Each account has a normal balance. For the following list of accounts indicate

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 $1530

2. Purchases of supplies on account for $1365

3. Services provided for cash of $750

4. Purchase of equipment for cash of $4240

5. Issuance of a promissory note for $2500

6. Collections on account for $890

7. Sale of capital stock in exchange for a parcel of land; the land is appraised at $50000

8. Payment of $4000 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 $9000 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 $1800.

May 24: Billed the local park district $1200 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 $3000.

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?