CHAPTER 2 ANALYZING TRANSACTIONS

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Accounting 27th Edition Warren Solutions ManualFull Download: -edition-warren-solutions-manual/CHAPTER 2ANALYZING TRANSACTIONSDISCUSSION QUESTIONS1.An account is a form designed to record changes in a particular asset, liability, owner’s 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 natureof the account. For example, debits signify an increase in asset and expense accounts but a decreasein liability, owner’s capital, and revenue accounts.3.a.b.Assuming that no errors have occurred, the credit balance in the cash account resulted fromdrawings checks for 1,850 in excess of the amount of cash on deposit.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.”4.a.b.5.No. Errors may have been made that had the same erroneous effect on both debits and credits, suchas failing to record and/or post a transaction, recording the same transaction more than once, andposting a transaction correctly but to the wrong account.6.Recording 9,800 instead of the correct amount of 8,900 is a transposition. Recording 100 insteadof the correct amount of 1,000 is a slide.7.a.b.The revenue was earned in October.(1) Debit Accounts Receivable and credit Fees Earned or another appropriately titled revenueaccount in October.(2) Debit Cash and credit Accounts Receivable in November.No. Because the same error occurred on both the debit side and the credit side of the trialbalance, the trial balance would not be out of balance.Yes. The trial balance would not balance. The error would cause the debit total of the trialbalance to exceed the credit total by 90.8.a.b.The equality of the trial balance would not be affected.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 statement of owner’s equity,the beginning and ending owner’s capital would be correct. The understatement of net incomeunderstates owner’s equity by 7,500, while the understatement of withdrawals overstatesowner’s equity by 7,500. Thus, ending owner’s equity is correct. The balance sheet is notaffected by the error.9.a.b.The equality of the trial balance would not be affected.On the income statement, revenues (fees earned) would be overstated by 300,000, and netincome would be overstated by 300,000. On the statement of owner’s equity, the beginningcapital would be correct. However, net income and ending capital would be overstated by 300,000. The balance sheet total assets is correct. However, liabilities (notes payable) isunderstated by 300,000, and owner’s equity is overstated by 300,000. The understatementof liabilities is offset by the overstatement of owner’s equity, and thus, total liabilities andowner’s equity is correct.10.a.b.From the viewpoint of Surety Storage, the balance of the checking account represents an asset.From the viewpoint of Ada Savings Bank, the balance of the checking account represents aliability.2-1 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.This sample only, Download all chapters at: alibabadownload.com

CHAPTER 2Analyzing TransactionsPRACTICE EXERCISESPE 2-1A1.2.3.4.5.6.Debit and credit entries (c), normal debit balanceCredit entries only (b), normal credit balanceCredit entries only (b), normal credit balanceDebit entries only (a), normal debit balanceCredit entries only (b), normal credit balanceDebit and credit entries (c), normal credit balancePE 2-1B1.2.3.4.5.6.Debit and credit entries (c), normal credit balanceDebit and credit entries (c), normal debit balanceDebit entries only (a), normal debit balanceDebit entries only (a), normal debit 0% increase ( 1,974 66,109)3.Operating income:– 635 million decrease ( 4,535 – 5,170)–12.3% decrease (– 635 5,170)During the recent year, revenue increased by 1.9%, while operating expensesincreased by 3.0%. As a result, operating income decreased by –12.3%, from theprior year.2-17 2018 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 2Analyzing TransactionsEx. 2-24a.1.Revenue: 3,559 million increase ( 116,199 – 112,640)3.2% increase ( 3,559 112,640)2.Operating expenses: 3,155 million increase ( 112,575 – 109,420)2.9% increase ( 3,155 109,420)3.Operating income: 404 million increase ( 3,624 – 3,220)12.5% increase ( 404 3,220)b.During the recent year, revenue increased by 3.2%, while operating expensesincreased by 2.9%. As a result, operating income increased by 12.5% from theprior year.c.Because of the size differences between Target and Costco (Costco has morethan 1.6 times the revenue), it is best to compare the two companies on thebasis of percent changes from the prior year. Costco's revenues increased by3.2%, while Target's revenues increased by only 1.9%. The expenses of Costcoincreased by 2.9%, which is less than the percentage increase in revenues. Asa result, Costco's operating income increased by 12.5%. In contrast, Target'sexpenses increased by 3.0%, which is more than the percentage increase inrevenues. As a result, Target's operating income decreased by 12.3%. Overall,Costco had a better operating performance than Target.2-18 2018 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 2Analyzing TransactionsPROBLEMSProb. 2-1A1. and 2.(a)(g)Bal.(l)(e)(f)(c)Cash36,000 (b)12,200 8154,5005,0006,4501,020(d)(i)(j)Accounts Receivable18,300Supplies2,150Prepaid nts Payable4,500 (d)(k)Bal.9,0002,8907,390Notes Payable5,000 (c)Bal.25,00020,000Connie Young, Capital(a)36,000Professional Fees(g)(l)Bal.12,20018,30030,500(m)Salary Expense6,450(k)Blueprint Expense2,890(b)Rent Expense2,400(n)Automobile Expense1,020(h)Miscellaneous Expense8152-19 2018 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 2Analyzing TransactionsProb. 2-1A (Concluded)3.CONNIE YOUNG, ARCHITECTUnadjusted Trial BalanceOctober 31, 2019DebitBalancesCashAccounts ReceivableSuppliesPrepaid InsuranceAutomobilesEquipmentAccounts PayableNotes PayableConnie Young, CapitalProfessional FeesSalary ExpenseBlueprint ExpenseRent ExpenseAutomobile ExpenseMiscellaneous 1593,89093,890Net income, 16,925 ( 30,500 – 6,450 – 2,890 – 2,400 – 1,020 – 815)2-20 2018 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 2Analyzing TransactionsProb. 2-2A1.(a)(b)(c)(d)(e)(f)(g)(h)(i)CashSharon Matthews, Capital40,00040,000Rent ExpenseCash6,000SuppliesAccounts Payable3,200Accounts PayableCash1,7506,0003,2001,750CashFees Earned18,25018,250Automobile ExpenseMiscellaneous ExpenseCash1,880420Office Salaries ExpenseCash5,000Supplies ExpenseSupplies1,400Sharon Matthews, DrawingCash2,0002,3005,0001,4002,0002-21 2018 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 2Analyzing TransactionsProb. 2-2A (Continued)2.

CHAPTER 2 Analyzing Transactions PE 2-1A 1. Debit and credit entries (c), normal debit balance 2. Credit entries only (b), normal credit balance 3. Credit entries only (b), normal credit balance 4. Debit entries only (a), normal debit balance 5. Credit entries only (b), normal credit balance 6. Debit and credit entries (c), normal credit balance

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