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WEEK 1 PROBLEMS
a. Chapter 1, E1-21
b. Chapter 1, P1-48
c. Chapter 2, P2-30A
d. Chapter 2, P2-53B
E1-21 Using the accounting equation to analyze transactions [10–20 min]
Caren Smith opened a medical practice. During July, the first month of operation,
the business, titled Caren Smith, M.D., P.C. (Professional Corporation), experienced
the following events:
july 6 Smith invested $55,000 in the business by opening a bank account in the name
of C. Smith, M.D., P.C. The corporation issued common stock to Smith.
9 Paid $46,000 cash for land.
12 Purchased medical supplies for $1,800 on account.
15 Officially opened for business.
15-31 During the rest of the month, Smith treated patients and earned service
revenue of $8,000, receiving cash.
29 Paid cash expenses: employees’ salaries, $1,600; office rent, $900;
utilities, $100.
30 Returned supplies purchased on the 12th for the cost of those supplies, $700.
31 Paid $1,100 on account.
Requirement
1. Analyze the effects of these events on the accounting equation of the medical
practice of Caren Smith, M.D., P.C. Use a format similar to that of Exhibit 1-6,
with headings for Cash, Medical supplies, Land, Accounts payable, Common
stock, and Retained earnings.
P1-48 Analyzing transactions and preparing financial statements [20–25 min]
Draper Consulting, Inc., began operations and completed the following transactions
during the first half of December:
Dec 2 Received $18,000 cash and issued 100 shares of no-par common stock.
2 Paid monthly office rent, $550.
3 Paid cash for a Dell computer, $1,800. This equipment is expected to
remain in service for five years.
4 Purchased office furniture on account, $4,200. The furniture should last for five years.
5 Purchased supplies on account, $900.
9 Performed consulting service for a client on account, $1,500.
12 Paid utility expenses, $250.
18 Performed service for a client and received cash of $1,100.
P2-30A Journalizing transactions, posting to T-accounts, and preparing a
trial balance [45–60 min]
Doris Stewart started her practice as a design consultant on September 1, 2012.
During the first month of operations, the business completed the following
transactions:
Sep. 1 Received $42,000 cash and issued common stock.
4. Purchased supplies, $700, and furniture, $1,900, on
account.
6. Performed services for a law firm and received $1,400
cash.
7. Paid $24,000 cash to acquire land for a future office site.
10. Performed service for a hotel and received its promise to
pay the $1,000 within one week.
14. Paid for the furniture purchased September 4 on account.
15. Paid secretary’s bi-monthly salary, $490.
17. Received cash on account, $400.
20. Prepared a design for a school on account, $700.
28. Received $2,100 cash for consulting with Plummer &
Gorden.
30. Paid secretary’s bi-monthly salary, $490.
30. Paid rent expense, $650.
30. Paid cash dividends of $3,000.
Requirements
1. Open the following T-accounts: Cash, Accounts receivable, Supplies, Furniture,
Land, Accounts payable, Common stock, Dividends, Service revenue, Salary
expense, and Rent expense.
2. Record each transaction in the journal, using the account titles given. Key each
transaction by date. Explanations are not required.
3. Post the transactions to the T-accounts, using transaction dates as posting references
in the ledger accounts. Label the balance of each account Bal, as shown in
the chapter.
4. Prepare the trial balance of Doris Stewart, Designer, P.C., at September 30, 2012.
P2-53B Correcting errors in a trial balance [15–25 min]
The trial balance for Treasure Hunt Exploration Company does not balance.
Treasure Hunt Exploration Company
Trial Balance
31-Jul-12
Cash $6,600
Accounts receivable 9,000
Supplies 200
Exploration equipment 22,600
Computers 46,000
Accounts payable $2,900
Note payable 18,900
Common stock 50,100
Dividends 1,000 4,900
Service revenue
Salary expense 1,800
Rent expense 100
Advertising expense 100
Utilities expense 700
Total $88,100 $76,800
The following errors were detected:
The cash balance is overstated by $1,000.
Rent expense of $300 was erroneously posted as a credit rather than a debit.
A $6,000 credit to Service revenue was not posted.
A $500 debit to Accounts receivable was posted as $50.
The balance of Utilities expense is understated by $90.
A $600 purchase of supplies on account was neither journalized nor posted.
Exploration equipment should be $17,160.
Requirement
1. Prepare the corrected trial balance at July 31, 2012. Journal entries are not
required.
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