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Feb. 1 +$600.000 (Cash) $600,000 Capital Sock L03-3, L03-4, LO3-5, L03-6, L03-7. LO3-8 PROBLEM 3.2A Analyzing and Journalizing Transactions Environmental Services, Inc., performs various tests
Feb. 1 +$600.000 (Cash) $600,000 Capital Sock L03-3, L03-4, LO3-5, L03-6, L03-7. LO3-8 PROBLEM 3.2A Analyzing and Journalizing Transactions Environmental Services, Inc., performs various tests on wells and septie systems. A few of the company's business transactions occurring during August are described as follows. 1. On August 1, the company billed customers $2.500 on account for services rendered. Customers are required to make full payment within 30 days. (Environmental Services uses an account entitled Testing Service Revenue when billing customers.) 2. On August 3, the company purchased testing supplies costing $3,800, paying $800 cash and charging the remainder on the company's 30-day account at Penn Chemicals. The testing sup- plies are expected to last several months. On August S. The company returned to Penn Chemicals $100 of testing supplies that were not needed. The return of these supplies reduced by $100 the amount owed to Penn Chemicals. 4. On August 17, the company issued an additional 2.500 shares of capital stock at 58 per share. The cash raised will be used to purchase new testing equipment in September. 5. On August 22, the company received 5600 cash from customers it had billed on August 1. 6. On August 29, the company paid its outstanding account payable to Penn Chemicals. 7. On August 30, a cash dividend totaling S6,800 was declared and paid to the company's stockholders Instructions a. Prepare an analysis of each of these transactions. Transaction 1 serves as an example of the form of analysis to be used. 1. (a) The asset Accounts Receivable was increased. Increases in assets are recorded by debits. Debit Accounts Receivable $2.500. (b) Revenue has been earned. Revenue increases owners' equity. Increases in owners! equity are recorded by credits. Credit Testing Service Revenue $2.500. b. Prepare journal entries, including explanations for these transactions How does the realization principle influence the manner in which the August 1 billing to cus tomers is recorded in the accounting records? d. How does the matching principle influence the manner in which the August 3 purchase of test ing supplies is recorded in the accounting records
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