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.
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?