Chapter 2 – The Accounting Cycle: During the Period

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Exercise 2-3 Balance the accounting equation Exercise 2-3
Exercise 2-5 Understand the effect of debits and credits on accounts Exercise 2-5
Exercise 2-8 Record transactions Exercise 2-8
Exercise 2-9 Analyze T-accounts Exercise 2-9
Exercise 2-10 Analyze the impact of transactions on the accounting equation, Exercise 2-10
record transactions, and Post
Exercise 2-11 Prepare a trial balance Exercise 2-11
Exercise 2-15 Post transactions to T-accounts Exercise 2-15
Exercise 2-17 Prepare a trial balance Exercise 2-17
Exercise 2-18 Prepare a trial balance Exercise 2-18
Exercise 2-19 Record transactions, post to T-accounts, and prepare a trial Exercise 2-19
balance
Exercise 2-20 Record transactions, post to T-accounts, and prepare a trial Exercise 2-20
balance

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 Exercise 2-3
1- Asset increase and Stockholders’ equity increases.
2- No effect on the accounting equation.
3- One asset (equipment) increases and another asset (cash) decreases.
4- Assets increase and Liabilities increase.
5-Assets increase and Liabilities increase.
6- Asset increase and Stockholders’ equity increases.
7- Assets decrease and Stockholders’ equity decreases
Secure Data Corporation plans to own and operate a data backup facility for
technology companies. For the first month of operations, the company had the
following transactions.
1. Issue 20,000 shares of common stock for $50,000 cash.
2. Hire two employees for $1,500 per month.
3. Purchase equipment for $15,000 cash.
4. Purchase facility for $25,000. A note payable is signed for this amount.
5. Purchase office supplies for $1,500 on account.
6. Receive cash of $10,000 in service fees for the current month.
7. Pay employees $3,000 for the first month’s salaries.

Required:
For each transaction, describe the dual effect on the accounting equation. For
example, in the first transaction, (1) assets increase and (2) stockholders’ equity
increases.

Analyze the impact of transactions on

the accounting equation
 Exercise 2-5
Retained earnings 1June = 17500
1. Issue common stock for cash, $15,000 = 0
2. Provide services to customers for cash, $4,000. = 4000
3. Purchase supplies and pay cash, $2,000. =0
4. Provide services to customers on account, $6,000. =6000
5. Pay advertising expense, $900. =900
6. Pay salaries for June, $3,500.=3500
7. Pay dividends for June, $1,800. = 1800
Retained earnings 30June =21300
At the beginning of June, Mentor Corporation has a balance of $17,500 in the
Retained Earnings account. During the month of June, Mentor had the following
external transactions.
1. Issue common stock for cash, $15,000.
2. Provide services to customers for cash, $4,000.
3. Purchase supplies and pay cash, $2,000.
4. Provide services to customers on account, $6,000.
5. Pay advertising expense, $900.
6. Pay salaries for June, $3,500.
7. Pay dividends for June, $1,800.

Required:
Using the external transactions above, compute the balance of Retained Earnings
as of June 30.

Understand the components of

retained earnings
 Exercise 2-8
Debit Credit
(1)Supplies 400
Accounts Payable 400
(2) Equipment 15000
Cash 15000
(3) Accounts Receivable 8000
Service Revenue 8000
(4) Salaries Expense 2400
Cash 2400
(5) Advertising Expense 500
Cash 500
Terabyte Corporation engages in the following transactions for December.

1. Purchase office supplies on account for $400.

2. Purchase equipment in exchange for cash of $15,000.
3. Provide services worth $8,000 to customers on account.
4. Pay employees’ salaries of $2,400 for the current month.
5. Purchase advertising for the current month for $500 cash.

Required:
Record the transactions. Terabyte uses the following accounts: Cash, Supplies,
Equipment, Accounts Payable, Accounts Receivable, Service Revenue, and
Advertising Expense

Record transactions
 Exercise 2-9
1- Purchase supplies on account for 800
2- Receive cash of 3000 in service fees for the current month
3-Pay rent expense 600
4- Pay dividends 500
5-Provide services 2000 to customers on account.
Below are recorded transactions of Blue Valley Corporation for June.

Debit Credit
(1) Supplies 800
Cash 800
(2) Cash 3,000
Deferred Revenue 3,000
(3) Rent Expense 600
Cash 600
(4) Dividends 500
Cash 500
(5) Accounts Receivable 2,000
Service Revenue 2,000

Required:
Provide an explanation for each transaction.

Identify transactions
Exercise 2-10
Element Design Studio has the following transactions during the month of March.

March 5 Purchase supplies of $1,500 on account.

March 11 Provide services of $4,300 to customers and receive cash.
March 21 Pay utility bill for the current month of $450.
March 25 Provide services of $1,800 to customers on account.
March 28 Pay workers’ salaries for the current month of $3,800.
March 30 Pay the current month’s rent of $1,200.

Required:
Record each transaction. Element Design uses the following accounts: Cash,
Accounts Receivable, Supplies, Accounts Payable, Service Revenue, Rent Expense,
Salaries Expense, and Utilities Expense.

Record transactions
Exercise 2-11
Bobcat Construction begins operations in March and has the following
transactions.

March 1 Issue common stock for $25,000.

March 5 Purchase office equipment for $5,000 cash.
March 10 Paid rent on office space for the month, $4,500.
March 15 Secured a bank loan to finance construction equipment, $30,000.
March 22 Provide construction services for $15,000 on account.
March 27 Pay salaries for the current month of $6,000.
March 28 Receive $15,000 cash from customers on account.

Required:
Record each transaction. Bobcat uses the following accounts: Cash, Accounts
Receivable, Notes Payable, Common Stock, Service Revenue, Advertising Expense,
and Salaries Expense.

Record transactions
Exercise 2-15
Consider the recorded transactions below.

Debit Credit
(1) Supplies 800
Accounts Payable 800
(2) Accounts Receivable 4,000
Service Revenue 4,000
(3) Rent Expense 800
Cash 800
(4) Cash 6,000
Accounts Receivable 6,000
(5) Cash 2,000
Deferred Revenue 2,000
(6) Accounts Payable 1,500
Cash 1,500

Required:
Post each transaction to T-accounts and compute the ending balance of each
account. The beginning balance of each account before the transactions is: Cash,
$3,000; Accounts Receivable, $2,500; Supplies, $400; Accounts Payable, $1,000;
Deferred Revenue, $500. Service Revenue and Rent Expense each have a
beginning balance of zero. Post transactions to T-
accounts
Exercise 2-17
Below is the complete list of accounts of Raider Corporation and the related
balance at the end of July. All accounts have their normal debit or credit balance.

Cash, $4,000; Prepaid Insurance, $7,000; Accounts Payable, $20,000; Common

Stock, $40,000; Service Revenue, $30,000; Salaries Expense, $8,000; Accounts
Receivable, $4,500; Land, $90,000; Deferred Revenue, $5,000; Retained Earnings,
$25,000; Utilities Expense, $6,500.

Required:
Prepare a trial balance with the list of accounts in the following order: assets,
liabilities, stockholders’ equity, revenues, and expenses.

Prepare a trial balance

Exercise 2-18
Below is the complete list of accounts of Winner Company and the related
balance at the end of January. All accounts have their normal debit or credit
balance.

Equipment, $13,000; Buildings, $45,000; Salaries Payable, $1,000; Common Stock,

$30,000; Accounts Payable, $4,000; Supplies Expense, $2,500; Prepaid Rent,
$1,500; Service Revenue, $22,000; Accounts Receivable, $5,000; Cash, $3,000;
Salaries Expense, $5,000; Retained Earnings, $18,000.

Required:
Prepare a trial balance with the list of accounts in the following order: assets,
liabilities, stockholders’ equity, revenues, and expenses.

Prepare a trial balance

Exercise 2-19
Secure Data Corporation owns and operates a data backup facility for technology
companies. For the first month of operations, the company had the following
transactions.

1. Issue 20,000 shares of common stock for $50,000 cash.

2. Hire two employees with each earning $1,500 per month.
3. Purchase equipment for $15,000 cash.
4. Purchase land for $25,000. A note payable is signed for this amount.
5. Purchase office supplies for $1,500 on account.
6. Receive cash of $10,000 in service fees earned during the month.
7. Pay employees $3,000 for wages earned during the month.

Required:
8. Record a journal entry for each transaction. Secure Data uses the following
accounts: Cash, Supplies, Land, Equipment, Common Stock, Accounts Payable,
Notes Payable, Service Revenue, and Salaries Expense.
9. Post each transaction to T-accounts and compute the ending balance of each
account. Since this is the first month of operations, all T-accounts have a beginning
balance of zero
10. After calculating the ending balance of each account, prepare a trial balance.
Record transactions, post to T-
accounts, and prepare a trial
balance
Exercise 2-20
Shoestring Interior incurs the following transactions for June.
1. Provide design services in the current month for $10,000 on account.
2. Purchase design equipment for $12,000 cash.
3. Purchase office supplies on account for $800.
4. Pay workers’ salaries of $5,000 for the current month.
5. Purchase advertising to appear in the current month for $1,000 cash.
6. Pay office rent of $2,500 for the current month.
7. Receive $5,000 from customers who previously bought services on account.
8. Receive $2,000 in advance from a customer to design interiors in July.

Required:
9. Record each transaction. Shoestring uses the following accounts: Cash, Accounts
Receivable, Supplies, Equipment, Accounts Payable, Deferred Revenue, Common
Stock, Retained Earnings, Service Revenue, Salaries Expense, Advertising Expense,
and Rent Expense.
10. Post each transaction to T-accounts and compute the ending balance of each
account. At the beginning of September, the company had the following account
balances: Cash, $25,000; Accounts Receivable, $2,000; Supplies, $500; Equipment,
$8,000; Accounts Payable, $1,500; Common Stock, $25,000; Retained Earnings,
$9,000. All other accounts had a beginning balance of zero.
11. After calculating the ending balance of each account, prepare a trial balance.
Record transactions, post to T-
accounts, and prepare a trial
balance