SOLUTIONS 3

3.1 For "T" accounts listed below, state which side represents an increase and which represents a
decrease.

Liabilities, Stockholders’ Equity,

Assets and Expense And Revenue
Dr Cr Dr Cr

SOLUTIONS

Liabilities, Stockholders’ Equity,

Assets and Expense And Revenue
Dr Cr Dr Cr
Increase Decrease Decrease Increase

3.2 For the accounts listed below, indicate if the normal balance of the account is a debit or credit.
Accounts Normal Balance
Debit or Credit
1. Service Revenue
2. Rent Expense
3. Accounts Receivable
4. Accounts Payable
5. Capital Stock
6. Office Supplies
7. Insurance Expense
8. Dividends
9. Office Building
10. Notes Payable

SOLUTIONS
Accounts Normal Balance
Debit or Credit
1. Service Revenue Credit
2. Rent Expense Debit
3. Accounts Receivable Debit
4. Accounts Payable Credit
5. Capital Stock Credit
6. Office Supplies Debit
7. Insurance Expense Debit
8. Dividends Debit
9. Office Building Debit
10. Notes Payable Credit

3.3 For each transaction noted below, write in the appropriate column the names of the accounts to be
debited and credited.

Debit Credit
1. Issued capital stock for cash
 2. Paid salary expense
3. Purchased an auto on credit
4. Received cash
for professional services rendered
5. Paid a creditor
6. Borrowed money
from a bank issuing a note

SOLUTIONS
Debit Credit
1. Issued capital stock for cash Cash Capital Stock
2. Paid salary expense Salary Expense Cash
3. Purchased an auto on credit Car Accounts Payable
4. Received cash
Cash Service Revenues
for professional services rendered
5. Paid a creditor Accounts Payable Cash
6. Borrowed money
Cash Notes Payable
from a bank issuing a note

3.4 Record the following transactions in the accounts listed below

1. Received cash from professional services rendered, $2,500
2. Purchased furniture for $1,000, making a down payment of 30%
3. Incurred telephone expense on account, $100
4. Paid $400 to creditors

Cash Accounts payable

Furniture Fee Income

Telephone Expense

SOLUTIONS

Cash Accounts payable

(2) 300 (2) 700
(1) 2,500 (4) 400
(4) 400 (3) 100
Furniture Fee Income
(2) 1,000 (1) 2,500

Telephone Expense
(3) 100
3.5 Journalize the following business transactions in general journal form. Identify each transaction
by number. You may omit explanations of the transactions.
1. Stockholders invest $25,000 in cash in starting a business as a corporation.
2. Purchased $500 of office supplies on credit.
3. Purchased office equipment for $6,000, paying $3,500 in cash and wrote a 30-day, $2,500, note
payable.
4. Service commissions billed to clients amount to $4,000.
5. Paid $700 in cash for the current month’s rent.
6. Paid $250 cash on account for office supplies purchased in transaction 2.
7. Received a bill for $500 for advertising for the current month.
8. Paid $2,500 cash for office salaries.
9. Paid $1,200 cash dividends to stockholders.
10. Received a check for $3,000 from a client in payment on account for commissions billed in
transaction 4.

SOLUTIONS

1. Stockholders invest $25,000 in cash in starting a business as a corporation.

Dr. Cash 25,000
Cr. Capital Stock 25,000

2. Purchased $500 of office supplies on credit.

Dr. Office Supplies 500
Cr. Accounts Payable 500

3. Purchased office equipment for $6,000, paying $3,500 in cash and wrote a 30-day, $2,500, note
payable.
Dr. Office Equipment 6,000
Cr. Cash 3,500
Notes Payable 2,500

4. Service commissions billed to clients amount to $4,000.

Dr. Accounts Receivable 4,000
Cr. Service Revenue 4,000

5. Paid $700 in cash for the current month’s rent.

Dr. Rent Expense 700
Cr. Cash 700

6. Paid $250 cash on account for office supplies purchased in transaction 2.

Dr. Accounts Payable 250
Cr. Cash 250

7. Received a bill for $500 for advertising for the current month.
Dr. Advertising Expense 500
Cr. Accounts Payable 500

8. Paid $2,500 cash for office salaries.

Dr. Salary Expense 2,500
Cr. Cash 2,500

9. Paid $1,200 cash dividends to stockholders.

Dr. Dividends 1,200
Cr. Cash 1,200
10. Received a check for $3,000 from a client in payment on account for commissions billed in
transaction 4.
Dr. Cash 3,000
Cr. Accounts Receivable 3,000

3.6 Arrange the following accounts in proper order and prepare a trial balance.

Accounts Receivable $10,000

Postage Expense 6,000
Rent Expense 8,000
Service Revenue 30,000
Retained Earnings 12,000
Capital Stock 20,000
Notes Payable 7,000
Equipment 25,000
Copyright 9,000
Cash 11,000

SOLUTIONS

Trial Balance
Cash $11,000
Accounts Receivable 10,000
Equipment 25,000
Copyright 9,000
Notes Payable $7,000
Capital Stock 20,000
Retained Earnings 12,000
Service Revenue 30,000
Postage Expense 6,000
Rent Expense 8,000
$69,000 $69,000

3.7 Transactions for the Bongsun Company for the month of July are presented below. Journalize
each transaction and identify each transaction by number. You may omit explanations.
1. Stockholders invested an additional $36,000 cash in the business.
2. Purchased land costing $18,000 for cash.
3. Purchased equipment costing $9,000 for $4,500 cash and the remainder on credit.
4. Purchased supplies on account for $800.
5. Paid $3,000 for a one-year insurance policy.
6. Received $2,000 for services performed.
7. Received $4,000 for services previously performed on account.
8. Paid wages to employees for $2,500.
9. Paid dividends to stockholders of $400.

SOLUTIONS

1. Stockholders invested an additional $36,000 cash in the business.

Dr. Cash 36,000
Cr. Capital Stock 36,000

2. Purchased land costing $18,000 for cash.

Dr. Land 18,000
Cr. Cash 18,000
3. Purchased equipment costing $9,000 for $4,500 cash and the remainder on credit.
Dr. Land 9,000
Cr. Cash 4,500
Accounts Payable 4,500

4. Purchased supplies on account for $800.

Dr. Supplies on Hand 800
Cr. Accounts Payable 800

5. Paid $3,000 for a one-year insurance policy.

Dr. Prepaid Insurance 3,000
Cr. Cash 3,000

6. Received $2,000 for services performed.

Dr. Cash 2,000
Cr. Service Revenue 2,000

7. Received $4,000 for services previously performed on account.

Dr. Cash 4,000
Cr. Accounts Receivable 4,000

8. Paid wages to employees for $2,500.

Dr. Wage Expense 2,500
Cr. Cash 2,500

9. Paid dividends to stockholders of $400.

Dr. Dividends 400
Cr. Cash 400

3.8 The following trial balance for Larry Company was prepared by the owner, who has little
knowledge of accounting. It therefore didn't balance. Prepare a corrected trial balance.

Trial Balance
Cash $ 50,000
Notes Receivable 10,000
Accounts Payable 10,000
Building 65,000
Notes Payable $50,000
Accounts Receivable 5,000
Capital Stock 70,000
$ 135,000 $ 125,000

SOLUTIONS

Trial Balance
Cash $ 50,000
Accounts Receivable 5,000
Notes Receivable 10,000
Building 65,000
Accounts Payable 10,000
Notes Payable $ 50,000
Capital Stock 70,000
$ 130,000 $ 130,000