricity Expense
    4 10 2 9
    6
    7
    Prepaid Expense Rent Expense
    5 9 7
    Unused Supplies Supplies Expense
    2 8 6

    EXERCISE 2–12 (LO2,3,4)

    The following journal entries were prepared for Elgert Corporation for its first month of operation, January 2015.

    General Journal
    Date Account/Explanation F Debit Credit
    Jan. 1 Cash 10,000
    Share Capital 10,000
    To record the issuance of shares.
    5 Rent Expense 200
    Cash 200
    To record the payment of rent for the month.
    9 Unused Supplies 4,000

    Cash

    4,000
    To record the purchase of supplies.
    11 Cash 1,300
    Service Revenue 1,300
    To record service revenue earned.
    28 Truck Operation Expense 450
    Accounts Payable 450
    To record truck repairs.
    30 Salaries Expense 1,800
    Cash 1,800
    To record payment of salaries for the month.
    31 Accounts Receivable 1,600
    Service Revenue 1,600
    To record service revenue earned during the month.
    31 Supplies Expense 200
    Unused Supplies 200
    To record supplies used during the month.

    Required:

    1. Prepare necessary General Ledger T-accounts and post the transactions.
    2. Prepare a Trial Balance at January 31, 2015.
    3. Prepare an Income Statement and Statement of Changes in Equity for the month ended January 31, 2015 and a Balance Sheet at January 31, 2015.

    EXERCISE 2–13 (LO4) Correcting Errors in Journal Entries

    Below are transactions that contain errors in the journal entry.

    1. Received an invoice from a supplier for advertising in the amount of $150.
      General Journal
      Date Account/Explanation F Debit Credit
      Advertising expense 1,500
      Cash 1,500
    2. Paid employee salaries in the amount of $2,200.
      General Journal
      Date Account/Explanation F Debit Credit
      Cash 2,200
      Salaries expense 2,200
    3. Received repair services worth $1,500 from a supplier in exchange for a note due in sixty days.
      General Journal
      Date Account/Explanation F Debit Credit
      Prepaid repairs 1,500
      Note payable 1,500
    4. Completed service work for a British customer. Invoiced $5,000 GBP (British pounds Sterling funds). The Canadian currency equivalent is $8,400 CAD. (Hint: Recall the monetary unit principle.)
      General Journal
      Date Account/Explanation F Debit Credit
      Accounts receivable 5,000
      Revenue 5,000
    5. Rent of $5,000 cash was paid for the current month's rent.
      General Journal
      Date Account/Explanation F Debit Credit
      Cash 500
      Rent expense 500
    6. Received a cheque in the amount of $4,000 from a customer for service work to be started in three months.
      General Journal
      Date Account/Explanation F Debit Credit
      Cash 4,000
      Revenue 4,000
    7. Completed a project for a customer and billed them $8,000 for the service work.
      General Journal
      Date Account/Explanation F Debit Credit
      Accounts payable 8,000
      Revenue 8,000
    8. Rent of $10,000 for the next six months was paid in advance.
      General Journal
      Date Account/Explanation F Debit Credit
      Rent expense 10,000
      Cash 10,000

    Required: Record the correcting journal entries. (Hint: One method is to reverse the incorrect entry and record the correct entry and a second method is to record the correcting amounts to the applicable accounts only.)