Question

You are presented with the following transactions for Paddick Enterprises Ltd. for the month of February:

Feb 2 purchased supplies on account, $600.

3 Purchased equipment for $10,000 by signing a bank loan due in three months.

6 Earned service revenue of $50,000 Of this amount, $30,000 was received in cash. The balance was on account

13 Declared and paid $500 of dividends to shareholders

18 A customer paid $2,000 in advance for services to be performed next month.

18 Paid the amount owing for the supplies purchased on February 2.

23 Collected $20,000 of the amount owing from the February 6 transaction.

24 Paid office expenses for the month, $22.000

22 Recorded salaries due to employees for work performed during the month $14,000.

28 Paid interest of $50 on the bank loan signed on February 3

Instruction:

a) For each of the above transactions prepare a (1) basic analysis, (2) equation analysis, and (3) debit- credit analysis.

b) Journalize the transactions.

Answer 1

ANSWER:

(a)

Transaction 1		Feb.2: Purchased supplies on account for $600.
(1) Basic Analysis		The asset account Supplies is increased by $600; the liability account Accounts Payable is increased by $600.
(2) Equation Analysis
(3) Debit−Credit Analysis		Debits increase assets: debit Supplies $600. Credits increase liabilities: credit Accounts Payable $600.

Transaction 2		Feb.3: Purchased equipment for $10,000 by signing a bank loan due in three months.
(1) Basic Analysis		The asset account Equipment is increased by $10,000; the liability account Bank Loan Payable is increased by $10,000.
(2) Equation Analysis
(3) Debit−Credit Analysis		Debits increase assets: debit Equipment $10,000. Credits increase liabilities: credit Bank Loan Payable $10,000.

Transaction 3		Feb.6: Earned service revenue of $50,000. Of this amount, $30,000 was received in cash. The balance was on account.
(1) Basic Analysis		The asset account Cash is increased by $30,000; the asset account Accounts Receivable is increased by $20,000; the shareholders’ equity account Service Revenue is increased by $50,000.
(2) Equation Analysis
(3) Debit−Credit Analysis		Debits increase assets: debit Cash $30,000. Debits increase assets: debit Accounts Receivable $20,000. Credits increase revenues: credit Service Revenue $50,000.

Transaction 4		Feb.13: Paid dividends of $500 to shareholders.
(1) Basic Analysis		The asset account Cash is decreased by $500; the Dividends account is increased by $500.
(2) Equation Analysis
(3) Debit−Credit Analysis		Debits increase dividends: debit Dividends $500. Credits decrease assets: credit Cash $500.

Transaction 5		Feb. 18: Received cash of $2,000 from a customer as a deposit for services to be provided next month.
(1) Basic Analysis		The asset account Cash is increased by $2,000; the liability account Unearned Revenue is increased by $2,000.
(2) Equation Analysis
(3) Debit−Credit Analysis		Debits increase assets: debit Cash $2,000. Credits increase liabilities: credit Unearned Revenue $2,000.

Transaction 6		Feb. 20: Paid amount owing from the supplies purchased on Feb. 2.
(1) Basic Analysis		The asset account Cash is decreased by $600; the liability account Accounts Payable is decreased by $600.
(2) Equation Analysis

(3) Debit−Credit Analysis

Debits decrease liabilities: debit Accounts Payable $600. Credits decrease assets: credit Cash $600.

Transaction 7		Feb. 23: Collected $20,000 of the amount owing from the Feb. 6 transaction.
(1) Basic Analysis		The asset account Cash is increased by $20,000; the Asset account Accounts Receivable is decreased by $20,000.
(2) Equation Analysis
(3) Debit−Credit Analysis		Debits increase assets: debit Cash $20,000. Credits decrease assets: credit Accounts Receivable $20,000.

Transaction 8		Feb. 24: Paid office expenses for the month $22,000.
(1) Basic Analysis		The expense account Office Expense is increased by $22,000; the asset account Cash is decreased by $22,000.
(2) Equation Analysis
(3) Debit−Credit Analysis		Debits increase expenses: debit Office Expense $22,000. Credits decrease assets: credit Cash $22,000.

Transaction 9		Feb.27: Recorded salaries due to employees for work performed during the month, $14,000.
(1) Basic Analysis		The expense account Salaries Expense is increased by $14,000; the liability account Salaries Payable is increased by $14,000.
(2) Equation Analysis
(3) Debit−Credit Analysis		Debits increase expenses: debit Salaries Expense $14,000. Credits increase liabilities: credit Salaries Payable $14,000.

Transaction 10		Feb. 28: Paid interest of $50 on the bank loan signed Feb. 3.
(1) Basic Analysis		The expense account Interest Expense is increased by $50; the asset account Cash is decreased by $50.
(2) Equation Analysis
(3) Debit−Credit Analysis		Debits increase expenses: debit Interest Expense $50. Credits decrease assets: credit Cash $50.

(b)

Feb.   2	Supplies....................................................................         Accounts Payable............................................	600	600
3	Equipment................................................................         Bank Loan Payable .........................................	10,000	10,000
6	Cash......................................................................... Accounts Receivable ..............................................         Service Revenue..............................................	30,000 20,000	0 50,000
13	Dividends................................................................         Cash.................................................................	500	500
18	Cash.........................................................................         Unearned Revenue..........................................	2,000	2,000
18	Accounts Payable....................................................         Cash.................................................................	600	600
23	Cash.........................................................................         Accounts Receivable.......................................	20,000	20,000
24	Office Expense........................................................         Cash...................................................................	22,000	22,000
27	Salaries Expense......................................................         Salaries Payable...............................................	14,000	14,000
28	Interest Expense......................................................         Cash.................................................................	50	50