EXERCISES

Exercise 2-1 Steps in analyzing and recording transactions

Order the following steps in the accounting process that focus on analyzing and recording transactions.

a. Prepare and analyze the trial balance. 

b. Analyze each transaction from source documents.

c. Record relevant transactions in a journal. 

d. Post journal information to ledger accounts.

Exercise 2-2 Identifying and classifying accounts

Enter the number for the item that best completes each of the descriptions below.

1. Asset

2. Equity

3. Account

4. Liability

5. Three

a. Balance sheet accounts are arranged into _______ general categories.

b. Common Stock and Dividends are examples of _______ accounts.

c. Accounts Payable and Note Payable are examples of _______ accounts.

d. Accounts Receivable, Prepaid Accounts, Supplies, and Land are examples of _______ accounts.

e. A(n) _______ is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.

Exercise 2-4 Identifying type and normal balances of accounts

For each of the following,

(1) identify the type of account as an asset, liability, equity, revenue, or expense;

(2) identify the normal balance of the account; and

(3) enter debit (Dr.) or credit (Cr.) to identify the kind of entry that would increase the account balance.

a. Land

b. Cash

c. Legal Expense

d. Prepaid Insurance

e. Accounts Receivable

f. Dividends

g. License Fee Revenue

h. Unearned Revenue

i. Fees Earned

j. Equipment

k. Notes Payable

I. Common Stock

Exercise 2-7 Preparing general journal entries

Prepare general journal entries for the following transactions of a new company called Pose-for-Pics. Use the following (partial) chart of accounts: Cash; Office Supplies; Prepaid Insurance; Photography Equipment; Common Stock; Photography Fees Earned; and Utilities Expense.

Aug.

1 Madison Harris, the owner, invested $6,500 cash and $33,500 of photography equipment in the company in exchange for common stock.

2 The company paid $2,100 cash for an insurance policy covering the next 24 months.

5 The company purchased office supplies for $880 cash.

20 The company received $3,331 cash in photography fees earned.

31. The company paid $675 cash for August utilities.

Exercise 2-17 Preparing a statement of retained earnings

Use the information in Exercise 2-16 to prepare an August statement of retained earnings for Help Today. The Retained Earnings account balance at August 1 was $0. Hint: Net income for August is $10,470.

Problem 2-3A Preparing and posting journal entries; preparing a trial balance

Denzel Brooks opened a web consulting business called Venture Consultants and completed the following transactions in March.

Mar.

1 Brooks invested $150,000 cash along with $22,000 in office equipment in the company in exchange for common stock.

2 The company prepaid $6,000 cash for six months' rent for an office. Hint: Debit Prepaid Rent for $6,000.

3 The company made credit purchases of office equipment for $3,000 and office supplies for $1,200. Payment is due within 10 days.

6 The company completed services for a client and immediately received $4,000 cash.

9 The company completed a $7,500 project for a client, who must pay within 30 days.

12 The company paid $4,200 cash to settle the account payable created on March 3.

19 The company paid $5,000 cash for the premium on a 12-month insurance policy. Hint: Debit Prepaid Insurance for $5,000.

22 The company received $3,500 cash as partial payment for the work completed on March 9.

25 The company completed work for another client for $3,820 on credit.

29 The company paid a $5,100 cash dividend.

30 The company purchased $600 of additional office supplies on credit.

31 The company paid $500 cash for this month's utility bill.

Required

1. Prepare general journal entries to record these transactions (use the account titles listed in part 2).

2. Open the following ledger accounts—their account numbers are in parentheses (use the balance column format): Cash (101); Accounts Receivable (106); Office Supplies (124); Prepaid Insurance (128); Prepaid Rent (131); Office Equipment (163); Accounts Payable (201); Common Stock (307); Dividends (319); Services Revenue (403); and Utilities Expense (690). Post the journal entries from part 1 to the ledger accounts and enter the balance after each posting.

3. Prepare a trial balance as of the end of March.