Each account has a normal balance. For the following list of accounts, indicate whether the normal balance of each is a debit or a credit.

Account Normal Balance

1. Cash _______

2. Prepaid Insurance _______

3. Retained Earnings _______

4. Bonds Payable _______

5. Investments _______

6. Capital Stock _______

7. Advertising Fees Earned _______

8. Wages and Salaries Expense _______

9. Wages and Salaries Payable _______

10. Office Supplies _______

11. Dividends _______

Exercise 3-14 Journal Entries

Prepare the journal entry to record each of the following independent transactions. (Use the

number of the transaction in lieu of a date for identification purposes.)

1. Services provided on account of $1,530

2. Purchases of supplies on account for $1,365

3. Services provided for cash of $750

4. Purchase of equipment for cash of $4,240

5. Issuance of a promissory note for $2,500

6. Collections on account for $890

7. Sale of capital stock in exchange for a parcel of land; the land is appraised at $50,000

8. Payment of $4,000 in salaries and wages

9. Payment of open account in the amount of $500

Problem 3-2 Transaction Analysis and Financial Statements

Just Rolling Along Inc. was organized on May 1, 2012, by two college students who recognized

an opportunity to make money while spending their days at a beach along Lake Michigan. The

two entrepreneurs plan to rent bicycles and in-line skates to weekend visitors to the lakefront.

The following transactions occurred during the first month of operations:

May 1: Received contribution of $9,000 from each of the two principal owners of the new

business in exchange for shares of stock.

May 1: Purchased ten bicycles for $300 each on an open account. The company has 30 days

to pay for the bicycles.

May 5: Registered as a vendor with the city and paid the $15 monthly fee.

May 9: Purchased 20 pairs of in-line skates at $125 per pair, 20 helmets at $50 each, and 20

sets of protective gear (knee and elbow pads and wrist guards) at $45 per set for cash.

May 10: Purchased $100 in miscellaneous supplies on account. The company has 30 days to

pay for the supplies.

May 15: Paid $125 bill from local radio station for advertising for the last two weeks of May.

May 17: Customers rented in-line skates and bicycles for cash of $1,800.

May 24: Billed the local park district $1,200 for in-line skating lessons provided to

neighborhood children. The park district is to pay one-half of the bill within five

working days and the rest within 30 days.

May 29: Received 50% of the amount billed to the park district.

May 30: Customers rented in-line skates and bicycles for cash of $3,000.

May 30: Paid wages of $160 to a friend who helped over the weekend.

May 31: Paid the balance due on the bicycles.

Required

1. Prepare a table to summarize the preceding transactions as they affect the accounting equa-

tion. Use the format in Exhibit 3-1. Identify each transaction with the date.

2. Prepare an income statement for the month ended May 31, 2012.

3. Prepare a classified balance sheet at May 31, 2012.

4. Why do you think the two college students decided to incorporate their business rather than

operate it as a partnership?