Transaction Journal

1. Paid interest on a loan. CD

2. Recorded depreciation expense. GJ

3. Purchased furniture for cash. CD

4. Purchased merchandise on account. PJ

5. Sold merchandise on credit. SJ
(the sale only, not the cost of the merchandise)

6. Sold merchandise for cash. CR

(the sale only, not the cost of the merchandise)

7. Paid rent. CD

8. Recorded accrued interest payable. GJ

9. Paid advertising bill. CD

10. Recorded bad debt expense. GJ

11. Sold machinery on credit. GJ

12. Collected cash from customers on account. CR

13. Paid employees wages. CD

14. Collected interest on a note receivable. CR

1. d.The event is recorded as an increase to accounts receivable and an increase in revenue. An increase to accounts receivable represents an increase in assets and the increase in revenue will increase net income which will in turn increase retained earnings.

2. b. The amount accrued as commissions for each salesperson will be any commissions due over and above the fixed salary as follows:

The amount accrued is $28,000.

3. b. A net decrease in accounts receivable means that cash collections exceeded accrual revenue. Therefore, cash basis income would be higher when compared to accrual basis. A net decrease in accrued liabilities indicates that cash payments for expenses are greater than accrual expenses. Therefore, cash basis income would be lower than accrual basis income.

4. a. Cash basis income: Cash collected in May $3,200,000

Accrual basis income:

Revenue recognized in April $3,200,000

Less: Expenses recognized in April (1,500,000)

Income $1,700,000

5. d. Expense recognized $437,500
Add: Increase in prepaid insurance 17,500
Cash paid for insurance $455,000

Requirement 1

Problem 2-1 (continued)

Requirement 2 balance sheet Accounts

Date: 2015-12-11; view: 862