of the account. For example, debits signify an increase in asset, expense, and dividends accounts

1.An account is a form designed to record changes in a particular asset, liability, stockholders’ equity, revenue, or expense. A ledger is a group of related accounts.

2.The terms debit and credit may signify either an increase or a decrease, depending upon the nature of the account. For example, debits signify an increase in asset, expense, and dividends accounts but a decrease in liability, common stock, retained earnings, and revenue accounts.

• A.Assuming no errors have occurred, the credit balance in the cash account resulted from writing

checks for $1,850 in excess of the amount of cash on deposit.B.The $1,850 credit balance in the cash account as of December 31 is a liability owed to the bank.It is usually referred to as an “overdraft” and should be classified on the balance sheet as a liability.

• A.The revenue was earned in October.

B.(1) Debit Accounts Receivable and credit Fees Earned or another appropriately titled revenue account in October.(2) Debit Cash and credit Accounts Receivable in November.

5.No. Errors may have been made that had the same erroneous effect on both debits and credits, such as failure to record and/or post a transaction, recording the same transaction more than once, and posting a transaction correctly but to the wrong account.

6.The listing of $9,800 is a transposition; the listing of $100 is a slide.

• A.No. Because the same error occurred on both the debit side and the credit side of the trial

balance, the trial balance would not be out of balance.B.Yes. The trial balance would not balance. The error would cause the debit total of the trial balance to exceed the credit total by $90.

• A.The equality of the trial balance would not be affected.

B.On the income statement, total operating expenses (salary expense) would be overstated by $7,500, and net income would be understated by $7,500. On the retained earnings statement, the beginning and ending retained earnings would be correct. However, net income and dividends would be understated by $7,500. These understatements offset one another, and thus, ending retained earnings is correct. The balance sheet is not affected by the error.

• A.The equality of the trial balance would not be affected.

B.On the income statement, revenues (fees earned) would be overstated by $300,000, and net income would be overstated by $300,000. On the retained earnings statement, the beginning retained earnings would be correct. However, net income and ending retained earnings would be overstated by $300,000. The balance sheet total assets is correct. However, liabilities (notes payable) is understated by $300,000, and stockholders’ equity (retained earnings) is overstated by $300,000. The understatement of liabilities is offset by the overstatement of stockholders’ equity (retained earnings), and thus, total liabilities and stockholders’ equity is correct.

• A.From the viewpoint of Surety Storage, the balance of the checking account represents an asset.

B.From the viewpoint of Ada Savings Bank, the balance of the checking account represents a liability.

CHAPTER 2

ANALYZING TRANSACTIONS

DISCUSSION QUESTIONS

2-1 © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Financial and Managerial Accounting 14th Edition Warren Solutions Manual Visit TestBankDeal.com to get complete for all chapters

CHAPTER 2 Analyzing Transactions

BE 2–1

• Debit and credit entries, normal credit balance
• Debit and credit entries, normal debit balance
• Debit entries only, normal debit balance
• Debit entries only, normal debit balance
• Debit entries only, normal debit balance
• Credit entries only, normal credit balance

BE 2–2

Mar. 9 Office Supplies 1,775 Cash 275 Accounts Payable 1,500

BE 2–3

Aug. 13 Cash 9,000 Fees Earned 9,000

BE 2–4

June 30 Dividends 11,500 Cash 11,500

BE 2–5

Using the following T account, solve for the amount of supplies expense (indicated by ? below).Aug. 1 Bal. 1,025 ? Supplies expense Supplies purchased 3,110 Aug. 31 Bal. 1,324 $1,324 = $1,025 + $3,110 – Supplies expense Supplies expense = $1,025 + $3,110 – $1,324 = $2,811

BASIC EXERCISES

Supplies 2-2 © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 2 Analyzing Transactions

BE 2–6

• The totals are equal because both the debit and credit entries were journalized

and posted for $12,900.

• The totals are unequal. The credit total is higher by $1,656 ($1,840 – $184).
• The totals are unequal. The debit total is higher by $4,500 ($8,300 – $3,800).

BE 2–7

• Cash 8,400

Accounts Receivable 8,400

• Supplies 2,500

Office Equipment 2,500 Supplies 2,500 Accounts Payable 2,500

Note: The first entry in (B) reverses the incorrect entry, and the second entry

records the correct entry. These two entries could also be combined into one entry as shown below; however, preparing two entries would make it easier for someone to understand later what happened and why the entries were necessary.Supplies 5,000 Office Equipment 2,500 Accounts Payable 2,500 2-3 © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 2 Analyzing Transactions Ex. 2–1 Advanced Payments for Equipment a Cargo Revenue Cash Passenger Revenue Flight Equipment Fuel Inventory Parts and Supplies Inventories Prepaid Expenses Accounts Payable Aircraft Fuel (Expense) Air Traffic Liability b Aircraft Maintenance (Expense) Frequent Flyer (Obligations) c Aircraft Rent (Expense) Taxes PayableContract Carrier Arrangements (Expense) d Landing Fees (Expense) e Passenger Commissions (Expense) f None a Advance payments (deposits) on aircraft to be delivered in the future b Passenger ticket sales for future flights c Obligations to provide frequent flyers future travel and other benefits d Payments to other airlines for passenger travel under Delta tickets e Fees paid to airports for landing rights f Commissions paid to travel agents for passenger bookings Ex. 2–2 Account Number Accounts Payable 21 Accounts Receivable 12 Cash 11 Common Stock 31 Dividends 33 Fees Earned 41 Land 13 Miscellaneous Expense 53 Retained Earnings 32 Supplies Expense 52 Wages Expense 51 Note: Expense accounts are normally listed in order of magnitude from largest to smallest with Miscellaneous Expense always listed last. Since Wages Expense is normally larger than Supplies Expense, Wages Expense is listed as account number 51 and Supplies Expense as account number 52.Expenses Liabilities Stockholders’ Equity Account

EXERCISES

AssetsRevenue Balance Sheet Accounts Income Statement Accounts 2-4 © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.