Exercise 2-4 (15 minutes) Type of Normal Increase Account Account Balance (Dr. or Cr.) a. Land asset debit debit b. Cash asset debit debit c. Legal Expense expense debit debit d. Prepaid Insurance asset debit debit e. Accounts Receivable asset debit debit f. Dividends equity debit debit g. License Fee Revenue revenue credit credit h. Unearned Revenue liability credit credit i. Fees Earned revenue credit credit j. Equipment asset debit debit k. Notes Payable liability credit credit l. Common Stock equity credit credit Exercise 2-5 (15 minutes) a. Analyze: Assets = Liabilities + Equity Cash Equipment Note Payable Revenue
August 31 Assets Liabilities Cash $ 25,360 Accounts payable $ 10,500 Accounts receivable 22,360 Equity Office supplies 5,250 Common stock 102,000 Office equipment 20,000 Retained earnings* 4,470 Land 44,000 Total equity 106,470 Total assets $116,970 Total liabilities & equity $116,970 * Amount from Exercise 2-17. Exercise 2-19 (15 minutes) CBS ABC CNN NBC Answers $(28,000) $42,000 $73,000 $(45,000) Computations: Equity, Dec. 31, Year 1 $ 0 $ 0 $ 0 $ 0 Owner's investments 110,000 42,000 87,000 210,000 Dividends (28,000) (47,000) (10,000) (55,000) Net income (loss) 22,000 90,000 (4,000) (45,000) Equity, Dec. 31, Year 2 $104,000 $85,000 $73,000 $110,000 Exercise 2-20 (20 minutes) Description (1) Difference between Debit and Credit Columns (2) Column with the Larger Total (3) Identify account(s) incorrectly stated (4) Amount that account(s) is overstated or understated a. $3,600 debit to Rent Expense is posted as a $1,340 debit. $2,260 Credit Rent Expense Rent Expense is understated by $2,260
b. $6,500 credit to Cash is posted twice as two credits to Cash. $6,500 Credit Cash Cash is understated by $6,500 c. $10,900 debit to the Dividends account is debited to Common Stock. $0 –– Common Stock Dividends Common Stock is understated by $10,900 Dividends is understated by $10,900 d. $2,050 debit to Prepaid Insurance is posted as a debit to Insurance Expense. $0 –– Prepaid Insurance Insurance Expense Prepaid Insurance is understated by $2,050 Insurance Expense is overstated by $2,050 e. $38,000 debit to Machinery is posted as a debit to Accounts Payable. $0 –– Machinery Accounts Payable Machinery is understated by $38,000 Accounts Payable is understated by $38,000 f. $5,850 credit to Services Revenue is posted as a $585 credit. $5,265 Debit Services Revenue Services Revenue is understated by $5,265 g. $1,390 debit to Store Supplies is not posted. $1,390 Credit Store Supplies Store Supplies is understated by $1,390 Exercise 2-21 (15 minutes) Overstated, Understated, or Correctly-Stated Amount a. Correctly-stated. The debit column is correctly stated because the erroneous debit (to Accounts Payable) is deducted from an account with a (larger assumed) credit balance. $0 b. Understated. The credit column is understated by $37,900 because Accounts Payable was debited — it should have been credited. $37,900 c. Correctly-stated. The Automobiles account balance is correctly stated. $0 d. Understated. The Accounts Payable account balance is understated by $37,900. It should have been increased (credited) by $18,950 but the posting error decreased (debited) it by $18,950. $37,900 e. The credit column is $37,900 less than the debit column, or $162,100 in total ($200,000 - $37,900).