Chapter 08

Chapter 8
Recording Business Transactions
Exercises
Exercise 1
a. Rent Expense 7,000

Rent Payable (or Accounts Payable) 7,000
b. Prepaid Insurance 10,000

Cash 10,000
c. Mhel Aguilar, Drawing 3,000

Cash 3,000
d. Rent Payable (or Accounts Payable) 7,000

Cash 7,000
e. Land 180,000
Cash 90,000
Notes Payable 90,000
Exercise 2
ACCOUNTS PAYABLE Account No. 212

POST. BALANCE
DATE ITEM REF DEBIT CREDIT DEBIT CREDIT
2007
Aug. 1 J1 17,500 17,500
7 J1 5,000 12,500
8 J2 3,500 16,000
12 J2 1,000 15,000
Exercise 3
a. P0
b. P900
c. P10,000
2 Chapter 8
Exercise 4
a. Debit
b. Credit
c. Credit
d. Debit
e. Debit
f. Credit
g. Debit
h. Credit
i. Debit
j. Credit
Exercise 5
Nov. 1 Cash 120,000

Kai Venice, Capital 120,000
2 Prepaid Rent 20,000

Cash 20,000
4 No entry
6 Sound Equipment 15,000

Cash 3,000
Accounts Payable 12,000
8 No entry
17 Cash 4,500
Accounts Receivable 500
Tuition Revenue 5,000
17 Wages Expense 2,200

Cash 2,200
20 Cash 500
Accounts Receivable 500
21 Accounts Payable 6,000

Cash 6,000
23 Utilities Expense 400

Accounts Payable 400
Recording Business Transactions 3
Exercise 6
Assets Debit
Liabilities Credit
Owners Equity Credit
Revenues Credit
Expenses Debit
Exercise 7
Requirement (1)
RJ Tan Import Service

Income Statement
For the Year Ended December 31, 2007
Revenues
Service revenue P1,512,000
Expenses
Salary expense P490,000
Rent expense 240,000
Utilities expense 68,000
Supplies expense 40,000
Property tax expense 12,000
Total expenses 850,000
Net income P 662,000
Requirement (2)
First, we prepare the statement of owners equity for the year ended December
31, 2007. The format of the statement of owners equity is as follows:
Statement of Owners Equity
Capital, beginning of year P -0-

Add: Investment by owner 150,000
Net income for the year (Req. 1) 662,000
812,000
Less: Withdrawals by owner 541,000
Capital, end of year P271,000
4 Chapter 8
To solve for proprietors withdrawals, we put the data in equation form:

P0 + P150,000 + P662,000 PX = P271,000
X = P662,000 P150,000 P271,000
X = P541,000
Exercise 8
Date Analysis of Transactions and Journal Entries

Dec. 4 The asset Cash is increased; therefore, debit Cash.
The liability Note Payable is increased; therefore, credit Note
Payable.
Cash....................................................... 120,000
Note Payable.............................. 120,000
8 The asset Accounts Receivable is increased; therefore, debit

Accounts Receivable.
The revenue Service Revenue is increased; therefore, credit Service
Revenue.
Accounts Receivable.............................. 16,000
Service Revenue........................ 16,000
12 The asset Office Furniture is increased; therefore, debit Office

Furniture.
The liability Accounts Payable is increased; therefore, credit
Accounts Payable.
Office Furniture....................................... 8,100
Accounts Payable...................... 8,100
19 The asset Cash is increased; therefore, debit Cash.

The asset Land is decreased; therefore, credit Land.
Cash....................................................... 740,000
Land........................................... 740,000
24 The asset Building is increased; therefore, debit Building.

The liability Note Payable is increased; therefore, credit Note
Payable.
Building................................................... 1,400,000
Note Payable.............................. 1,400,000
Dec. 27 The liability Accounts Payable is decreased; therefore, debit

Accounts Payable.
The asset Cash is decreased; therefore, credit Cash.
Accounts Payable................................... 8,100
Cash........................................... 8,100
Exercise 9
JOURNAL
Page 1
Post
Date Account Titles and Explanation Ref Debit Credit
2007
Mar. 1 Cash 590,000
Anne Shin, Capital 590,000
Investment by owner.
2 Office Supplies 2,000

Purchased office supplies on account.
4 Building 400,000
Cash 400,000
Paid cash for a building.
6 Cash 20,000
Service Revenue 20,000
Performed services for cash.

Cash 1,000
Paid cash on account.
17 Accounts Receivable 16,000

Performed service on account.
23 Cash 12,000
Accounts Receivable 12,000
Received cash on account.
31 Salary Expense 12,000

Rent Expense 5,000
Cash 17,000
Paid cash expenses.
6 Chapter 8
Exercise 10
Cash Accounts Receivable

Mar. 1 590,000 Mar. 4 400,000 Mar. 17 16,000 Mar. 23 12,000
6 20,000 9 1,000 Mar. 31 4,000
23 12,000 31 17,000
Mar. 31 204,000
Office Supplies Building

Mar. 2 2,000 Mar. 4 400,000
Mar. 31 2,000 Mar. 31 400,000
Accounts Payable Anne Shin, Capital

Mar. 9 1,000 Mar. 2 2,000 Mar. 1 590,000
Mar. 31 2,000 Mar. 31 590,000
Service Revenue Salary Expense

Mar. 6 20,000 Mar. 31 12,000
17 16,000 Mar. 31 10,000
Mar. 31 36,000
Rent Expenses
Mar. 31 5,000
Mar. 31 5,000
Exercise 11
Tarlac Enterprises
Trial Balance
February 28, 2007
Account Debit Credit

Cash P46,000*
Accounts receivable 16,000
Supplies 6,000
Land 460,000
Accounts payable P41,000*
Emz Iglesia, capital 420,000*
Service revenue 97,000
Salary expense 17,000
Rent expense 8,000
Utilities expense 5,000*
Total P558,000 P558,000
_______
* Explanations:
Cash: P42,000 + P4,000 = P46,000
Accounts Receivable: P20,000 P4,000 = P16,000
Accounts Payable: P30,000 + P10,000 P1,000 + P2,000 = P41,000
Emz Iglesia, Capital: P416,000 + P4,000 = P420,000
Utilities Expense: P3,000 + P2,000 = P5,000
Exercise 12
Cash Accounts Receivable

(a) 72,000 (b) 15,000 (f) 16,000 Mar. 23 12,000
(d) 18,000 Mar. 31 4,000
(e) 4,000
(g) 20,000
Bal. 15,000
Office Supplies Building

Mar. 2 2,000 Mar. 4 400,000
Mar. 31 2,000 Mar. 31 400,000
Accounts Payable Anne Shin, Capital

Mar. 9 1,000 Mar. 2 2,000 Mar. 1 590,000
Mar. 31 2,000 Mar. 31 590,000
8 Chapter 8
Service Revenue Salary Expense

Mar. 6 20,000 Mar. 31 12,000
17 16,000 Mar. 31 10,000
Mar. 31 36,000
Rent Expenses
Mar. 31 5,000
Mar. 31 5,000
Exercise 13
The ethical issue is whether Alalay sa Kapwa is taking advantage of the banks
generosity.
Students who approve of Alalay sa Kapwa action can point out that the bank
allows Alalay sa Kapwa to overdraw its cash balance. In this view, Alalay sa
Kapwa is merely using a privilege the bank has granted. Most banks are civic-
minded and are relatively generous with charitable organizations.
Students who disapprove may argue that Alalay sa Kapwa is using the banks
money adequately compensating the bank a subtle form of stealing. In this
view, Alalay sa Kapwa should curtail its spending until it has the money to cover
its expenditures and maintain a positive balance. Alternatively, Alalay sa Kapwa
could sign a note payable to borrow the needed money. The related interest is
the banks compensation.
The bank is the key player in this case. Whether the bank approves or
disapproves of Alalay sa Kapwa overdrafts is critical to the ethical decision.
Approval by the bank turns the overdrafts into a gift to Alalay sa Kapwa.
Disapproval by the bank would no doubt be communicated to Mr. Oscar.
Exercise 14
Date Analysis of Transactions

May 1 Given in the problem; not required for May 1 transaction.
5 The expense Rent Expense is increased. Increases in expenses are
recorded by debits; therefore, debit Rent Expense.
The asset Cash is decreased. Decreases in assets are recorded by
credits; therefore, credit Cash.
May 9 The asset Land is increased. Increases in assets are recorded by

debits; therefore, debit Land.

credits; therefore, debit Cash.
10 The asset Supplies is increased. Increases in assets are recorded
by debits; therefore, debit Supplies.
The liability Accounts Payable is increased. Increases in liabilities
are recorded by credits; therefore, credit Accounts Payable.
19 The liability Accounts Payable is decreased. Decreases in liabilities
are recorded by debits; therefore, debit Accounts Payable.
credits; therefore, credit Cash.
22 The asset Cash is increased. Increases in assets are recorded by
debits; therefore, debit Cash.
The liability Notes Payable is increased. Increased in liabilities are
recorded by credits; therefore, credit Notes Payable.
30 The assets Cash and Accounts Receivable are increased. Increases
in assets are recorded by debits; therefore, debit Cash and Accounts
Receivable.
The revenue Service Revenue is increased. Increases in revenues
are recorded by credits; therefore, credit Service Revenue for the
sum of the debits to Cash and Accounts Receivable.
30 The expenses Salary Expense, Rent Expense, and Utilities Expense
are increased. Increases in expense are recorded by debits;
therefore, debit Salary Expense, Rent Expense, and Utilities
Expense.
credits; therefore, credit Cash for the sum of the three debit amounts.
30 The owners equity of the business is decreased. Decreases in
owners equity are recorded by debits. Decreases due to
withdrawals by the owner are debited to the Withdrawals account;
therefore, debit Jayce Ferrer, Withdrawals.
credits; therefore credit Cash.
JOURNAL
Page 1
10 Chapter 8
Post
Date Accounts and Explanation Ref Debit Credit
May 1 Cash 500,000

Jayce Ferrer, Capital 500,000
5 Rent Expense 7,000

Cash 7,000
9 Land 420,000
Cash 420,000
10 Supplies 12,000

Cash 10,000
22 Cash 200,000
30 Cash 60,000
Received cash on account.
30 Salary Expense 24,000

Rent Expense 15,000
Utilities Expense 4,000
Cash 43,000
30 Jayce Ferrer, Withdrawals 40,000

Cash 40,000
Exercise 15
Palace Copy Center

Trial Balance
October 31, 2007
12 Chapter 8
Account Debit Credit

Cash P 34,000
Supplies 6,000
Office furniture 13,000
Land 460,000
Accounts payable P 21,000
Note payable 183,000
Lorna Rodriguez, capital 308,000
Lorna Rodriguez, withdrawals 50,000
Salary expense 10,000
Rent expense 10,000
Advertising expense 3,000
Utilities expense 2,600
Office maintenance expense 2,000
Property tax expense 1,000
Total P617,000 P617,000
Explanations:
Cash: P38,000 P4,000 = P34,000

Accounts receivable: P20,000 P600 + P6,000 = P25,400
Supplies: P5,000 + P1,000 = P6,000
Accounts payable: P20,000 + P1,000 = P21,000
Lorna Rodriguez, capital: P295,000 + P13,000 = P308,000
Lorna Rodriguez, withdrawals: P37,000 + P13,000 = P50,000
Service revenue: P49,000 + P56,000 = P105,000
Rent expense: P6,000 + P2,000 + P2,000 = P10,000
Utilities expense: P2,000 + P600 = P2,600
Exercise 16
May 2 Cash 50,000

Share Capital 50,000
5 Office Equipment 25,000

Cash 25,000
7 Supplies 3,000
19 Cash 5,000
Service Revenues 5,000
22 Cash 6,000
Unearned Service Revenue 6,000
25 Rent Expense 6,500

Cash 6,500

Exercise 17
Cash Office Equipment Supplies

May 2 50,000 May 5 25,000 May 5 25,000 May 7 3,000
19 5,000 25 6,500
22 6,000
61,000 31,500
Balance 29,500
Accounts Receivable Rent Expense Accounts Payable

May 31 25,000 May 25 6,500 May 7 3,000
Service Revenue Unearned Service Revenue Share Capital

May 19 5,000 May 22 6,000 May 2 50,000
31 25,000
30,000
Exercise 18
Jones Programming Service, Inc.

14 Chapter 8
Trial Balance
May 31, 2007
Debit Credit
Cash P29,500
Supplies 3,000
Office equipment 25,000
Unearned service revenue 6,000
Rent expense 6,500
Share capital 50,000
P89,000 P89,000
Exercise 19
Smallville Company
Trial Balance
June 30, 2008
Debit Credit
Cash (balancing figure) P 1,000
Equipment 20,000
M. Cruz, capital 22,000
Office expense 9,000
P44,000 P44,000
Exercise 20
Kim Beauty Service

Trial Balance
January 31, 2007
Debit Credit
Cash P20,000
Prepaid rent 1,500
Unearned service revenue 2,500
Ling Kim, Capital 15,000
Ling Kim, Drawing 6,500
Wage expense
Fuel expense 8,000
P52,000 P39,000
Unlocated difference 13,000
P52,000 P52,000
Multiple Choice Questions
1. b 11. c 21. d 31. a 41. d

2. a 12. b 22. b 32. a
3. c 13. b 23. b 33. b
4. a 14. c 24. b 34. c
5. b 15. c 25. a 35. d
6. d 16. a 26. a 36. c
7. c 17. b 27. d 37. a
8. c 18. c 28. c 38. a
9. c 19. a 29. d 39. b*
10. a 20. b 30. b 40. b
* (P68,000 = P25,000 + P43,000)
Test Material
16 Chapter 8
Test Material 8-1
Requirement (1)
a. Cash 184,000
Furniture 62,000
Microcomputers 146,000
Garcia, Capital 392,000
To record initial investment of E. Garcia.
b. Rent expense 5,600

Cash 5,600
To record payment of rent.
c. Software 15,000
Accounts payable 15,000
To take up purchase of computer software on credit.
d. Advertising expense 2,000

Cash 2,000
To record payment of advertisement.
e. No entry.
f. Wages expense 3,000

Cash 3,000
To record payment of wages.
g. Cash 12,000
Tuition revenue 12,000
To record collection from 3 students.
h. Account receivable 8,000

Tuition revenue 8,000
To record billing for 2 students.
i. Utility expense 2,200

Cash 2,200
To record payment of utility bill.
j. Accounts payable 5,000

Cash 5,000
To record partial payment of software purchased.
k. Cash 4,000
To record collection from one student billed.
l. Microcomputers 94,000
Cash 94,000
To record purchase of 2nd microcomputer.
m. Garcia, Drawing 6,000

Cash 6,000
To record withdrawal for personal use.
Requirement (2) T-accounts
Cash Furniture Microcomputers

(a) 184,000 (b) 5,600 (a) 62,000 (a) 146,000
(g) 12,000 (d) 2,000 (l) 94,000
(k) 4,000 (f) 3,000 240,000
(i) 2,200
(j) 5,000
(l) 94,000
(m) 6,000
82,200
Software Accounts Receivable Accounts Payable

(c) 15,000 (h) 8,000 (k) 4,000 (j) 5,000 (c) 15,000
4,000 10,000
Advertising Expense Rent Expense Wages Expense

(d) 2,000 (b) 5,600 (f) 3,000
Utility Expense Tuition Revenue Garcia, Capital

(i) 2,200 (g) 12,000 (a) 392,000
(h) 8,000
20,000
Garcia, Drawing
(m) 6,000
Requirement (3)
18 Chapter 8
Garcia Training Center

Trial Balance
(current date)
Debit Credit
Cash P 82,200
Software 15,000
Furniture 62,000
Microcomputers 240,000
Accounts Payable P 10,000
Garcia, Capital 392,000
Garcia, Drawing 6,000
Tuition Revenue 20,000
Wages Expense 3,000
Utility Expense 2,200
Rent Expense 5,600
Advertising Expense 2,000
P422,000 P422,000
Test Material 8-2
Requirement (1)
GENERAL JOURNAL
Date Particulars F Debit Credit

Dec. 3 Accounts Payable 2,800
Cash 2,800

6 Pick-up Truck Expense 5,800

Cash 5,800
7 Supplies 3,000
8 Cash 5,800
9 Equipment 26,000
11 Pick-up Truck Expense 800

Accounts Payable 800

Equipment 6,400
14 Cash 3,800
16 Accounts Payable 800

Cash 800

Cash 3,000

22 Equipment 5,600
24 Cash 7,800
20 Chapter 8
GENERAL JOURNAL

Dec. 28 Pick-up Truck Expenses 600
Cash 600
30 Notes Payable 12,000

Cash 12,000
31 Legarda, Drawing 2,200

Cash 2,200
Requirements (2) and (3)
Cash Account No. 111

Date Explanation Debit Credit Balance
2008
Dec 1 Balance 62,000 62,000
3 2,800 59,200
6 5,800 53,400
8 5,800 59,200
14 3,800 63,000
16 800 62,200
20 3,000 59,200
24 7,800 67,000
28 600 66,400
30 12,000 54,400
31 2,200 52,200
Accounts Receivable Account No. 113

2008
Dec 1 Balance 4,400 4,400
5 8,200 12,600
14 3,800 8,800
21 5,400 14,200
24 7,800 6,400
Supplies Account No. 115

2008
7 3,000 12,200
Prepaid Insurance Account No. 116

2008
Equipment Account No. 141

2008
Dec 1 Balance 88,000 88,000
9 26,000 114,000
13 6,400 107,600
13
22 5,600 113,200
Notes Payable Account No. 211

2008
Dec 1 Balance 60,000 60,000
30 12,000 48,000
22 Chapter 8
Accounts Payable Account No. 212

2008
Dec 1 14,000 14,000
3 2,800 11,200
7 3,000 14,200
9 26,000 40,200
11 800 41,000
13 6,400 34,600
16 800 33,800
20 3,000 30,800
22 5,600 36,400
Legarda, Capital Account No. 311

2008
Dec 1 Balance 84,000 84,000
Legarda, Drawing Account No. 312

2008
31 2,200 10,600
Service Revenue Account No. 411

2008
Dec 1 Balance 29,800 29,800
5 8,200 38,000
8 5,800 43,800
21 5,400 49,200
Lease Expense Account No. 412

2008
Pickup Truck Expense Account No. 413

2008
6 5,800 7,800
11 800 8,600
28 600 9,200
Requirement (4)
Legarda Lawn Service

Trial Balance
January 31, 2009
Cash (111) P52,200

Accounts Receivable (113) 6,400
Supplies (115) 12,200
Prepaid Insurance (116) 8,000
Equipment (141) 113,200
Notes Payable (211) P48,000
Accounts Payable (212) 36,400
Legarda, Capital (311) 84,000
Legarda, Drawing (312) 10,600
Service Revenue (411) 49,200
Lease Expense (412) 5,800
Pickup Truck Expense (413) 9,200
P217,600 P217,600
24 Chapter 8
Test Material 8-3
Requirement (1)
GENERAL JOURNAL

June 3 Cash 142,000
Equipment 24,600
Gomez, Capital 166,600
5 Truck 38,000
Cash 10,000
7 Supplies 6,400

Painting Fees Earned 9,600
10 Cash 3,000
11 No entry
12 Supplies 3,200
Cash 3,200
13 Cash 9,600
14 Prepaid Insurance 8,000

Cash 8,000


Cash 3,000
19 Truck Expense 800

Cash 800

Cash 6,400
GENERAL JOURNAL

June 21 Equipment 1,200
Supplies 5,800
23 Telephone Expense 1,200

24 Cash 6,600
26 Cash 7,200
28 Notes Payable 4,000

Cash 4,000

Cash 3,600
30 Gomez, Drawing 6,000

Cash 6,000
Requirement (2)
Cash Accounts Receivable Supplies

June 3 142,000 June 5 10,000 June 8 9,600 June 13 9,600 June 7 6,400
10 3,000 12 3,200 16 12,400 24 6,600 12 3,200

13 9,600 14 8,000 22,000 16,200 21 5,800
24 6,600 18 3,000 5,800 15,400
26 7,200 19 800
20 6,400
28 4,000
29 3,600
30 6,000
168,400 45,000
123,400
Prepaid Insurance Equipment Truck

June14 8,000 June 3 24,600 June 5 38,000
21 1,200
25,800
Notes Payable Accounts Payable Gomez, Capital

June 28 4,000 June 5 28,000 June 20 6,400 June 7 6,400 June 3 166,600
24,000 21 7,000
23 1,200
8,200
26 Chapter 8
Gomez, Drawing Painting Fees Earned Wage Expense

June 30 6,000 June 8 9,600 June 18 3,000
10 3,000 29 3,600
16 12,400 6,600
26 7,200
32,200
Telephone Expense Truck Expense

June 23 1,200 June 19 800
Requirement (3)
Gomez Painting Service

Trial Balance
June 30, 2008
Cash P123,400
Supplies 15,400
Prepaid Insurance 8,000
Equipment 25,800
Truck 38,000
Notes Payable P 24,000
Gomez, Capital 166,600
Gomez, Drawing 6,000
Wages Expense 6,600
Telephone Expense 1,200
Truck Expense 800
P231,000 P231,000
Requirement (4)
a. Since the painting services have been rendered on June 8 and June 10,
income should be recognized. Since June 8s service has not been paid for,
a receivable should be set up as contrasted with June 10s service which has
been settled or paid by the customer.
b. Both transactions involved payment for benefits that the company would
receive and had received. June 14 payment of insurance premium for 18
months represents consideration for the protection / coverage for a future
period hence, an asset is set up, Prepaid Insurance. June 18 payment is for
services already received by the company, hence an expense was
recognized.

Chapter 08

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Chapter 8

Recording Business Transactions

a. Rent Expense 7,000

b. Prepaid Insurance 10,000

c. Mhel Aguilar, Drawing 3,000

d. Rent Payable (or Accounts Payable) 7,000

ACCOUNTS PAYABLE Account No. 212

Nov. 1 Cash 120,000

2 Prepaid Rent 20,000

6 Sound Equipment 15,000

17 Wages Expense 2,200

21 Accounts Payable 6,000

23 Utilities Expense 400

RJ Tan Import Service

Statement of Owners Equity

Capital, beginning of year P -0-

To solve for proprietors withdrawals, we put the data in equation form:

Date Analysis of Transactions and Journal Entries

8 The asset Accounts Receivable is increased; therefore, debit

12 The asset Office Furniture is increased; therefore, debit Office

19 The asset Cash is increased; therefore, debit Cash.

24 The asset Building is increased; therefore, debit Building.

Dec. 27 The liability Accounts Payable is decreased; therefore, debit

2 Office Supplies 2,000

9 Accounts Payable 1,000

17 Accounts Receivable 16,000

31 Salary Expense 12,000

Cash Accounts Receivable

Office Supplies Building

Accounts Payable Anne Shin, Capital

Service Revenue Salary Expense

Account Debit Credit

Cash Accounts Receivable

Office Supplies Building

Accounts Payable Anne Shin, Capital

Service Revenue Salary Expense

Date Analysis of Transactions

May 9 The asset Land is increased. Increases in assets are recorded by

The asset Cash is decreased. Decreases in assets are recorded by

May 1 Cash 500,000

5 Rent Expense 7,000

19 Accounts Payable 10,000

30 Salary Expense 24,000

30 Jayce Ferrer, Withdrawals 40,000

Palace Copy Center

Account Debit Credit

Total P617,000 P617,000

Cash: P38,000 P4,000 = P34,000

May 2 Cash 50,000

5 Office Equipment 25,000

25 Rent Expense 6,500

31 Accounts Receivable 2,500

Cash Office Equipment Supplies

Accounts Receivable Rent Expense Accounts Payable

Service Revenue Unearned Service Revenue Share Capital

Jones Programming Service, Inc.

Kim Beauty Service

Multiple Choice Questions

1. b 11. c 21. d 31. a 41. d

* (P68,000 = P25,000 + P43,000)

Test Material 8-1

b. Rent expense 5,600

d. Advertising expense 2,000

f. Wages expense 3,000