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Chapter 2: Q16RQ (page 90)
If total debits equal total credits on the trial balance, is the trial balance error-free? Explain your answer.
There could be an error in the trial balance even if the debits and credits are equal.
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Correcting errors in a trial balance
The trial balance of Beautiful Tots Child Care does not balance.
Account Title Debit Credit
Office Supplies 1,000
Cash 7,900
Accounts Receivable 6,700
Prepaid Insurance 300
Equipment 91,500
Accounts Payable 3,400
Notes Payable 45,000
Common Stock 57,000
Dividends 5,000
Service Revenue 12,350
Rent Expense 750
Salaries Expense 4,400
Total Balance \( 117,550 \) 117,750
The following errors are detected:
a. Cash is understated by \(1,500.
b. A \)4,100 debit to Accounts Receivable was posted as a credit.
c. A \(1,400 purchase of office supplies on account was neither journalized nor posted.
d. Equipment was incorrectly transferred from the ledger as \)91,500. It should have been transferred as \(83,000.
e. Salaries Expense is overstated by \)700.
f. A \(300 cash payment for advertising expense was neither journalized nor posted.
g. A \)200 cash dividend was incorrectly journalized as \(2,000.
h. Service Revenue was understated by \)4,100.
i. A 12-month insurance policy was posted as a $1,900 credit to Prepaid Insurance. Cash was posted correctly.
Prepare the corrected trial balance as of August 31, 2018. Journal entries are not required.
For each account, identify if the change would be recorded as a debit (DR) or credit (CR).
11. Increase to Cash 16. Increase to Interest Revenue
12. Decrease to Accounts Payable 17. Increase to Rent Expense
13. Increase to Common Stock 18. Decrease to Office Supplies
14. Increase to Unearned Revenue 19. Increase to Prepaid Rent
15. Decrease to Accounts Receivable 20. Increase to Notes Payable
Question: Correcting errors in a trial balance
The following trial balance of Joy McDowell Tutoring Service as of May 31, 2018, does not balance.
Account Title Office Supplies Cash Debit Credit Accounts Receivable Computer Equipment Accounts Payable Utilities Payable Common Stock Dividends Service Revenue Salaries Expense Utilities Expense Rent Expense Total Balance \( 33,100 11,600 \) 11,100 9,600 800 \( 2,800 \) 35,000 1,900 800 700 2,000 600 15,800 10,400
Investigation of the accounting records reveals that the bookkeeper:
a. Recorded a \(400 cash revenue transaction by debiting Accounts Receivable. The credit entry was correct.
b. Posted a \)2,000 credit to Accounts Payable as \(200.
c. Did not record Utilities Expense or the related Utilities Payable in the amount of \)300.
d. Understated Common Stock by $100.
Prepare the corrected trial balance as of May 31, 2018, complete with a heading; journal entries are not required.
Journalizing transactions, posting to T-accounts, and preparing a trial balance
Problem P2-42 continues with the company introduced in Chapter 1, Canyon Canoe Company. Here you will account for Canyon Canoe Company鈥檚 transactions as it is actually done in practice. Begin by reviewing the transactions from Chapter 1. The transactions have been reprinted below.
Nov. 1 Received \(16,000 cash to begin the company and issued common stock to Amber and Zach.
2 Signed a lease for a building and paid \)1,200 for the first month鈥檚 rent.
3 Purchased canoes for \(4,800 on account.
4 Purchased office supplies on account, \)750.
7 Earned \(1,400 cash for rental of canoes.
13 Paid \)1,500 cash for wages.
15 Paid \(50 dividends to stockholders.
16 Received a bill for \)150 for utilities. (Use separate payable account.)
20 Received a bill for \(175 for cell phone expenses. (Use separate payable account.)
22 Rented canoes to Early Start Daycare on account, \)3,000.
26 Paid \(1,000 on account related to the November 3 purchase.
28 Received \)750 from Early Start Daycare for canoe rental on November 22.
30 Paid \(100 dividends to stockholders
In addition, Canyon Canoe Company completed the following transactions for December.
Dec. 1 Amber and Zack contributed land on the river (worth \)85,000) and a small building to use as a rental office (worth \(35,000) in exchange for common stock.
1 Prepaid \)3,000 for three months鈥� rent on the warehouse where the company stores the canoes.
2 Purchased canoes signing a note payable for \(7,200
4 Purchased office supplies on account for \)500.
9 Received \(4,500 cash for canoe rentals to customers.
15 Rented canoes to customers for \)3,500, but will be paid next month.
16 Received a \(750 deposit from a canoe rental group that will use the canoes next month.
18 Paid the utilities and telephone bills from last month.
19 Paid various accounts payable, \)2,000.
20 Received bills for the telephone (\(325) and utilities (\)295) which will be paid later.
31 Paid wages of \(1,800. 31 Paid cash dividend to stockholders, \)300.
Requirements
1. Journalize the transactions for both November and December, using the following accounts: Cash; Accounts Receivable; Office Supplies; Prepaid Rent; Land; Building; Canoes; Accounts Payable; Utilities Payable; Telephone Payable; Unearned Revenue; Notes Payable; Common Stock; Dividends; Canoe Rental Revenue; Rent Expense; Utilities Expense; Wages Expense; and Telephone Expense. Explanations are not required. (Hint: For November transactions, refer to your answer for Chapter 1.)
2. Open a T-account for each of the accounts.
3. Post the journal entries to the T-accounts, and calculate account balances. Formal posting references are not required.
4. Prepare a trial balance as of December 31, 2018.
5. Prepare the income statement of Canyon Canoe Company for the two months ended December 31, 2018.
6. Prepare the statement of retained earnings for the two months ended December 31, 2018.
7. Prepare the balance sheet as of December 31, 2018.
8. Calculate the debt ratio for Canyon Canoe Company at December 31, 2018
Identify the three categories of the accounting equation, and list at least four accounts associated with each category.
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