Solutions Manual Accounting 25th Edition by Carl S.
Warren, James M. Reeve and Jonathan Duchac
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 $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 a s an “overdraft” and should be classified on the balance sheet as a
liability.
4. 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.
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.
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b.
, Yes. The trial balance would not balance. The error would c ause the debit total of the
trial balance to exceed the credit total by $90.
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 $7,500. 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 $300,000, 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 $300,000, and owner’s equity is overstated by $300,000. 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.
Analyzing Transactions
PRACTICE EXERCISES
PE 2–1A
1. Debit and credit entries, normal debit balance
2. Credit entries only, normal credit balance
3. Debit and credit entries, normal credit balance
2-2
, CHAPTER 2
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
Feb. 12 Office Equipment 18,000
Cash 7,000
Accounts Payable 11,000
PE 2–2B
Sept. 30 Office Supplies 2,500
Cash 800
Accounts Payable 1,700
2-3
, Analyzing Transactions
CHAPTER 2
PE 2 –3A
July 9 Accounts Receivable 12,000
Fees Earned 12,000
PE 2–3B
Aug. 13 Cash 9,000
Fees Earned 9,000
PE 2–4A
Jan. 25 Jay Nolan, Drawing 16,000
Cash 16,000
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
Feb. 1 Bal. 14,750 93,400 Cash payments
Cash receipts Feb. ?
28 Bal.
15,200
2-4
Warren, James M. Reeve and Jonathan Duchac
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 $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 a s an “overdraft” and should be classified on the balance sheet as a
liability.
4. 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.
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.
2-1
b.
, Yes. The trial balance would not balance. The error would c ause the debit total of the
trial balance to exceed the credit total by $90.
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 $7,500. 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 $300,000, 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 $300,000, and owner’s equity is overstated by $300,000. 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.
Analyzing Transactions
PRACTICE EXERCISES
PE 2–1A
1. Debit and credit entries, normal debit balance
2. Credit entries only, normal credit balance
3. Debit and credit entries, normal credit balance
2-2
, CHAPTER 2
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
Feb. 12 Office Equipment 18,000
Cash 7,000
Accounts Payable 11,000
PE 2–2B
Sept. 30 Office Supplies 2,500
Cash 800
Accounts Payable 1,700
2-3
, Analyzing Transactions
CHAPTER 2
PE 2 –3A
July 9 Accounts Receivable 12,000
Fees Earned 12,000
PE 2–3B
Aug. 13 Cash 9,000
Fees Earned 9,000
PE 2–4A
Jan. 25 Jay Nolan, Drawing 16,000
Cash 16,000
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
Feb. 1 Bal. 14,750 93,400 Cash payments
Cash receipts Feb. ?
28 Bal.
15,200
2-4
