Chapter 2

EXERCISES

Review of the Accounting Process

Assets
+ Retained Earnings

Liabilities + Paid-in Capital

Exercise 2-1
1. +
2. +
3. +
4. +
5. 6. +
7. 8. +
9. -

800,000
15,000
60,000
270,000
360,000
210,000
20,000
15,000
15,000
180,000
190,000
190,000
2,000

Exercise 2-2

2.
3.
4.

5.
6.

(cash)
+ 800,000 (common stock)
(cash)
(equipment)
+ 45,000 (note payable)
(inventory)
+ 270,000 (accounts payable)
(accounts receivable)
+ 360,000
(inventory)
- 210,000
(cash)
- 20,000
(cash)
(prepaid insurance)
(cash)
- 180,000 (accounts payable)
(cash)
(accounts receivable)
(accumulated depreciation)
2,000

1......................................................Cash

(revenue)
(expense)
(expense)

(expense)

800,000

Common stock......................................................
800,000
Equipment................................................................. 60,000
Note payable.........................................................
45,000
Cash .....................................................................
15,000
Inventory................................................................... 270,000
Accounts payable..................................................
270,000
Accounts receivable.................................................. 360,000
Sales revenue........................................................
360,000
Cost of goods sold.................................................... 210,000
Inventory...............................................................
210,000
Rent expense............................................................. 20,000
Cash......................................................................
20,000
Prepaid insurance...................................................... 15,000
Cash......................................................................
15,000

Alternate Exercise and Problem Solutions

The McGraw-Hill Companies, Inc., 2013

2-1

7.
8.
9.

Accounts payable...................................................... 180,000

Cash......................................................................
180,000
Cash.......................................................................... 190,000
Accounts receivable..............................................
190,000
Depreciation expense................................................
2,000
Accumulated depreciation....................................
2,000
Increase (I) or

Exercise 2-3
Decrease (D)

Account

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.

Accounts receivable
Salary expense
Loss on sale of land
Prepaid insurance
Interest revenue
Common stock
Interest payable
Land
Interest expense
Gain on sale of equipment
Interest expense
Accumulated depreciation
Advertising expense
Sales revenue
Account(s) Account(s)

D
D
D
D
I
I
I
D
D
I
D
I
D
I

Exercise 2-4

Example: Purchased equipment for cash

1. Paid a cash dividend.
2. Paid insurance for the next six months.
3. Sold goods to customers on account.
4. Purchased inventory for cash.
5. Purchased supplies on account.
6. Paid employees wages for November.
7. Issued common stock in exchange for cash.
8. Collected cash from customers on account.
9. Borrowed cash from a bank and signed a note.
10. At the end of November, recorded the amount of
supplies that had been used during the month.
The McGraw-Hill Companies, Inc., 2013
2-2

Debited
2
10
8
4,16
3
6
17
5
5
5
7

Credited
5
5
5
9,3
5
1
5
12
4
11
6
Intermediate Accounting, 7/e

11.
12.

Paid Octobers interest on a bank loan.

13
Accrued interest expense for November.
18
1.................Insurance expense ($12,000 x 5/24)

5
13
2,500

Prepaid insurance ..................................................

Depreciation expense.................................................
Accumulated depreciation .....................................
Salaries expense.........................................................
Salaries payable.....................................................
Interest receivable ($50,000 x 8% x 3/12).......................
Interest revenue......................................................
Supplies .....................................................................
Supplies expense....................................................

2,500

Exercise 2-5

2.
3.
4.
5.

20,000
20,000
27,000
27,000
1,000
1,000
2,200
2,200

Exercise 2-6Requirement 1

Purchased

Supplies
4,000
Expense
6,000

12/31 Balance

8,000

11/30 Balance

Cost of supplies used = $4,000 + 6,000 - 8,000 = $2,000

Requirement 2
Prepaid rent
11/30 Balance 10,000
Expense
12/31 Balance

7,000

Rent expense for December = $10,000 7,000 = $3,000

Alternate Exercise and Problem Solutions

The McGraw-Hill Companies, Inc., 2013

2-3

Exercise 2-6 (concluded)

Requirement 3

Interest paid

Interest payable
7,000 11/30 Balance
?
2,000 Accrued interest
4,000 12/31 Balance

Cash paid during December = $7,000 + 2,000 4,000 = $5,000

Requirement 4
Unearned rent revenue
4,500 11/30 Balance
Earned for Dec. 1,500
3,000 12/31 Balance
Rent revenue recognized each month = $6,000 x 1/4 = $1,500
December 31, 2013
Unearned rent revenue....................................................
Rent revenue...............................................................

The McGraw-Hill Companies, Inc., 2013

2-4

1,500
1,500

Intermediate Accounting, 7/e

PROBLEMS
Problem 2-1Requirement 1
2013
July 1
July 2
July 4
July 10
July 10
July 15
July 20
July 24
July 26
July 28
July 31

Cash
Common stock

Debit
1,000,000

1,000,000

Inventory
Accounts payable

80,000

Prepaid rent
Cash

10,000

Accounts receivable
Sales revenue

80,000
10,000
120,000
120,000

Cost of goods sold

Inventory

75,000

Cash
Note payable

50,000

Wages expense
Cash

15,000

Accounts payable
Cash

50,000

Cash
Accounts receivable

60,000

75,000
50,000
15,000
50,000
60,000

Utilities expense
Cash

1,500

Prepaid insurance
Cash

8,000

Alternate Exercise and Problem Solutions

Credit

1,500
8,000

The McGraw-Hill Companies, Inc., 2013

2-5

Problem 2-1 (continued)

Requirement 2
Cash

Accounts receivable

_____________________________

_____________________________

7/1 Bal.
7/1

7/1 Bal.

1,000,000

10,000

7/4

7/15

50,000

15,000

7/20

7/26

60,000

50,000

7/24

1,500

7/28

8,000
________________

7/31

7/31 Bal. 1,025,500

7/10

0
120,000

60,000

7/26

________________
7/31 Bal.

60,000

Inventory

Prepaid insurance

_____________________________

_____________________________

7/1 Bal.
7/2

7/1 Bal.

80,000
75,000
________________

7/31 Bal.

7/10

5,000

7/31
7/31 Bal.

0
8,000
________________
8,000

Prepaid rent

Accounts payable

_____________________________

_____________________________

7/1 Bal.
7/4

0
10,000

7/24

________________
7/31 Bal.

50,000

7/1 Bal.

80,000

7/2

________________

10,000

30,000

Note payable
_____________________________
0
50,000
________________
The McGraw-Hill Companies, Inc., 2013
2-6

7/1 Bal.
7/15

7/31 Bal.

Common stock
_____________________________
0
1,000,000

7/1 Bal.
7/1

________________
Intermediate Accounting, 7/e

50,000

Alternate Exercise and Problem Solutions

7/31 Bal.

1,000,000

7/31 Bal.

The McGraw-Hill Companies, Inc., 2013

2-7

Problem 2-1 (concluded)

INCOME STATEMENT ACCOUNTS
Sales revenue

Cost of goods sold

_____________________________

_____________________________

0
120,000
________________
120,000

7/1 Bal.

7/1 Bal.

7/10

7/10

75,000
________________

7/31 Bal.

7/31 Bal.

75,000

Utilities expense

Wages expense

_____________________________

_____________________________

7/1 Bal.
7/28
7/31 Bal.

0
1,500
________________
1,500

7/1 Bal.

7/20

15,000
________________

7/31 Bal.

15,000

Requirement 3
Account Title
Cash
Accounts receivable
Inventory
Prepaid rent
Prepaid insurance
Accounts payable
Note payable
Common stock
Sales revenue
Cost of goods sold
Wages expense
Utilities expense
Totals

The McGraw-Hill Companies, Inc., 2013

2-8

Debits
1,025,500
60,000
5,000
10,000
8,000

Credits

30,000
50,000
1,000,000
120,000
75,000
15,000
1,500
1,200,000

______
1,200,000

Intermediate Accounting, 7/e

1...........................Depreciation expense

22,000

Accumulated depreciation......................................
Wage expense ($7,000 5,000).....................................
Wages payable.......................................................
Interest expense ($50,000 x 8% x 9/12).........................
Interest payable......................................................
Supplies expense ($2,300 1,000)................................
Supplies..................................................................
Unearned revenue......................................................
Sales revenue.........................................................
Rent expense..............................................................
Prepaid rent ...........................................................

22,000

Problem 2-2

2.
3.
4.
5.
6.

Alternate Exercise and Problem Solutions

2,000
2,000
3,000
3,000
1,300
1,300
3,000
3,000
1,000
1,000

The McGraw-Hill Companies, Inc., 2013

2-9