Chapter 2: (C) Mastery

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1. Mastery Problem: Analyzing Transactions

   KL Company Inc.

   In February, Katie Long formed KL Company Inc. Transactions for the month of March have been posted to the T accounts. An intern has prepared a trial balance from the T accounts, but there seem to be some errors.

   T accounts

   Cash
   Bal.	8,000	3/3	2,300
   3/25	7,650	3/27	1,250
   3/28	5,000	3/29	3,475
   3/30	8,125	3/31	1,875

   Accounts Receivable
   Bal.	1,950
   3/18	9,800	3/30	8,125

   Supplies
   Bal.	225
   3/7	1,650

   Office Equipment
   3/2	17,500

   Accounts Payable
   3/27	1,250	Bal.	1,250
   		3/7	1,650

   Notes Payable
   		3/2	17,500

   Common Stock
   		Bal.	7,500
   		3/28	5,000

   Retained Earnings
   		Bal.	1,425

   Dividends
   3/31	1,875

   Fees Earned
   		3/18	9,800
   		3/25	7,650

   Rent Expense
   3/3	2,300

   Wages Expense
   3/29	3,475

   Required:

   Transactions

   Descriptions of the transactions for the month of March are provided in the following table. Each of the transactions that follow has been posted to the T accounts. Referring to the T accounts, select the date on which each transaction occurred, enter the amount of the transaction, and select the account to debit and credit.

   Transaction	Date	Amount	Debit	Credit
   Purchased equipment, giving a note payable for the purchase price.	3/2	$fill in the blank defc1bff506200e_2	Office Equipment	Notes Payable
   Paid rent for April.	3/3	$fill in the blank defc1bff506200e_6	Rent Expense	Cash
   Purchased supplies on account.	3/7	$fill in the blank defc1bff506200e_10	Supplies	Accounts Payable
   Recorded fees earned on account.	3/18	$fill in the blank defc1bff506200e_14	Accounts Receivable	Fees Earned
   Received cash for fees earned.	3/25	$fill in the blank defc1bff506200e_18	Cash	Fees Earned
   Paid creditors on account.	3/27	$fill in the blank defc1bff506200e_22	Accounts Payable	Cash
   KL Company Inc. issued additional shares of common stock in exchange for cash.	3/28	$fill in the blank defc1bff506200e_26	Cash	Common Stock
   Paid wages.	3/29	$fill in the blank defc1bff506200e_30	Wages Expense	Cash
   Received cash from customers on account.	3/30	$fill in the blank defc1bff506200e_34	Cash	Accounts Receivable
   KL Company Inc. paid dividends to its stockholders.	3/31	$fill in the blank defc1bff506200e_38	Retained Earnings	Cash

   Feedback

   If you are having trouble, try completing the items you are sure of first. Then, match up the remaining transactions.

   Trial Balance: Unequal Totals

   The intern has prepared the following trial balance for the month of March.

   KL Company Inc. Unadjusted Trial Balance March 31, 20Y3
   Account Title	Debit Balances	Credit Balances
   Cash	24,475
   Accounts Receivable		3,625
   Supplies	1,875
   Office Equipment	17,500
   Accounts Payable	1,650
   Notes Payable		17,500
   Common Stock		12,500
   Retained Earnings	1,425
   Dividends		1,875
   Fees Earned		9,800
   Rent Expense	3,200
   Wages Expense		3,475
   	50,125	48,775

   Trial Balance: Correct

   The Trial Balance: Unequal Totals was prepared by the intern. The intern is puzzled by the unequal totals. Prepare a corrected trial balance. If an amount box does not require an entry, leave it blank.

   KL Company Inc. Unadjusted Trial Balance March 31, 20Y3
   Account Title	Debit Balances	Credit Balances
   Cash	fill in the blank 102d21f95fe8fba_1	fill in the blank 102d21f95fe8fba_2
   Accounts Receivable	fill in the blank 102d21f95fe8fba_3	fill in the blank 102d21f95fe8fba_4
   Supplies	fill in the blank 102d21f95fe8fba_5	fill in the blank 102d21f95fe8fba_6
   Office Equipment	fill in the blank 102d21f95fe8fba_7	fill in the blank 102d21f95fe8fba_8
   Accounts Payable	fill in the blank 102d21f95fe8fba_9	fill in the blank 102d21f95fe8fba_10
   Notes Payable	fill in the blank 102d21f95fe8fba_11	fill in the blank 102d21f95fe8fba_12
   Common Stock	fill in the blank 102d21f95fe8fba_13	fill in the blank 102d21f95fe8fba_14
   Retained Earnings	fill in the blank 102d21f95fe8fba_15	fill in the blank 102d21f95fe8fba_16
   Dividends	fill in the blank 102d21f95fe8fba_17	fill in the blank 102d21f95fe8fba_18
   Fees Earned	fill in the blank 102d21f95fe8fba_19	fill in the blank 102d21f95fe8fba_20
   Rent Expense	fill in the blank 102d21f95fe8fba_21	fill in the blank 102d21f95fe8fba_22
   Wages Expense	fill in the blank 102d21f95fe8fba_23	fill in the blank 102d21f95fe8fba_24
   	fill in the blank 102d21f95fe8fba_25	fill in the blank 102d21f95fe8fba_26

   Feedback

   Compute the account balances in the T accounts first.

   Errors on Trial Balance

   Compare the trial balance prepared by the intern (Trial Balance: Unequal Totals) to the trial balance that you prepared (Trial Balance: Correct). In the following table, select the accounts for each type of error. Not all accounts contain errors.

   Error Type

   Cash

   Accounts Receivable

   Supplies

   Office Equipment

   Accounts Payable

   Notes Payable

   Common Stock

   Retained Earnings

   Dividends

   Fees Earned

   Rent Expense

   Wages Expense

   Transposition

   No

   Incorrectly reported as a debit

   No

   Incorrectly reported as a credit

   No

   Balance computed incorrectly

   Yes

   Feedback

   To determine which accounts were incorrectly reported as a debit or credit, think about the normal balance of an account as well as computing the account balance in the T account.

   Accounting Equation

   The intern is puzzled and asks "Are you sure the accounting equation is still in balance?" Using the corrected trial balance you prepared, prove that the accounting equation is in balance.

   Assets	=	Liabilities	+	Stockholders' Equity
   $fill in the blank b5e9be064066fda_1	=	$fill in the blank b5e9be064066fda_2	+	$fill in the blank b5e9be064066fda_3

   Still puzzled, the intern asks "Why do none of the amounts in the accounting equation equal the totals on the trial balance?"

   a.	The accounts with debit balances are not all classified in the same element of the accounting equation. For example, not all accounts with debit balances are assets.
   b.	This is because the revenue and expense accounts are part of the stockholders equity element. The accounts with debit balances should be part of the total assets.
   c.	You point out the total of the assets, liabilities and stockholders equity is equal to the sum of the debit and credit totals on the trial balance.
   d.	The accounts with credit balances are not all classified in the same element of the accounting equation. For example, not all accounts with credit balances are liabilities.
   e.	The accounts that make up the total for stockholders equity have a mix of debit and credit balances.