CHAPTER 3

Exercise 1:
Jake Chinley has prepared the following list of statements about accounts
1. An account is an accounting record of either a specific asset or a specific stockholders’
equity item. => F
- An account records information regarding the assets, liabilities, expenses, revenues,
dividends, and the stockholders' equity.

2. An account shows both increases and decreases in the item it relates to. => T

3. Some items, such as Accounts Payable and Accounts Receivable, are combined
into one account. => F
Accounts Payable and Accounts Receivable are NOT combined into one account.

4. An account has a left, or debit side, and a right, or credit side. => T

5. A simple form of an account consisting of just the account title, and one column, is
called a T account . => F
- Two columns
- T-account includes the title, or the name of the account, 2 columns: the debit side, and the
credit side
Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.

Exercise 2:

Ho Siah has prepared the following list of statements about the general ledger.

1. The general ledger contains all the liability and Stockholders’ equity accounts, but
no asset accounts. => F
The general ledger contains all the accounts for recording transactions relating to a company's
assets, liabilities, owners' equity, revenue, and expenses.
2. The general ledger is sometimes referred to as simply the journal. => F
- journal: step 1 (double entry)
- general ledger: step 2 (posting to T-acc)

3. The accounts in the general ledger are arranged in alphabetical order. => F
The general ledger contains a page for all accounts in the chart of accounts arranged by account
categories: assets => liabilities=> Stockholders’ equity, revenue, expense

4. Each account in the general ledger is numbered for easier

identification. . . => T

5. The general journal is a book of original entry. . . => T

Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.

Exercise 3:

Selected transactions for T. Carter Inc., an interior decorating firm, in its first month of
business, are as follows.
Jan. 2 Invested $20,000 cash in business in exchange for common stock.
3 Paid $500 cash for advertising.
9 Purchased equipment for $7,000 cash.
11 Billed customers $2,300 for services performed.
16 Purchased supplies on account for $700.
20 Received $1,100 cash from customers billed on January 11.
23 Paid creditor $400 cash on balance owed.
28 Declared and paid a $1,200 cash dividend.
Instructions: Journalize the transactions

Date Accounts titles Debit Credit

Jan.2 Dr cash 20,000
Cr Common stock 20,000

Jan.3 Dr Advertising expense 500

Cr Cash 500

Jan.9 Dr equipment 7,000

Cr cash 7,000

Jan.11 Account receivable 2300

Dr Retained earning 2300

Jan.16 Dr supplies 700

Cr Account payable 700

Jan.20 Dr cash 1,100

Cr Account receivable 1,100

Jan.23 Dr Note payable 400

Cr Cash 400

Jan.28 Dividend 1,200

Cash 1,200
Exercise 4:
Presented below is the ledger for Hurley Co.
Instructions

(a) Reproduce the journal entries for the transactions that occurred on October 1, 10, and

20, and provide explanations for each.

Date (2008) Account Titles Debit Credit

 1/10 Cash 6500
Common stock
6500
(Invested $6,500 cash in business
in exchange for common stock. )

10/10 (1) Cash 800

Service Revenue
800
( Receive $800 cash from customer
for service)

(2) Cash 3000

Note Payable
3000
(Received $3,000 from
Bank—money borrowed on a note
payable. )

20/10 (1)Cash 450

Account receivable 450
(Received $450 cash from
customers billed)

(2) Account receivable 1070

Service revenue 1070
(Billed customers $1070 for
services performed.)
or (Earned $1,070 for services to
customers on account)

(b) Determine the October 31 balance for each of the accounts above, and prepare
a trial balance at October 31, 2008.
Closing Balance = Opening Balance + Increase - Decrease
Cash account
= 6,500+ 800+ 3,000+ 450+ 2,000-( 400+ 1,500+ 250 + 300+ 500) =9,800
Account Receivable = 800 + 1070 - 450 = 1,420
Supplies = 400
Furniture = 2,000
Note Payable = 3,000
Accounts Payable =2,000 - 1,500 = 500
Common stock= 6,500 + 2,000 = 8,500
Dividends = 300
Service Revenue = 800 +800 + 1,070 = 2,670
Store Wages Expense = 500
Rent Expense = 250

Trial Balance
October 31, 2008

Debits Credits

Cash 9,800

Accounts Receivable 1,420

Supplies 400

Furniture 2,000

Note Payable 3,000

Accounts Payable 500

Common Stock 8,500

Dividends 300

Service Revenue 2,670

Store Wages Expense 500

Rent Expense 250

Total 14,670 14,670

Exercise 5:
The bookkeeper for Sam Hurd Equipment Repair made a number of errors in
journalizing and posting, as described below.
1. A credit posting of $500 to Accounts Receivable was omitted. ( not balance, Cr less
than Dr 500) ( dr >cr)

2. A debit posting of $750 for Insurance Expense was debited to Prepaid Insurance. (
balance,- but used wrong account)
3. A collection from a customer of $200 in payment of its account owed was posted as a
debit to Cash $200 and a debit to Service Revenue $200. ( not bal, Cr less than DR 400)

4. A debit posting of $400 to Property Taxes Payable was made twice. (Cr less than Dr 400
)
5. A cash purchase of supplies for $250 was journalized and posted as a debit to
Supplies $25 and a credit to Cash $25. (bal) nhưng ghi sai số tiền 250 ghi thành 25
6. A debit of $594 to Advertising Expense was posted as $549. ( Dr less than Cr 45) ghi sai
số tiền 594 thành 549 not bal

Instructions
For each error:
(a) Indicate whether the trial balance will balance.
(b) If the trial balance will not balance, indicate the amount of the
difference. (c) Indicate the trial balance column that will have the
larger total.

Exercise 6:

The accounts in the ledger of Saget Delivery Service contain the following balances on
July 31, 2008.
Instructions
Prepare a trial balance with the accounts arranged as illustrated in the chapter and
fill in the missing amount for Cash.

Trial Balance
October 31, 2008

Debits Credits

Cash 9,910

Accounts Receivable 4,220

Delivery Equipment 30,000

Prepare Insurance 1,190

Note Payable 11,000

Accounts Payable 5,110

Salaries Payable 490

Common Stock 20,000

Retained Earnings 6,780

Dividends 420

Service Revenue 6,360

Gas and Oil Expense 450

Insurance Expense 310

 Repair Expense 580

Salaries Expense 2,660

Total 49,740 49,740

Cash = 49,740 - 4,220- 30,000 - 1,190 - 420 - 450 - 310 - 580 - 2,660 = 9910

Exercise 7:

Hyzer Disc Golf Course was opened on March 1 by Barry Schultz and Associates. The
following selected events and transactions occurred during March:
Mar. 1. Stockholders invested $20,000 cash in the business in exchange for common
stock.
Mar 3. Purchased Heeren’s Golf Land for $15,000 cash. The price consists of land
$12,000, shed $2,000, and equipment $1,000. (Make one compound entry.)
Mar 5. Advertised the opening of the driving range and miniature golf course,
paying advertising expenses of $700.
Mar 6. Paid cash $600 for a one-year insurance policy.
Mar 10. Purchased golf discs and other equipment for $1,050 from Innova Company
payable in 30 days.
Mar 18. Received $340 in cash for golf fees earned.
Mar 19. Sold 100 coupon books for $10 each. Each book contains 4 coupons that
enable the holder to play one round of disc golf.
Mar 25. Declared and paid a $800 cash dividend.
Mar 30. Paid salaries of $250.
Mar 30. Paid Innova Company in full.
Mar 31. Received $200 cash for fees earned.
Barry Schultz uses the following accounts: Cash, Prepaid Insurance, Land, Buildings,
Equipment, Accounts Payable, Unearned Revenue, Common Stock, Dividends, Golf
Revenue, Advertising Expense, and Salaries Expense.
Instructions
Journalize the March transactions.
 Date Account Titles Debits ($) Credits ($)

Mar.1 Cash 20,000

Common Stock 20,000

Mar.3 Land 12,000

Building 2,000
Equipment 1,000
Cash 15,000

Mar.5 Advertising Expense 700

Accounts Payable 700

Mar.6 Prepaid Insurance 600

Cash 600

Mar.10 Equipment 1,050

Accounts Payable 1,050

Mar.18 Cash 340

Golf revenue 340

Mar.19 Cash 1,000

Unearned Revenue 1,000

Mar.25 Dividends 800

Cash 800

Mar.30 (1) Salaries Expense. 250

Cash 250

(2) Accounts Payable 1,050

Cash 1,050
Mar.31 Cash 200
Golf Revenue 200

Exercise 8:
Slowhand Services was formed on May 1, 2008. The following transactions took place
during the first month.
Transactions on May 1:
1. Stockholders invested $50,000 cash in the company, in exchange for stock.
2. Hired two employees to work in the warehouse. They will each be paid a salary of
$2,800 per month.
3. Signed a 2-year rental agreement on a warehouse; paid $24,000 cash in advance for
the first year.
4. Purchased furniture and equipment costing $30,000. A cash payment of $10,000
was made immediately; the remainder will be paid in 6 months.
5. Paid $1,800 cash for a one-year insurance policy on the furniture and
equipment. Transactions during the remainder of the month:
6. Purchased basic office supplies for $500 cash.
7. Purchased more office supplies for $1,500 on account.
8. Total revenues earned were $20,000—$8,000 cash and $12,000 on account.
9. Paid $400 to suppliers for accounts payable due.
10. Received $3,000 from customers in payment of accounts receivable.
11. Received utility bills in the amount of $200, to be paid next month.
12. Paid the monthly salaries of the two employees, totaling of $5,600.
Instructions
(a) Prepare journal entries to record each of the events listed.

Date Account Titles Debits ($) Credits ($)

1 Cash 50,000
Common Stock 50,000
2 No entries

3 Rent Expense 24,000

Cash 24,000

4 Furniture and Equipment 30,000

Cash 10,000
Account Payable 20,000

5 Prepaid Insurance 1,800

Cash 1,800

6 Supplies 500
Cash 500

7 Supplies 1,500
Accounts Payable 1,500

8 Cash 8,000
Accounts Receivable 12,000
Earned Revenue 20,000

9 Accounts Payable 400

Cash 400

10 Cash 3,000
Accounts receivable 3,000

11 Utility Expense 200

Accounts Payable 200

12 Salaries Expense 5,600

Cash 5,600

(b) Post the journal entries to T accounts.

Closing Balance = Opening Balance + Increase - Decrease

Cash
1. 50,000 3. 24,000
7. 8,000 4. 10,000
10. 3,000 5. 1,800
6. 500
Closing balance 18,700 9. 400
12. 5,600

61,000 61,000

Accounts Receivable

7. 12,000 10. 3,000

Closing balance 9000

12,000 12,000

Furniture and Equipment

4. 30,000
Closing balance 30,000

30,000

Supplies

6. 500
7. 1,500
Closing balance 2,000

2,000
 Prepaid Insurance

5. 1,800
Closing balance 1,800

1,800

Accounts Payable

9. 400 4. 20,000
7. 1,500
11. 200
Closing balance 21,300

21,700 21,700

Common Stock

1. 50,000
Closing balance 50,000

50,000

Earned Revenue

8. 20,000
Closing balance 20,000
 20,000

Rent Expense

3. 24,000
Closing balance 24,000

24,000

Utility Expense

11. 200
Closing balance 200

200

Salaries Expense

12. 5,600
Closing balance 5,600

5,600

(c) Prepare a trial balance as of May 31, 2008.

Trial Balance
May 31, 2008

Debits Credits

Cash 18,700
Accounts Receivable 9,000

Furniture and Equipment 30,000

Supplies 2,000

Prepare Insurance 1,800

Accounts Payable 21,300

Common Stock 50,000

Earned Revenue 20,000

Rent Expense 24,000

Utility Expense 200

Salaries Expense 5,600

Total 91,300 91,300

(c) Prepare a trial balance as of May 31, 2008.

Exercise 9:
The trial balance of Syed Moiz Co. shown below does not balance.
Each of the listed accounts has a normal balance per the general ledger. An
examination of the ledger and journal reveals the following errors.
1. Cash received from a customer in payment of its account was debited for $480, and
Accounts Receivable was credited for the same amount. The actual collection was for
$840. 2. The purchase of a computer on account for $620 was recorded as a debit to
Supplies for $620 and a credit to Accounts Payable for $620.
3. Services were performed on account for a client for $890. Accounts Receivable was
debited for $890, and Service Revenue was credited for $89.
4. A debit posting to Salaries Expense of $700 was omitted.
5. A payment of a balance due for $306 was credited to Cash for $306 and credited to
Accounts Payable for $360.
6. The payment of a $600 cash dividend was debited to Salaries Expense for $600 and
credited to Cash for $600.
Instructions
Prepare a correct trial balance.