Horngren 9th Edition Solutions Ch2

Chapter 2
Transaction Analysis
Short Exercises
(5 min.) S 2-1
Hoopers payment was not an expense.
Hooper acquired an asset, Equipment, because the computer is an economic
resource of the business.
(5 min.) S 2-2
a.
$13,400 ($11,000 + $2,400 + $5,500 $5,500)
b.
$ 2,400
(5-10 min.) S 2-3
Bal.
Cash
27,000
2,200
25,700
3,500
Chapter 2
2-1
(5 min.) S 2-4
Increased total assets:
April 1
April 1
April 3
(Cash)
(Medical supplies)
(Cash, Accounts Receivable)
(5-10 min.) S 2-5

a.
Purchase of asset for cash

Sale of asset for cash
Collection of an account receivable
Payment of dividends to owners
Expense transaction
Pay a liability
Return an asset purchased on account
Issuance of stock
Revenue transaction
Purchase of asset on account
Borrow money
b.
c.
d.
e.
(Answers may vary.)
(10 min.) S 2-6
DATE
Mar.
2-2
Journal
ACCOUNT TITLES AND EXPLANATION
15 Cash
Note Payable
Borrowed money from the bank.
Financial Accounting 8/e Solutions Manual
DEBIT
31,000
CREDIT
31,000
22 Accounts Receivable.
Service Revenue.
Performed service on account.
8,900
28 Cash
Accounts Receivable.
Received cash on account.
5,600
29 Utilities Expense.
Accounts Payable..
Received utility bill.
900
31 Salary Expense
Cash
Paid salary expense.
2,600
8,900
5,600
900
2,600
(10-15 min.) S 2-7

Req. 1
DATE
Journal
DEBIT
Supplies..
Accounts Payable
Purchased supplies on account.
1,700
Accounts Payable
Cash
Paid cash on account.
425
Chapter 2
CREDIT
1,700
425
2-3
Req. 2
Accounts Payable
425
1,700
1,275
Bal.
Req. 3
The business owes $1,275, as shown in the Accounts Payable account.
(10-15 min.) S 2-8

Req. 1
Journal
DATE
DEBIT
Accounts Receivable.............................
Service Revenue..
4,700
Cash........................................................
Accounts Receivable....................
3,000
CREDIT
4,700
3,000
Req. 2
Cash
3,000
2-4
Accounts Receivable
4,700
3,000
Service Revenue
4,700
Bal.
3,000
Bal.
1,700
Bal.
Chapter 2
4,700
2-5
(10 min.) S 2-9

Old Harbor
Trial Balance
December 31, 2012
ACCOUNT
DEBIT CREDIT
Millions
Cash....
$ 4
Other assets..
10
Accounts payable
$ 3
Other liabilities.
Stockholders equity..
Revenues...
19
Expenses...
14
___
Total.
$28
$28
Old Harbors net income: $5 million ($19 $14)
(10 min.) S 2-10

1.
Total assets
= $91,000 ($4,500 + $18,000 + $2,500 +

$21,000 + $45,000)
2-6
2.
Total liabilities = $47,000 ($25,000 + $22,000)
3.
Net income
= $18,000 ($53,600 $25,000 $9,000 $1,600)
(10 min.) S 2-11

1.
Total debits =
$ 86,100 ($126,600 + $4,500 $45,000)
Total credits =
$126,600
Difference
$ 40,500 ($126,600 $86,100);
$40,500 / 9 = $4,500 (an integer), which suggests either a transposition

or a slide.
2.
Total debits =
$189,600 ($126,600 + $81,000 $18,000)
Total credits =
$126,600
Difference
$ 63,000 ($189,600 $126,600);
$63,000 / 9 = $7,000 (an integer), which suggests either a transposition

or a slide.
3.
Total debits =
$108,600 ($126,600 $18,000)
Total credits =
$144,600 ($126,600 + $18,000)
Difference
$ 36,000 ($144,600 $108,600)
$36,000 / 2 = $18,000 (original amount of accounts receivable).
(10 min.) S 2-12

I
D
G
E
F
B
1.
2.
3.
4.
5.
6.
Debit
Expense
Net income
Ledger
Posting
Normal balance
Chapter 2
2-7
H 7. Payable
C 8. Journal
A 9. Receivable
J 10. Owners equity
(5 min.) S 2-13
Cash
Computer Equipment
100,000
60,000
Accounts Payable
Common Stock
60,000
100,000
Total debits
$160,000 ($100,000 + $60,000)
Total credits
$160,000 ($100,000 + $60,000)
Exercises
(10-15 min.) E 2-14A
TO:
Home Office
FROM:
Store Manager
During the first week, I used the stores beginning cash to purchase
equipment and supplies. I signed a note payable to buy land and a
2-8
building. After all these transactions, the stores balance sheet appears
as follows:
Casual Wear
San Francisco Store
Balance Sheet
Date
ASSETS
Cash
LIABILITIES
$ 25,000*
Supplies
15,000
Equipment
58,000
Land
94,000
Building
122,000
Total assets
$314,000
Note payable*
$216,000
STOCKHOLDERS EQUITY
Common stock
Total liabilities and
stockholders equity
*$94,000 + $122,000 = $216,000
98,000
$314,00
0
Cash
98,000
58,000
15,000
25,000
(10-15 min.) E 2-15A
a.
No effect on total assets. Increase in cash offsets the decrease in

accounts receivable.
b.
No effect (a personal transaction)
Chapter 2
2-9
2-10
c.
No effect on total assets. Increase in cash offsets the decrease in

land.
d.
Increased assets (cash)
e.
No effect on total assets. Increase in land offsets the decrease in

cash.
f.
g.
Decreased assets (cash)
h.
Increased assets (equipment)
i.
Increased assets (merchandise inventory)
j.
(10-20 min.) E 2-16A

Req. 1
Analysis of Transactions
=
LIABILITIES +
ASSETS
Date
Cash
Aug. 6
Accounts
Medical
+ Receivable + Supplies +
Retained
Earnings
39,000
Type of Stockholders
Equity Transaction
Issued stock
29,000
12
1,700
1,700
Not a transaction of the business.
15-31
3,800
15-31
(1,300)
Bal.
Note
Common
Payable +
Stock +
39,000
9 (29,000)
15
Accounts
Land = Payable +
STOCKHOLDERS EQUITY
3,800
7,600
Service revenue
(1,300) Salary expense
(700)
(700) Rent expense
(500)
(500) Utilities expense
31
700
31
12,000
31
(800)
23,200
(700)
12,000
(800)
3,800
1,000
29,000
900
Chapter 2
12,000
39,000
5,100
57,000
Chapter 2
57,000
(continued) E 2-16A
Req. 2
a.
$57,000
b.
$3,800
c.
$12,900 ($900 + $12,000)
d.
$44,100 ($57,000 $12,900, or $39,000 + $5,100)
e.
$5,100 (Revenue, $7,600 minus expenses,$2,500 equals net

income, $5,100.)
(10-15 min.) E 2-17A
DATE
Journal
Chapter 2
DEBIT
CREDIT
Transaction Analysis 2-13
Aug.
Cash...... 39,000
Common Stock..................................
Issued stock to owner.
39,000
Land............................................................. 29,000
Cash....................................................
Purchased land.
29,000
12
Medical Supplies........................................ 1,700

Accounts Payable..............................
1,700
15
15-31 Cash............................................................ 3,800

Accounts Receivable................................. 3,800
Service Revenue................................
Performed service for cash and on account.
15-31 Salary Expense.......................................... 1,300
Rent Expense............................................. 700
Utilities Expense........................................ 500
Cash....................................................
Paid expenses.
2-14
7,600
2,500
31
Cash............................................................ 700
Medical Supplies...............................
Sold supplies.
700
31
Cash............................................................ 12,000
Note Payable......................................
Borrowed money.
12,000
31
Accounts Payable...................................... 800

Cash....................................................
Paid on account.
800
(10-20 min.) E 2-18A
DATE
Journal
Apr. 1 Cash.......................................................
Common Stock..............................
Issued common stock to owner.
2 Office Supplies......................................
Accounts Payable.........................
Purchased office supplies on account.
DEBIT
19,800
19,800
200
200
4 Land.......................................................
Cash...............................................
Paid cash for land.
14,300
6 Cash.......................................................
Service Revenue...........................
Performed services for cash.
2,600
9 Accounts Payable.................................
Cash...............................................
100
17 Accounts Receivable............................
Service Revenue........................
1,900
23 Cash.......................................................
100
Chapter 2
CREDIT
14,300
2,600
100
1,900
30 Salary Expense.....................................
Rent Expense........................................
Cash...............................................
Paid cash expenses.
2-16
100
1,900
1,300
3,200
(20-30 min.) E 2-19A

Req. 1
Cash
Apr. 1
Accounts Receivable
19,800 Apr. 4
14,300
2,600
100
23
100
30
3,200
Bal.
Apr. 17
1,900 Apr. 23
Bal.
1,800
4,900
Office Supplies
Land
Apr. 2
200
Apr.
Bal.
200
Bal.
100 Apr.
Bal.
14,300
14,300
Accounts Payable
Apr. 9
100
Common Stock
200
Apr. 1
19,800
100
Bal.
19,800
Service Revenue
Salary Expense
Apr. 6
2,600
Apr. 30
1,900
17
1,900
Bal.
1,900
Bal.
4.500
Rent Expense
Apr. 30
1.300
Chapter 2
Bal.
2-18
1,300
(continued) E 2-19A
Req. 2
Doherty Tree Cellular, Inc.
Trial Balance
April 30, 2012
ACCOUNT
DEBIT
Cash...
$ 4,900
Accounts receivable..
1,800
Office supplies
200
Land...
14,300
CREDIT
Accounts payable..
100
Common stock
19,800
Service revenue..
4,500
Salary expense
Rent expense...
Total...
1,900
1,300
$24,400
$24,400
Req. 3
Total assets ($4,900 + $1,800 + 200 + $14,300).
$21,200
Total liabilities.
(100)
Total stockholders equity ($19,800 + $1,300)
21,100
Chapter 2
(10-15 min.) E 2-20A

Journal
DATE
2-20
DEBIT
CREDIT
1.
Cash.......................................................
Common Stock..............................
Issued common stock.
9,800
2.
Cash....................................................... 7,000
Note Payable..................................
Borrowed money; signed note payable.
3.
Land.......................................................
Cash...............................................
Note Payable..................................
Purchased land by paying cash and
signing a note payable.
32,000
4.
Supplies.................................................
400
5.
Cash.......................................................
Supplies.........................................
Sold supplies for cash.
110
6.
Equipment.............................................
Cash...............................................
Paid cash for equipment.
5,300
7.
Accounts Payable.................................
Cash...............................................
150
9,800
7,000
4,000
28,000
400
110
5,300
150
Cash balance = $7,460 ($9,800 + $7,000 $4,000 + $110 $5,300 $150)

Company owes $35,250 ($7,000 + $28,000 + $400 $150)
Chapter 2
(10-20 min.) E 2-21A

Req. 1
Deluxe Patio Service, Inc.
Trial Balance
June 30, 2012
ACCOUNT
DEBIT
Cash..............................................
$ 9,300
Accounts receivable....................
15,300
Land..............................................
29,200
CREDIT
Accounts payable........................
$ 4,800
Note payable................................
11,500
Common stock.............................
8,800
Retained earnings........................
21,600
Dividends.....................................
5,500
Service revenue...........................
22,500
Salary expense.............................
7,800
Utilities expense..........................
1,800
Delivery expense.........................
300
Total..............................................
$69,200
$69,200
Req. 2
Deluxe Patio Service, Inc.
Income Statement
For the Month Ended June 30, 2012
Service revenue...........................
Salary expense.........................
2-22
$22,500
$7,800
Utilities expense..........................
1,800
Delivery expense.........................
300
Total expenses.............................
9,90
0
Net income...................................
$12,600
Chapter 2
(15-25 min.) E 2-22A

Garvey, Inc.
Trial Balance
September 30, 2012
ACCOUNT
DEBIT
Cash............................................
Accounts receivable..................
$ 4,400*
12,600*
Inventory....................................
17,300
Supplies.....................................
400
Land............................................
51,000
CREDIT
Accounts payable......................
$12,900*
Common stock..........................
47,300*
33,900
Sales revenue............................
Salary expense..........................
3,700
Insurance expense....................
2,000*
Rent expense.............................
1,200
Utilities expense........................
__1,500*
_______
Total............................................
$94,100
$94,100
_____
*Computations:
Cash: $4,300 + $100 = $4,400
Accounts Receivable: $12,700 $100 = $12,600
Accounts Payable: $11,500 + $1,000 $100 + $500 = $12,900
Common Stock: $47,100 + $200 = $47,300
Insurance Expense: $0 + $2,000 = $2,000
Utilities Expense: $1,000 + $500 = $1,500
2-24
(5-15 min.) E 2-23A

Cash
(a)
Bal.
Accounts Receivable
12,500 (b)
1,100
(f)
8,000
(d)
1,600
Bal.
8,000
(e)
500
(g)
2,200
7,100
Office Supplies
Office Furniture
(c)
900
(a)
9,400
Bal.
900
Bal.
9,400
Accounts Payable
(e)
500 (c)
Bal.
Dividends
Common Stock
900
(a)
21,900
400
Bal.
21,900
Service Revenue
(g)
2,200
(f)
8,000
Bal.
2,200
Bal.
8,000
Salary Expense
Rent Expense
Chapter 2
(d)
1,600
(b)
1,100
Bal.
1,600
Bal.
1,100
(10-20 min.) E 2-24A

Req. 1
Lynn Dover, Attorney
Trial Balance
May 31, 2012
ACCOUNT
DEBIT
Cash...
$ 7,100
8,000
Office supplies
900
Office furniture
9,400
Accounts payable..
Common stock
Dividends..
2-26
2,200
8,000
Salary expense
1,600
Rent expense..
1,100
Total...
$30,300
400
21,900
Service revenue..
Req. 2
CREDIT
$30,300
The business performed well during May. The result of operations was
net income of $5,300, as shown by the income statement accounts:
Service revenue. $ 8,000

Salary expense..
$1,600
Rent expense.
1,100
Total expenses
(2,700)
Net income.. $ 5,300
Chapter 2
(10-15 min.) E 2-25B

TO:
Home Office
FROM:
Store Manager
During the first week, I used the stores beginning cash to purchase
equipment and supplies. I signed a note payable to buy land and a
building. After all these transactions, the stores balance sheet appears
as follows:
M. Crue
San FranciscoStore
Balance Sheet
Date
ASSETS
Cash
LIABILITIES
$ 35,000*
Supplies
14,000
Equipment
55,000
Land
95,000
Building
125,000
Total assets
$324,000
_____
($91,000 + $120,000) = $211,000
Cash
104,000
2-28
55,000
Note payable*
$220,000
STOCKHOLDERS EQUITY
Common stock
104,000

stockholders equity
$324,000
14,000
35,000
(10-15 min.) E 2-26B
a.
b.
No effect on total assets. Increase in equipment offsets the

decrease in cash.
c.
d.
No effect (a personal transaction)
e.
Increased assets (land)
f.
g.
No effect on total assets. Increase in notes receivable offsets the

decrease in land.
h.
Increased assets (accounts receivable)
i.
Increased assets (supplies)
j.
Chapter 2
(10-20 min.) E 2-27B

Req. 1
=
LIABILITIES +
ASSETS
Date
Cash
July 6
Accounts
Medical
Note
Common
Payable +
Stock +
41,000
Retained
Earnings
41,000
9 (27,000)
Equity Transaction
Issued stock
27,000
12
15
Accounts
Land = Payable +
STOCKHOLDERS EQUITY
2,100
2,100
15-31
4,050
15-31
(1,500)
(1,500) Salary expense
(1,100)
(1,100) Rent expense
(1,200)
(1,200) Utilities expense
Bal.
31
800
31
19,000
31
(1,500)
32,550
4,050
8,100 Service revenue
(800)
19,000
(1,500)
4,050
1,300
27,000
600
Chapter 2
19,000
41,000
4,300
64,900
64,900
Chapter 2
(continued) E2-27B
Req. 2
a.
$64,900
b.
$4,050
c.
$19,600 ($600 + $19,000)
d.
$45,300 ($64,900 $19,600, or $41,000 + $4,300)
e.
$4,300 (Revenue, $8,100 minus expenses,$3,800, equals net

income, $4,300.)
(10-15 min.) E 2-28B

Journal
DATE
Mar.
DEBIT
Cash.......................................................
Common Stock.............................
41,000
Land .......................................................
Cash..............................................
Purchased land.
27,000
12
Medical Supplies...................................
Accounts Payable........................
2,100
15

Chapter 2
CREDIT
41,000
27,000
2,100
15-31 Cash.......................................................
4,050
Accounts Receivable............................
4,050
Service Revenue..........................
Performed service for cash and on account.
15-31 Salary Expense.....................................
Rent Expense........................................
Utilities Expense...................................
Cash..............................................
Paid expenses.
1,500
1,100
1,200
31
Cash.......................................................
Medical Supplies..........................
Sold supplies.
800
31
Cash.......................................................
Note Payable.................................
Borrowed money.
19,000
31
Cash..............................................
Paid on account.
1,500
8,100
3,800
800
19,000
1,500
(10-20 min.) E 2-29B
DATE
Journal
Chapter 2
DEBIT
CREDIT
Sept.
1 Cash.......................................................
Common Stock.............................
Issued common stock to owner.
2 Office Supplies......................................
Purchased office supplies on account.
19,900
400
4 Land .......................................................
Cash..............................................
Paid cash for land.
14,000
6 Cash.......................................................
Service Revenue..........................
Performed services for cash.
2,900
9 Accounts Payable.................................
Cash..............................................
300
Service Revenue..........................
1,200
23 Cash.......................................................
Accounts Receivable...................
100
30 Salary Expense.....................................
Rent Expense........................................
Cash..............................................
Paid cash expenses.
1,200
800
Chapter 2
19,900
400
14,000
2,900
300
1,200
100
2,000
(20-30 min.) E 2-30B

Req. 1
Cash
Sept. 1
Accounts Receivable
19,900 Sept. 4
14,600
2,900
300
23
100
30
2,000
Bal.
Sept. 17
1,200 Sept. 23
Bal.
1,100
100
6,600
Office Supplies
Land
Sept. 2
400
Sept. 4
14,000
Bal.
400
Bal.
14,000
Accounts Payable
Sept. 9
300 Sept. 2
Common Stock
400
Sept.
19,900
1
Bal.
100
Bal.
Service Revenue
Salary Expense
Sept. 6
2,900
Sept. 30
1,200
17
1,200
Bal.
1,200
Bal.
19,900
4,100
Rent Expense
Chapter 2
Sept. 30
800
Bal.
800
Chapter 2
(continued) E 2-30B
Req. 2
DoubleTree Cellular, Inc.
Trial Balance
September 30, 2012
ACCOUNT
DEBIT
Cash...
$ 6,600
1,100
Office supplies
400
Land...
14,000
Accounts payable..
CREDIT
100
Common stock
19,900
Service revenue..
4,100
Salary expense
1,200
Rent expense...
800
Total...
$24,100
$24,100
Req. 3
Total assets ($6,600 + $1,100 + 400 + $14,000).. $22,100
Total liabilities.
(100)
Total stockholders equity ($19,900 + $2,100) $22,000
Chapter 2
Chapter 2
(10-15 min.) E 2-31B

Journal
DATE
Chapter 2
DEBIT
CREDIT
1.
Cash.......................................................
Common Stock.............................
Issued common stock.
10,100
2.
Cash.......................................................
Note Payable.................................
Borrowed money; signed note payable.
3.
Land .......................................................
Cash..............................................
Note Payable.................................
Purchased land by paying cash
and signing a note payable.
35,000
4.
Supplies.................................................
800
5.
Cash....................................................
Supplies........................................
Sold supplies for cash.
130
6.
Equipment.............................................
Cash..............................................
Paid cash for equipment.
5,700
7.
Cash..............................................
140
7,300
10,100
7,300
7,000
28,000
800
130
5,700
Cash balance = $4,690 ($10,100 + $7,300 $7,000 + $130 $5,700 $140)

Company owes $35,960 ($7,300 + $28,000 + $800 $140)
Chapter 2
140
(10-20 min.) E 2-32B

Req. 1
Custom Pool Service, Inc.
Trial Balance
June 30, 2012
ACCOUNT
DEBIT
CREDIT
Cash................................................
9,200
Accounts receivable......................
15,200
Land................................................
29,600
Accounts payable..........................
$ 4,100
Note payable..................................
11,500
Common stock...............................
8,300
Retained earnings.........................
24,700
Dividends........................................
5,800
Service revenue.............................
22,300
Salary expense..............................
8,500
Utilities expense............................
1,700
Delivery expense...........................
900
Total................................................
$70,900
$70,900
Req. 2
Custom Pool Service, Inc.
Income Statement
Service revenue.............................
$22,300
Salary expense....................
$8,500
Utilities expense..................
1,700
Delivery expense.................
900
Chapter 2
Total expenses...............................
11,10
0
Net income.....................................
$11,200
(15-25 min.) E 2-33B

Doyle, Inc.
Trial Balance
June 30, 2012
ACCOUNT
DEBIT
Cash.......................................
$ 5,200*
Accounts receivable................
12,600*
Inventory...................................
17,100
Supplies....................................
800
Land...........................................
58,000
CREDIT
Accounts payable.....................
$15,500*
Common stock.........................
47,600*
Sales revenue...........................
38,500
Salary expense.........................
3,400
Insurance expense...................
1,900*
Rent expense............................
1,100
Utilities expense.......................
1,500*
Total...........................................
$101,600
_______
$101,600
_____
*Explanations:
Cash: $4,600 + $600 = $5,200
Accounts Receivable: $13,200 $600 = $12,600
Accounts Payable: $12,400 + $3,000 $300 + $400 = $15,500
Chapter 2
Common Stock: $47,400 + $200 = $47,600

Insurance Expense: $0 + $3,400 = $3,400
Utilities Expense: $1,100 + $400 = $1,500
Chapter 2
(5-15 min.) E 2-34B

Cash
(a)
Bal.
Accounts Receivable
13,000 (b)
1,800
(f)
8,700
(d)
1,800
Bal.
8,700
(e)
900
(g)
2,500
6,000
Office Supplies
Office Furniture
(c)
1,300
(a)
8,900
Bal.
1,300
Bal.
8,900
Accounts Payable
(e)
900 (c)
Bal.
Common Stock
1,300
400
Dividends
(a)
21,900
Bal.
21,900
Service Revenue
(g)
2,500
(f)
8,700
Bal.
2,500
Bal.
8,700
Salary Expense
Rent Expense
(d)
1,800
(b)
1,800
Bal.
1,800
Bal.
1,800
Chapter 2
(10-20 min.) E 2-35B

Req. 1
Lisa Oxford, Attorney
Trial Balance
March 31, 2012
ACCOUNT
DEBIT
Cash..........................................
$ 6,000
Accounts receivable................
8,700
Office supplies.........................
1,300
Office furniture.........................
8,900
Accounts payable....................
Common stock.........................
Dividends..................................
CREDIT
400
21,900
2,500
Service revenue.......................
8,700
Salary expense.........................
1,800
Rent expense...........................
1,800
Total..........................................
$31,000
$31,000
Req. 2
The business performed well during March. The result of operations
was net income of $5,100, as shown by the income statement
accounts:
Chapter 2
Service revenue.
$ 8,700
Salary expense..............$1,800
Rent expense................. 1,800
Total expenses..
(3,600)
Net income..
$ 5,100
Chapter 2
Serial Exercise
(20-30 min.) E 2-36
Reqs. 1 and 3
Cash
Jan. 2
9
Bal.
Accounts Receivable
11,000 Jan. 2
1,000
700
3,900
12
200
Jan. 18
1,500
Bal.
1,500
7,200
Supplies
Equipment
Jan. 5
400
Jan. 3
3,900
Bal.
400
Bal.
3,900
Furniture
Accounts Payable
Jan. 4
4,700
Jan. 4
4,700
Bal.
4,700
400
Bal.
Common Stock
5,100
Service Revenue
Jan. 2
11,000
Jan. 9
1,000
Bal.
11,000
18
1,500
Bal.
Rent Expense
2,500
Utilities Expense
Chapter 2
Jan. 2
700
Jan. 12
200
Bal.
700
Bal.
200
(continued) E 2-36
Req. 2
DATE
Journal
DEBIT
Jan. 2 Cash..........................................................
Common Stock................................
11,000
2 Rent Expense............................................
Cash..................................................
700
3 Equipment.................................................
Cash..............................................
3,900
4 Furniture................................................
Accounts Payable............................
4,700
5 Supplies....................................................
Accounts Payable............................
400
9 Cash..........................................................
Service Revenue..............................
1,000
12 Utilities Expense.......................................
Cash..................................................
200
Chapter 2
CREDIT
11,000
700
3,900
4,700
400
1,000
200
18 Accounts Receivable...............................
Service Revenue..............................
Chapter 2
1,500
1,500
(continued) E 2-36
Req. 3
Steve Ruiz, Certified Public Accountant, P.C.
Trial Balance
January 18, 2012
ACCOUNT
DEBIT
Cash.............................................
$ 7,200
Accounts receivable...................
1,500
Supplies.......................................
400
Equipment...................................
3,900
Furniture......................................
4,700
CREDIT
Accounts payable.......................
$ 5,100
Common stock............................
11,000
Dividends....................................
Service revenue..........................
2,500
Rent expense..............................
700
Utilities expense.........................
200
Salary expense...........................
Total.............................................
$18,600
$18,600
Chapter 2
Quiz
Q2-37
Q2-38
Q2-39
Q2-40
Q2-41
Q2-42
Q2-43
Q2-44
Q2-45
Q2-46
Q2-47
Q2-48
Q2-49
Q2-50
Q2-51
Q2-52
Q2-53
Q2-54
Q2-55
Q2-56
d
d
d
d
d
c
a
c
c
b
d
d
a
d
c
c
d
d
a
d
($45,000 + $22,000 + $11,000) = $78,000
Chapter 2
Problems
(15-30 min.) P 2-57A

Dear Abby,
This trial balance lists the accounts of the company, along with their
balances at December 31, 2012. The trial balance provides the data for
computing total assets, total liabilities, and net income or net loss.
Dorman Specialties
a.
Total assets = $407,000 ($20,000 + $45,000 + $3,000 + $235,000

+ $104,000)
b.
c.
Net income = $24,000 ($180,000 $59,000 $12,000 $76,000

$9,000)
Student responses may vary.
Chapter 2
(45-60 min.) P 2-58A

Req. 1
Cash
Bal.
1,400
a)
9,000
b)
6,800
c)
(4,700)
ASSETS
Accounts
1,300
400
8,000
3,500
Bal.
Issued stock
(4,700)
1,200
(400)
2,400
(1,400)
(900)
h)
3,500
1,200
f)
g)
11,600
9,000
d)
e)
= LIABILITIES + STOCKHOLDERS EQUITY
Accounts
Common Retained
Land = Payable +
Stock + Earnings
Equity Transaction
(900) Advertising expense
(1,700)
____
____
8,900
3,300
1,200
(1,700) Dividends
11,600
Chapter 2
4,500
12,500
8,000
$25,000
$25,000
Chapter 2
(continued) P 2-58A
Req. 2
Mason Resources, Inc.
Income Statement
Month Ended June 30, 2012
Revenues:
Service revenue ($6,800 + $2,400)...
$9,200
Expenses:
Rent expense
$1,400
Advertising expense...
900
Total expenses.
2,300
Net income.
$6,900
Req. 3
Martin Resources, Inc.
Statement of Retained Earnings
Retained earnings, Jun3 1, 2012..............
$ 2,800
Add: Net income..
6,900
9,700
Less:Dividends.
(1,700)
Retained earnings, June 30, 2012..

Req. 4
ASSETS
Cash.
Accounts receivable
$ 8,000
Martin Resources, Inc.

Balance Sheet
June 30, 2012
LIABILITIES
$8,900 Accounts payable
3,300
$ 4,500
STOCKHOLDERS
Chapter 2
Supplies..
Land.
1,200
EQUITY
11,600 Common stock.
12,500
Retained earnings
8,000
Total stockholders equity
20,500

Total assets
$25,000
stockholders' equity..
$25,000
(30-40 min.) P 2-59A

Req. 1
Journal
ACCOUNT TITLES
a.
DEBIT
Cash.........................................................
Common Stock...............................
9,000
b.
Cash.........................................................
Service Revenue.............................
6,800
c.
Accounts Payable................................
Cash................................................
4,700
d.
Supplies...................................................
Accounts Payable..........................
1,200
e.
Cash......................................................
Accounts Receivable.....................
400
f.
Accounts Receivable..............................
Service Revenue.........................
2,400
g.
Rent Expense..........................................
Advertising Expense...............................
1,400
900
Chapter 2
CREDIT
9,000
6,800
4,700
1,200
400
2,400
Cash................................................
h.
2,300
Dividends.............................................
Cash................................................
1,700
1,700
(continued) P 2-59A
Reqs. 2 and 3
Cash
Accounts
Receivable
1,400
4,700
1,300
9,00
2,300
2,400
6,800
1,700
3,300
400
Supplies
Land
1,200
11,600
1,200
11,600
400
8,900
Accounts
Payable
4,700
Common Stock
8,000
3,500
1,200
9,000
4,500
12,500
Service
Revenue
6,800
Rent Expense
1,400
Retained
Earnings
Dividends
2,800
1,700
2,800
1,700
Advertising
Expense
900
2,400
Chapter 2
9,200
1,400
900
The balances of all the accounts Cash through Common Stock agree with the
ending balances obtained in Problem 2-58A.
Chapter 2
(40-50 min.) P 2-60A

Req. 1
Classification of Transactions
Nov.
10
11
12
18
21
25
30
Chapter 2
(continued) P 2-60A
Req. 2
Date
ASSETS
= LIABILITIES + STOCKHOLDERS EQUITY
Accounts
Office
Accounts
Common
Retained Type of Stockholders
Cash + Receivable+ Supplies + Equipment = Payable +
Stock + Earnings
Equity Transaction
Nov. 4*
5
58,000
(100)
(10,000)
58,000
Issued stock
100
16,500
6,500
10*
11*
12*
18
Bal.
5,500
21
(3,250)
25
(1,400)
30
(2,400)
40,850
5,500
Service revenue
(3,250)
5,500
___
100
16,500
Chapter 2
3,250
58,000
(1,400)
Rent expense
(2,400)
1,700
Dividends
$62,950
$62,950
*Not a transaction of the business.
Chapter 2
(continued) P 2-60A
Req. 3
DATE
Nov.
Journal
DEBIT
5 Cash ..........................................................
Common Stock................................
58,000
6 Supplies....................................................
Cash.................................................
Purchased supplies.
100
7 Office Equipment......................................
Cash.................................................
Accounts Payable...........................
Purchased equipment.
16,500
Service Revenue.............................
5,500
21 Accounts Payable.....................................
Cash.................................................
Paid on account.
3,250
25 Rent Expense............................................
Cash.................................................
Paid rent.
1,400
30 Dividends..................................................
Cash.................................................
2,400
Chapter 2
CREDIT
58,000
100
10,000
6,500
5,500
3,250
1,400
2,400
Paid dividend.
Chapter 2
(15-20 min.) P 2-61A

Req. 1
Journal
DATE
Dec.
ACCOUNT TITLES
DEBIT
1 Cash ..........................................................
Common Stock............................
23,000
5 Rent Expense............................................
Cash..............................................
1,900
9 Land.......................................................
Cash.................................................
Notes Payable..................................
35,000
10 Supplies....................................................
Accounts Payable...........................
1,100
Cash.................................................
700
22 Cash ..........................................................
Notes Payable..................................
19,000
31 Cash ..........................................................
Accounts Receivable...............................
Service Revenue.............................
14,000
6,000
31 Salary Expense.........................................
Advertising Expense............................
Utilities Expense.......................................
Cash.................................................
2,500
1,300
1,700
Chapter 2
CREDIT
23,000
1,900
7,000
28,000
1,100
700
19,000
20,000
5,500
31 Dividends..................................................
Cash.................................................
Chapter 2
2,500
2,500
(continued) P 2-61A
Req. 2
Cash
23,000
1,900
19,000
7,000
14,000
700
5,500
2,500
38,400
Accounts Payable
700
1,100
400
Notes Payable
28,000
19,000
47,000
Req. 3
Cash: $38,400
Total amount owed: $47,400 ($400 + $47,000)
Chapter 2
Chapter 2
(50-60 min.) P 2-62A

Req. 1
Journal
DATE
Mar.
ACCOUNT TITLES
DEBIT
2 Cash .....................................................
Common Stock...........................
37,000
3 Supplies............................................
Equipment.........................................
Accounts Payable.......................
300
3,000
4 Cash .....................................................
Service Revenue.........................
1,500
7 Land .....................................................
Cash.............................................
28,000
11 Accounts Receivable...........................
Service Revenue.........................
1,100
16 Accounts Payable................................
Cash.............................................
3,000
17 Utilities Expense..................................
Cash.............................................
110
18 Cash..................................................
Accounts Receivable.................
550
22
130
Utilities Expense..............................
Cash.........................................
Chapter 2
CREDIT
37,000
3,300
1,500
28,000
1,100
3,000
110
550
130
29
Cash...........................................
Service Revenue.........................
1,000
31
Salary Expense....................................
Cash.............................................
1,900
Dividends..............................................
Cash.............................................
2,200
31
Chapter 2
1,000
1,900
2,200
(continued) P 2-62A
Req. 2
Cash
Accounts Receivable
Mar. 2
37,000
Mar. 7
28,000
1,500
16
3,000
18
550
17
110
29
1,000
22
130
31
1,900
31
2,200
Bal.
4,710
Mar. 11
Bal.
1,100
Supplies
Mar. 3
300
Bal.
300
Land
Mar. 3
3,000
Mar. 7
28,000
Bal.
3,000
Bal.
28,000
Accounts Payable
3,000
Mar. 3
Bal.
Dividends
Mar. 31
550
550
Equipment
Mar. 16
Mar. 18
Common Stock
3,300
300
Mar. 2
37,000
Bal.
37,000
Service Revenue
2,200
Mar. 4
1,500
2,200
11
1,100
29
1,000
Bal.
Salary Expense
3,600
Utilities Expense
Chapter 2
Mar. 31
1,900
Mar. 17
110
Bal.
1,900
22
130
Bal.
240
Chapter 2
(continued) P 2-62A
Req. 3
Coutier Heating and Air Conditioning, Inc.
Trial Balance
March 31
ACCOUNT
DEBIT
CREDIT
Cash.............................................
$ 4,710
Accounts receivable...................
550
Supplies.......................................
300
Equipment...................................
3,000
Land.............................................
28,000
Accounts payable.......................
Common stock............................
Dividends....................................
300
37,000
2,200
Service revenue..........................
3,600
Salary expense...........................
1,900
Utilities expense.........................
240
Total.............................................
$40,900
$40,900
Req. 4
Total resources (assets) = $36,560 ($4,710 + $550 + $300 + $3,000 +
$28,000)
Amount owed (total liabilities) = $300
Chapter 2
Profit (net income) = $1,460 ($3,600 $1,900 $240)
Chapter 2
(40-50 min.) P 2-63A
Reqs. 1 and 2
Cash
(a)
(b)
(f)
(j)
Bal.
25,000
34,300
1,400
1,900
27,700
(c)
(e)
(h)
(k)
Accounts Receivable
31,000
2,200
100
1,600
(g)
Bal.
Supplies
(d)
Bal.
200
200
(c)
Bal.
31,000
31,000
Accounts Payable
51,000
51,000
(h)
Note Payable
(b)
Bal.
1,900
Music Equipment
Building
(a)
Bal.
2,800 (j)
900
100 (d)
(i)
Bal.
200
700
800
Common Stock
34,300
34,300
(a)
Bal.
76,000
76,000
Service Revenue
(f)
1,400
(g)
2,800
Bal.
4,200
Salary Expense
Rent Expense
Chapter 2
(e)
2,200
(k)
1,100
Bal.
2,200
Bal.
1,100
Advertising Expense
Utilities Expense
(k)
500
(i)
700
Bal.
500
Bal.
700
Chapter 2
(continued) P 2-63A
Req. 3
Self Music Services Corporation
Trial Balance
October 31, 2012
ACCOUNT
DEBIT
Cash............................................
$ 27,700
900
Supplies.....................................
200
Music equipment.......................
31,000
Building......................................
51,000
CREDIT
800
Note payable...........................
34,300
Common stock..........................
76,000
Service revenue.........................
4,200
Salary expense..........................
2,200
Rent expense.........................
1,100
Advertising expense.................
500
700
Total............................................
$115,300
Chapter 2
$115,300
(15-30 min.) P 2-64B

Dear Rachael,
This trial balance lists the accounts of the company, along with their
balances at December 31, 2012. The trial balance provides the data for
computing total assets, total liabilities, and net income or net loss.
Famous Specialties
a.
Total assets = $409,000 ($27,000 + $40,000 + $6,000 + $239,000 +

$97,000)
b.
c.
Net income = $49,000 ($160,000 $24,000 $10,000 $73,000

$4,000)
Student responses may vary.
Chapter 2
(45-60 min.) P 2-65B

Req. 1
= LIABILITIES
ASSETS
Cash
Bal.
1,050
a)
8,900
b)
6,300
c)
(4,100)
Accounts
1,350
200
i)
Bal.
7,900
3,600
Retained
Earnings
Equity Transaction
2,600
Issued stock
6,300
Service revenue
2,400
Service revenue
(4,100)
700
f)
g)
11,700
Common
Stock +
STOCKHOLDERS EQUITY
8,900
d)
e)
Land
Accounts
= Payable +
700
(200)
2,400
(1,300)
(1,000)
(1,000) Advertising expense
(2,000)
8,050
___
3,550
700
(2,000) Dividends
11,700
Chapter 2
4,500
12,500
7,000
$24,000
$24,000
Chapter 2
(continued) P 2-65B
Req. 2
Davis Resources, Inc.
Income Statement
Revenues:
Service revenue ($6,300 + $2,300)............
$ 8,700
Expenses:
Rent expense...
$1,300
Advertising expense..
1,000
Total expenses
2,300
Net income.................................................
$6,400
Req. 3
Statement of Retained Earnings
Retained earnings, May 31, 2012..............
$2,600
Add: Net income........................................
6,400
9,000
Less: Dividends.........................................
(2,000)
Retained earnings, June 30, 2012............
$7,000
Chapter 2
(continued) P 2-65B
Req. 4
Balance Sheet
June 30, 2012
ASSETS
Cash.
LIABILITIES
$8,050 Accounts payable.
Accounts receivable
3,550
Supplies..
700
Land.
$ 4,500
STOCKHOLDERS
EQUITY
11,700 Common stock..
12,500
Retained earnings....
7,000
Total stockholders equity.
19,500

Total assets...
$24,000
stockholders' equity.
Chapter 2
$24,000
(30-40 min.) P 2-66B

Req. 1
Journal
a.
DEBIT
Cash........................................................
Common Stock..............................
8,900
b.
Cash........................................................
Service Revenue...........................
6,300
c.
Accounts Payable .................................

Cash............................................
4,100
d.
Supplies .................................................
700
e.
Cash........................................................
Accounts Receivable................
200
f.
Accounts Receivable.............................
Service Revenue...........................
2,400
g.
Rent Expense.........................................
Advertising Expense..........................
Cash............................................
1,300
1,000
Dividends................................................
Cash...............................................
2,000
i.
Chapter 2
CREDIT
8,900
6,300
4,100
700
200
2,400
2,300
2,000
(continued) P 2-66B
Reqs. 2 and 3
Accounts
Cash
Receivable
Supplies
700
11,70
0
700
11,70
0
1,050
4,100
1,350
8,900
1,300
2,400
6,300
1,000
3,550
200
2,000
200
Land
8,050
Accounts
Payable
4,100
Retained
Common Stock
7,900
3,600
700
8,900
4,500
12,500
Service
Revenue
6,300
Earnings
Dividends
2,600
2,000
2,600
2,000
Advertising
Rent Expense
1,300
Expense
1,000
2,400
Chapter 2
8,700
1,300
1,000
The balances of all the accounts Cash through Common Stock agree
with the ending balances obtained in Problem 2-65B.
(40-50 min.) P 2-67B

Req. 1
Classification of Transactions
Nov
10
11
12
18
21
25
30
Chapter 2
(continued) P 2-67B
Req. 2
ASSETS
Date
Cash
Accounts
+ Receivable +
= LIABILITIES
Supplies +
Office
Equipment=
Accounts
Payable +
STOCKHOLDERS EQUITY
Common
Stock +
Retained
Earnings
Equity Transaction
Nov. 4*
5
6
7
54,000
54,000
(1,000)
Issued stock
1,000
(9,500)
17,000
7,500
10*
11*
12*
18
Bal.
4,500
21
(3,750)
25
(1,000)
30
(1,800)
36,950
4,500
Service revenue
(3,750)
___
4,500
1,000
(1,800) Dividend
17,000
Chapter 2
3,750
54,000
1,700
$59,450
$59,450
_____
*Not a transaction of the business.
Chapter 2
(continued) P 2-67B
Req. 3
DATE
Nov.
2-87
Journal
DEBIT
5 Cash...........................................................
Common Stock..............................
54,000
7 Supplies....................................................
Cash...............................................
Purchased supplies.
1,000
9 Office Equipment..................................
Cash...............................................
Purchased furniture.
17,000
Service Revenue...............................
4,500
Cash...................................................
Paid on account.
3,750
30 Rent Expense............................................
Cash...................................................
Paid rent.
1,000
31 Dividends...............................................
Cash...............................................
1,800
Chapter 2
CREDIT
54,000
1,000
9,500
7,500
4,500
3,750
1,000
1,800
Paid dividend.
2-88
(15-20 min.) P 2-68B

Req. 1
Journal
DATE
Dec
2-89
ACCOUNT TITLES
DEBIT
1 Cash...........................................................
Common Stock.................................
25,000
5 Rent Expense........................................
Cash......................................................
1,600
9 Land...........................................................
Cash...............................................
Notes Payable................................
44,500
10 Supplies....................................................
Accounts Payable.............................
1,000
Cash...................................................
650
22 Cash...........................................................
Notes Payable..................................
20,000
31 Cash...........................................................
Accounts Receivable...............................
Service Revenue..................................
13,500
5,000
31 Salary Expense.....................................
Advertising Expense............................
Cash...................................................
2,700
1,700
1,100
Chapter 2
CREDIT
25,000
1,600
8,500
36,000
1,000
650
20,000
18,500
5,500
30 Dividends..................................................
Cash...................................................
4,000
4,000
(continued) P 2-68B
Req. 2
Cash
25,000
1,600
20,000
8,500
13,500
650
2,700
1,700
1,100
4,000
38,250
Accounts Payable
650
1,000
350
Notes Payable
36,000
2-90
20,000
56,000
Req. 3
Cash:
$38,250
Total amount owed: $56,350 ($350 + $56,000)
2-91
Chapter 2
(50-60 min.) P 2-69B

Req. 1
Journal
ACCOUNT TITLES
DATE
Mar.
2-92
DEBIT
2 Cash...........................................................
Common Stock..............................
35,000
3 Supplies.................................................
Equipment.................................................
200
3,200
4 Cash...................................................
Service Revenue...........................
1,400
7 Land...........................................................
Cash...............................................
24,000
Service Revenue...............................
800
Cash...................................................
3,200
17 Utilities Expense.......................................
Cash...............................................
150
18 Cash.......................................................
400
22
170
Cash...................................................
CREDIT
35,000
3,400
1,400
24,000
800
3,200
150
400
170
29
Cash...........................................................
Service Revenue...............................
1,500
31
Salary Expense.........................................
Cash...................................................
1,800
Dividends..................................................
Cash...................................................
2,100
31
1,500
1,800
2,100
(continued) P 2-69B
Req. 2
Cash
Mar.
Accounts Receivable
35,000
Mar. 7
24,000
1,400
16
3,200
18
400
17
150
29
1,500
22
170
31
1,800
31
2,100
Bal.
6,880
Mar. 11
800
Bal.
400
Sept. 3
200
Bal.
200
Land
Mar. 3
3,200
Mar. 7
24,000
Bal.
3,200
Bal.
24,000
Accounts Payable
3,200 Mar.3
Bal.
2-93
400
Supplies
Equipment
Mar. 16
Mar. 18
Common Stock
3,400
200
Chapter 2
Mar. 2
35,000
Bal.
35,000
Dividends
Service Revenue
Mar. 31
2,100
Mar. 4
1,400
Bal.
2,100
11
800
29
1,500
Bal.
Salary Expense
Mar. 31
Bal.
2-94
1,800
1,800
Utilities Expense
Mar. 17
150
22
170
320
Bal.
3,700
(continued) P 2-69B
Req. 3
Johnson Plumbing, Inc.
Trial Balance
March 31
ACCOUNT
DEBIT
Cash............................................
$ 6,880
400
Supplies.....................................
200
Equipment..................................
3,200
Land............................................
24,000
Common stock..........................
Dividends...................................
CREDIT
200
35,000
2,100
Service revenue.........................
3,700
Salary expense..........................
1,800
320
Total............................................
$38,900
$38,900
Req. 4
Total resources (assets) = $34,680 ($6,880 + $400 + $200 + $3,200 +
$24,000)
Amount owed (total liabilities) = $200
2-95
Chapter 2
Profit (net income) = $1,580 ($3,700 $1,800 $320)
2-96
(40-50 min.) P 2-70B

Reqs. 1 and 2
Cash
Accounts Receivable
(a)
19,000 (c)
37,000
(g)
2,900 (j)
(b)
41,100 (e)
2,000
Bal.
1,800
(f)
1,600 (h)
200
(j)
1,100 (k)
1,800
Bal.
1,100
21,800
Supplies
Music Equipment
(d)
300
(c)
37,000
Bal.
300
Bal.
37,000
Building
(a)
53,000
Bal.
53,000
Accounts Payable
(h)
200 (d)
(i)
Bal.
Note Payable
300
900
1,000
Common Stock
(b)
41,100
(a)
72,000
Bal.
41,100
Bal.
72,000
Service Revenue
Salary Expense
(e)
2-97
2,000
(f)
1,600
(g)
2,900
Bal.
4,500
Advertising Expense
(k)
800
Chapter 2
Bal.
2,000
Bal.
Rent Expense
800
Utilities Expense
(k)
1,000
(i)
900
Bal.
1,000
Bal.
900
(continued) P 2-70B
Req. 3
Star Entertainment Corporation

Trial Balance
February 29, 2012
ACCOUNT
DEBIT
Cash
$ 21,800
Accounts receivable...
1,800
Supplies.
300
Music equipment.....
37,000
Building..
53,000
Accounts payable
2-98
CREDIT
1,000
Note payable.
41,100
Common stock.
72,000
Service revenue
4,500
Salary expense.
2,000
Advertising expense...
1,000
Rent expense
900
Utilities expense..
800
Total.
$118,600
$118,600
Challenge Exercises and Problem

(20-40 min.) E 2-71
a.
Total cash paid during December:

Cash
Nov. 30 Bal.
10,000
Dec. receipts
82,000 Dec. payments
Dec. 31 Bal.
X = $87,000
5,000
$10,000 + $82,000 X = $ 5,000
X = $87,000
b.
Cash collections from customers during December:

Accounts Receivable
Nov 30 Bal.
27,000
Dec. sales
on account
Dec. 31 Bal.
54,000 Dec. collections
X = $56,000
25,000
$27,000 + $54,000 X
c.
= $25,000
X = $56,000
Cash paid on notes payable during December:

Notes Payable
Nov. 30 Bal.
X = 24,000 Dec. note payments

2-99
11,000
X Dec. new borrowing

Chapter 2
32,000
Dec. 31 Bal.
$11,000 + $32,000 X = $19,000
X = $24,000
2100
19,000
(20-30 min.) E 2-72

Req. 1
Rectangle 120, Inc.

Trial Balance
August 31, 2012
Cash...
$ 3,900
7,400
Land...
34,400
Accounts payable..
$ 6,000
Note payable
5,500
Common stock
20,100
Retained earnings..
7,500
Service revenue..
9,500
Salary expense
3,300
Advertising expense.
1,100
_______
Totals.
$50,100
$48,600
Out of balance by $1,500
The correct balance of Accounts Receivable is $5,900* ($7,400

$1,500). After this correction, total debits will be $48,600 ($50,100
$1,500), the same as total credits.
Req. 2
2-101
Chapter 2
a. Total assets
$44,200 ($3,900 + $5,900* + $34,400)
b. Total liabilities
$11,500 ($6,000 + $5,500)
c. Net income
$ 5,100 ($9,500 $3,300 $1,100)
(10-15 min.) E 2-73
Burlington Co.:
Income statement
Medical expense.............
Balance sheet
Cash................................
Accounts payable..........
Gardner Hospital:
Income statement
Service revenue..............
Balance sheet
Cash................................
Accounts receivable......
November
$44,000
Nov. 30
$53,000
44,000
November
$44,000
Nov. 30
$ -044,000
December
$ -0Dec. 31
$23,000*
14,000**
December
$ -0Dec. 31
$30,000
14,000**
Explanation:
Burlingtons $44,000 expense is Gardners revenue.
Burlingtons $30,000 cash payment is Gardners cash receipt.
Burlingtons $14,000 account payable is Gardners account receivable.
__________
*$53,000 $30,000 = $23,000
**$44,000 $30,000 = $14,000
2102
(20 min.) P 2-74

Req 1.
Effect
Date
May 1
on Cash
Effect on Total
Assets
Effect on
Net Income
Understated $300
Correct
Overstated $300
2 Overstated $4,500 Overstated $4,500

5
Correct
Correct
Correct
Understated
$1,000
10
Correct
Correct
Correct
16
Correct
Correct
Overstated $2,000
25
Correct
Overstated $1,500
Correct
Req. 2.
Correct cash balance, $1,300 ($5,500 +$300 - $4,500)
Req.3.
Correct total assets, $19,000 ($25,000 - $4,500 - $1,500)
Req. 4.
Correct net income, $8,700 ($10,000 - $300 +$1,000 - $2,000)
2-103
Chapter 2
Decision Cases
(40-50 min.) Decision Case 1
Reqs. 1 and 2
Cash
Accounts Receivable
(a)
5,000 (c)
1,300
(g)
7,000 (i)
(b)
5,000 (d)
1,800
Bal.
5,800
(h)
2,500 (f)
2,000
(i)
1,200 (f)
1,200
(j)
1,000
Bal.
6,400
Supplies
(c)
Furniture
1,300
(e)
Accounts Payable
(j)
1,000 (e)
Bal.
4,400
Notes Payable
4,400
(b)
3,400
Common Stock
(a)
5,000
Service Revenue
2104
1,200
Salary Expense
(g)
7,000
(h)
2,500
Bal.
9,500
(f)
2,000
5,000
Advertising Expense
(d)
2-105
1,800
Rent Expense
(f)
1,200
Chapter 2
(continued) Decision Case 1

Req. 3
Barlow Networks, Inc.
Trial Balance
Current Date
ACCOUNT
DEBIT
Cash...
$6,400
5,800
Supplies
1,300
Furniture...
4,400
CREDIT
Accounts payable..
$ 3,400
Notes payable..
5,000
Common stock
5,000
Service revenue..
9,500
Salary expense
2,000
1,800
Rent expense...
1,200
Total...
$22,900
$22,900
Req. 4 (net income or loss for first month of operations)

Revenues:
Service revenue..................
$9,500
Expenses:
Salary expense...................
$2,000
Advertising expense...........
1,800
Rent expense......................
1,200
Total expenses..............................
2106
5,000
Net income for month..................
$4,500
Recommendation: Barlow may want to review his criteria for keeping the
business open. His criteria for remaining in operation was net income of
$5,000. His actual result was close to his goal. Perhaps he was
unrealistic in his expectations. Most businesses, large and small, incur
losses in their first months of operation. Barlow Networks actually
earned a profit! The author suggests that Barlow stick it out for another
few months, at least.
2-107
Chapter 2
(20-30 min.) Decision Case 2

Little Italy, Inc.
Income Statement
Month Ended December 31, 2012
Sales revenue..
$42,000
Cost of goods sold (expense).
22,000
Rent expense...
6,000
5,000
Total expenses
33,000
Net income
$ 9,000
Little Italy, Inc.

Balance Sheet
December 31, 2012
ASSETS
Cash..
Food inventory...
Furniture...
LIABILITIES
$ 12,000 Accounts payable

5,000
$ 8,000
OWNERS EQUITY
10,000 Common stock.

Retained earnings...
Total owners equity...
10,000
9,000*
19,000
Total liabilities
Total assets.
$27,000
and equity.
$27,000
_____
*Must solve for this amount. It is also the amount of net income, which is the only
change in retained earnings for the month.
2108
Recommendation: Do not expand this month. The business falls short of the
goals for both net income and total assets. However, Little Italy, Inc. appears
to be profitable, and assets are building toward Sophias goals. Maybe next
month.
2-109
Chapter 2
Ethical Issue 1
1. The ethical issue is whether these alternatives of financing the
business are proper from an economic, legal, and ethical standpoint.
2. The stakeholders are Scruffy Murphy, the bank, potential new
creditors, and the friend who may become a stockholder.
Option 1:
Cash.
Common Stock
100,000
Option 2:
Land.
Common Stock
100,000
Common Stock..
Land
100,000
100,000
100,000
100,000
Option 1 is economically sound, perfectly legal, and also ethical because the
sale of the stock is a valid transaction between the business and a
stockholder. The consequences of this decision are that Murphy obtains
additional financing at a cost (he now shares ownership of the business with
his friend). The friend gives up cash in exchange for an ownership interest
in the business. The bank and future creditors obtain complete and truthful
disclosure of the manner in which the business has been financed.
Option 2 represents window dressing (making the company look like an
entity that it is not). Although it might be legal in the strictest sense of the
word (and it might not), this option does not faithfully represent economic
reality. Thus, it is not in accordance with GAAP, which is a substitute for the
legal criterion. This option is also unethical because the receipt of the land
by the business is not a real transaction. The transfer of the land back to
2-110
Murphy means that the business never actually has the land for its use. It
violates the rights of the bank and future creditors to give them information
that is inaccurate and that does not faithfully represent economic reality.
2-111
Chapter 2
The best option to take is definitely Option 1. The decision maker can walk
away from this transaction confident that he or she told the truth. Ethical
Issue 2
Part A.
1. The ethical issue is whether you should question your grade, which is
higher than you expected. Your choices are (a) discuss the grade with the
professor; and (b) do not discuss the grade with the professor.
2, 3. Stakeholders are you, the professor, the other students in the class, and
the university. The possible consequences to you of discussing the grade
with the professor is that it may lead to the discovery that the professor
made a mistake in calculating the grade, which may lead to a downward
adjustment. While this could possibly have adverse economic
consequences (i.e., perhaps loss of scholarship if the is substantially
lowered), it is unlikely that a letter-grade drop in one course would have such
an impact on grade point average as to cause loss of a scholarship. There is
no legal consequence to reporting a grade that is too high. The ethical
consequence is generally positive on all concerned, as it leads to
clarification of the true grade.
4. Student opinions will vary on this part.
Part B.
2-112
1. The ethical issue in this case is whether you should question your grade,
which is now lower than you expected. Your choices are (a) discuss the
grade with the professor; and (b) do not discuss the grade with the
professor.
2, 3. Like part a, the stakeholders are you, the professor, the other students
in the class, and the university. The possible consequences to you of
discussing the grade with the professor is that it may lead to the discovery
that the professor made a mistake in calculating the grade, which may lead
(continued) Ethical Issue 2
to an upward adjustment. This could have positive economic consequences

(i.e., perhaps keeping a scholarship). Like part a, the ethical consequence of
this action is generally positive on all concerned, as it leads to clarification
of the true grade.
4. Most students would probably respond take it to the professor. But

shouldnt we be just as concerned about knowing the true grade either way?
The author recommends discussing the grade with the professor one way or
the other.
Part C.
Both course grades and financial statements report results that people use
in order to make decisions that can carry both positive and negative
2-113
Chapter 2
consequences. In both situations, it is important that the user receive

relevant information, and that the information faithfully represent facts as
they actually occurred.
Focus on Financials: Amazon.com, Inc.

(20-30 min.)
Reqs. 1 and 3
(All amounts in millions)
2-114
(continued) Amazon.com, Inc.

Req. 2
(Millions)
34,204
34,204
a.
Accounts Receivable, net .............................

Net Sales (Revenue)..............................
b.
Cash................................................................
Accounts Receivable, net.....................
33,605
c.
Inventories......................................................
27,592
d.
Cost of Sales..................................................
Inventories.............................................
26,561
e.
Accounts Payable..........................................
Cash.......................................................
25,146
f.
Operating Expenses......................................
Cash.......................................................
6,237
g.
Cash................................................................
Non-operating income..........................
91
h.
Provision for income taxes...........................

Cash.......................................................
352
Other Assets...................................................
Equity Method Investment Activity, net
i.
2-115
Chapter 2
33,605
27,592
26,561
25,146
6,237
91
352
j.
Fixed Assets...................................................
Other assets...................................................
Cash.......................................................
1,124
504
1,628
(continued) Amazon.com, Inc.
Req. 4
All the selected account balances except other assets agree with
Amazon.com, Inc.s actual figures on the income statement or the
balance sheet.
Req. 5
Revenue:
(Millions)
Net sales ....................................................
$34,204
Non-operating income, net......................
91
Equity method investment activity, net. . .
Total revenue.......................................................
34,302
Expenses:
Cost of sales............................................... $26,561
2-116
Operating (expenses)................................
6,237
Provision for income taxes.......................
352
Total expenses....................................................
33,150
Net income..................................................
$1,152
2-117
Chapter 2
Focus on Analysis: RadioShack, Corp.

(20-30 min.)
Req. 1
During fiscal 2010, RadioShack, Corp. had more sales than cash
collections. This is determined by analyzing net receivables, as follows:
Net receivables (from Note 3):
(Millions)
Balance at the end of fiscal 2009 ................................

+ Sales during fiscal 2010(from consolidated
49.1
4,472.7
statement of operations) .............................................

Collections from customers during fiscal 2007 ........
= Balance at the end of fiscal 2010.................................
(X)
$
57.6
Solving for X, collections were $4,464.2 (49.1 + 4,472.7 57.6). Another

way to express this relationship is that when accounts receivable
increase during the year, sales must exceed cash collections.
If
accounts receivable decrease during the year, cash collections must

exceed sales.
(continued) RadioShack Corp.

Req. 2
2-118
Sales increased slightly in 2009 but increase more substantially in 2010

perhaps due to a better economy. Net income increased more
dramatically in 2009 and only slightly in 2010 largely due to an increase
in Cost of Goods Sold and Selling, General, and Administrative
Expenses.
2010
2009
2008
$4,472.7
$4,276.0
$4,224.5
$ change
196.7
51.5
Percentage change
4.60%
1.22%
Net income (millions)
$206.1
$205.0
1.1
15.6
0.54%
8.24%
Net sales (millions)
$ change
Percentage change
$189.4
Group Projects
Student responses will vary.
2-119
Chapter 2

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Chapter 2

$13,400 ($11,000 + $2,400 + $5,500 $5,500)

(5-10 min.) S 2-3

(5-10 min.) S 2-5

Purchase of asset for cash

(Answers may vary.)

(10 min.) S 2-6

(10-15 min.) S 2-7

(10-15 min.) S 2-8

Financial Accounting 8/e Solutions Manual

(10 min.) S 2-9

Old Harbors net income: $5 million ($19 $14)

(10 min.) S 2-10

= $91,000 ($4,500 + $18,000 + $2,500 +

Total liabilities = $47,000 ($25,000 + $22,000)

= $18,000 ($53,600 $25,000 $9,000 $1,600)

Financial Accounting 8/e Solutions Manual

(10 min.) S 2-11

$ 86,100 ($126,600 + $4,500 $45,000)

$ 40,500 ($126,600 $86,100);

$40,500 / 9 = $4,500 (an integer), which suggests either a transposition

$189,600 ($126,600 + $81,000 $18,000)

$ 63,000 ($189,600 $126,600);

$63,000 / 9 = $7,000 (an integer), which suggests either a transposition

$108,600 ($126,600 $18,000)

$144,600 ($126,600 + $18,000)

$ 36,000 ($144,600 $108,600)

$36,000 / 2 = $18,000 (original amount of accounts receivable).

(10 min.) S 2-12

$160,000 ($100,000 + $60,000)

$160,000 ($100,000 + $60,000)

Financial Accounting 8/e Solutions Manual

*$94,000 + $122,000 = $216,000

No effect on total assets. Increase in cash offsets the decrease in

No effect (a personal transaction)

No effect on total assets. Increase in cash offsets the decrease in

Increased assets (cash)

No effect on total assets. Increase in land offsets the decrease in

Increased assets (cash)

Decreased assets (cash)

Increased assets (equipment)

Increased assets (merchandise inventory)

Decreased assets (cash)

Financial Accounting 8/e Solutions Manual

(10-20 min.) E 2-16A

Not a transaction of the business.

(1,300) Salary expense

(700) Rent expense

(500) Utilities expense

$12,900 ($900 + $12,000)

$44,100 ($57,000 $12,900, or $39,000 + $5,100)

$5,100 (Revenue, $7,600 minus expenses,$2,500 equals net

Transaction Analysis 2-13

Medical Supplies........................................ 1,700

Not a transaction of the business.

15-31 Cash............................................................ 3,800

Accounts Payable...................................... 800

Financial Accounting 8/e Solutions Manual

(10-20 min.) E 2-18A