Accounting 26th Edition Warren
SOLUTIONS MANUAL AND
TESTBANK
CHAPTER 2
ANALYZING TRANSACTIONS
DISCUSSION QUESTIONS
1. 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 nature
of the account. For example, debits signify an increase in asset and expense accounts but a decrease
in liability, owner's capital, and revenue accounts.
3. a. Assuming no errors have occurred, the credit balance in the cash account resulted from drawing
checks for S 1,850 in excess of the amount of cash on deposit.
b. The Sl ,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.
4. a. The revenue was earned in October.
b. (l) 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 S9,800 is a transposition; the listing of S 100 is a slide.
7. 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 S90.
8. 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 statement of owner's equity,
, the beginning and ending capital would be correct. However, net income and withdrawals would
be understated by S7 ,500. These understatements offset one another, and thus, ending owner's
equity is correct. The balance sheet is not affected by the error.
9. a. The equality of the trial balance would not be affected.
b. On the income statement, revenues (fees earned) would be overstated by S300,000, and net
income would be overstated by $300,000. On the statement of owner's equity, the beginning
capital 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) is
understated by S300,000, and owner's equity is overstated by S300,000. The understatement of
liabilities is offset by the overstatement of owner's equity, and thus, total liabilities and owner's
equity is correct.
10. 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.
,PE 2-1A
PRACTICE EXERCISES
1 . Debit and credit entries, normal debit balance
2. Credit entries only, normal credit balance
3. Debit and credit entries, normal credit balance
4. Credit entries only, normal credit balance
5. Credit entries only, normal credit balance
6. Debit entries only, normal debit balance
PE 2-1B
1 . Debit and credit entries, normal credit balance
2. Debit and credit entries, normal debit balance
3. Debit entries only, normal debit balance
4. Debit entries only, normal debit balance
5. Debit entries only, normal debit balance 6. Credit entries only, normal credit balance
PE 2-2A
Oct. 27 Office Equipment 32,750
Cash 6,550
Accounts Payable 26,200
PE 2-2B
Sept. 30 Office Supplies 2,500
Cash 800
Accounts Payable 1,700
, PE 2-1A
Mar. 16 Accounts Receivable 9,450
Fees Earned 9,450
PE 2-3B
Aug. 13 Cash 9,000
Fees Earned 9,000
PE 2-4A
Dec. 23 Steve Buckley, Drawing 20,000
Cash 20,000
PE 2-4B
June 30 Dawn Pierce, Drawing 11 ,500
Cash 11,500
PE 2-5A
Using the following T account, solve for the amount of cash receipts (indicated
by ? below).
Cash
July 1 Bal. 37,450 115,860 Cash
Cash payments
receipts July 29,600
31 Bal.
$29,600 = $37,450 + Cash receipts - $115,860
Cash receipts = $29,600 + $115,860 - $37,450 = $108,010
PE 2-5B using the following T account, solve for the amount of supplies
expense (indicated by ? below).
SOLUTIONS MANUAL AND
TESTBANK
CHAPTER 2
ANALYZING TRANSACTIONS
DISCUSSION QUESTIONS
1. 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 nature
of the account. For example, debits signify an increase in asset and expense accounts but a decrease
in liability, owner's capital, and revenue accounts.
3. a. Assuming no errors have occurred, the credit balance in the cash account resulted from drawing
checks for S 1,850 in excess of the amount of cash on deposit.
b. The Sl ,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.
4. a. The revenue was earned in October.
b. (l) 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 S9,800 is a transposition; the listing of S 100 is a slide.
7. 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 S90.
8. 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 statement of owner's equity,
, the beginning and ending capital would be correct. However, net income and withdrawals would
be understated by S7 ,500. These understatements offset one another, and thus, ending owner's
equity is correct. The balance sheet is not affected by the error.
9. a. The equality of the trial balance would not be affected.
b. On the income statement, revenues (fees earned) would be overstated by S300,000, and net
income would be overstated by $300,000. On the statement of owner's equity, the beginning
capital 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) is
understated by S300,000, and owner's equity is overstated by S300,000. The understatement of
liabilities is offset by the overstatement of owner's equity, and thus, total liabilities and owner's
equity is correct.
10. 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.
,PE 2-1A
PRACTICE EXERCISES
1 . Debit and credit entries, normal debit balance
2. Credit entries only, normal credit balance
3. Debit and credit entries, normal credit balance
4. Credit entries only, normal credit balance
5. Credit entries only, normal credit balance
6. Debit entries only, normal debit balance
PE 2-1B
1 . Debit and credit entries, normal credit balance
2. Debit and credit entries, normal debit balance
3. Debit entries only, normal debit balance
4. Debit entries only, normal debit balance
5. Debit entries only, normal debit balance 6. Credit entries only, normal credit balance
PE 2-2A
Oct. 27 Office Equipment 32,750
Cash 6,550
Accounts Payable 26,200
PE 2-2B
Sept. 30 Office Supplies 2,500
Cash 800
Accounts Payable 1,700
, PE 2-1A
Mar. 16 Accounts Receivable 9,450
Fees Earned 9,450
PE 2-3B
Aug. 13 Cash 9,000
Fees Earned 9,000
PE 2-4A
Dec. 23 Steve Buckley, Drawing 20,000
Cash 20,000
PE 2-4B
June 30 Dawn Pierce, Drawing 11 ,500
Cash 11,500
PE 2-5A
Using the following T account, solve for the amount of cash receipts (indicated
by ? below).
Cash
July 1 Bal. 37,450 115,860 Cash
Cash payments
receipts July 29,600
31 Bal.
$29,600 = $37,450 + Cash receipts - $115,860
Cash receipts = $29,600 + $115,860 - $37,450 = $108,010
PE 2-5B using the following T account, solve for the amount of supplies
expense (indicated by ? below).
