Brief Exercise 3.

3:
Wagner Excavating organized as a corporation on January 18 and engaged in the following
transactions during its first two weeks of operation:
Jan. 18 Issued capital stock in exchange for $400,000 cash.
Jan. 22 Borrowed $100,000 from its bank by issuing a note payable.
Jan. 23 Paid $200 for a radio advertisement aired on January 24.
Jan. 25 Provided $5,000 of services to clients for cash.
Jan. 26 Provided $18,000 of services to clients on account.
Jan. 31 Collected $4,200 cash from clients for the services provided on January 26.
Required:
a) Record each of these transactions.
b) Determine the balance in the Cash account on January 31. Be certain to state whether
the balance is debit or credit.
 A)
Date Account Titles and Explanation Debit Credit
Jan. 18 Cash 400,000
Capital Stock 400,000
Issued capital stock for $400,000.

Jan.22 Cash 100,000

Notes Payable 100,000
Borrowed $100,000 by issuing a note payable.

Jan.23 Advertising Expense 200

Cash 200
Paid for radio advertising.

Jan.25 Cash 5,000

Service Revenue 5,000
Provided services to customers.

Jan.26 Accounts Receivable 18,000

Service Revenue 18,000
Provided services to customers on account.

Jan.31 Cash 4,200

Accounts Receivable 4,200
Collected $4,200 from customers for the services performed on
January 26.

B)

Balance of cash account on January 31: ($400,000 + $100,000 + $5,000 + $4,200) - $200 =
$509,000 (debit)
Brief Exercise 3.5
mastrolia Corporation's Retained Earnings account balance was $25,000 on January 1. During
January, the company recorded revenue of $80,000, expenses of $60,000, and dividends of
$5,000.
The company also collected a $9.000 account receivable and paid a $6,000 account payable
during the period.
Determine the company's Retained Earnings account balance on January 31.

Answer:
Beginning Retained Earnings (1/1) ……… $ 25,000
Add: Net income ($80,000 - $60,000) ..…….. 20,000
Less: Dividends…………………...…………… (5,000)
Ending Retained Earnings (1/31)………………. $ 40,000

Receivable collections and liability payments do not affect Retained Earnings.

EXERCISE 3.10
Janet Enterprises incorporated on May 3, current year. The company engaged in the
following transactions during its first month of operations:

May 3 Issued capital stock in exchange for $950,000 cash.

May 4 Paid May office rent expense of $1,800.
May 5 Purchased office supplies for $600 cash. The supplies will last for several months.
May 15 Purchased office equipment for $12,400 on account. The entire amount is due June
15.
May 18 Purchased a company car for $45,000. Paid $15,000 cash and issued a note payable
for the remaining amount owed.
May 20 Billed clients $120,000 on account.
May 26 Declared a $8,000 dividend. The entire amount will be distributed to shareholders on
June 26.
May 29 Paid May utilities of $500.
May 30 Received $90,000 from clients billed on May 20.
May 31 Recorded and paid salary expense of $32,000.

A partial list of the account titles used by the company includes:

Cash Dividends Payable

Accounts Receivable Dividends
Office Supplies Capital Stock
Office Equipment Client Revenue
Vehicles Office Rent Expense
Notes Payable Salary Expense
Accounts Payable Utilities Expense

a. Prepare journal entries, including explanations, for the above transactions.

b. Post each entry to the appropriate ledger accounts (use the T account format illustrated in
Exhibit 3–8 on page 108).
c. Prepare a trial balance dated May 31, current year. Assume accounts with zero balances are
not included in the trial balance.
a.
Date Account Titles & Explanation Debit Credit

May 3 Cash……………………………………………. 950,000

Capital Stock……………………………. 950,000
Issued capital stock for $950,000.

4 Office Rent Expense…………………………….. 1,800

Cash………………………………………. 1,800
Paid May office rent expense.

5 Office Supplies…………………………………… 600

Cash…………………………………. 600
Purchased office supplies.

15 Office Equipment…………………………………. 12,400

Accounts Payable……………………… 12,400
Purchased office equipment on account. Amount
due June 15.

18 Vehicles………………………………………… 45,000
Cash ……………………………………. 15,000
Notes Payable…………………………… 30,000
Purchased a company car. Paid $15,000 cash and
issued a $30,000 note payable for the balance.

20 Accounts Receivable………………………… 120,000

Client Revenue……………………….. 120,000
Billed clients for services on account.

26 Dividends………………………………………. 8,000
Dividends Payable…………………….. 8,000
Declared dividend to be distributed in June.

29 Utilities Expense……………………………… 500

Cash……………….……………………… 500
Paid May utilities.

30 Cash…………………………………………… 90,000
Accounts Receivable…………………… 90,000
Collected cash on account from clients billed on
May 20.
 31 Salary Expense………………………………… 32,000
Cash…………………………………… 32,000
Paid salary expense incurred in May.

b.
Cash Accounts Receivable
May 3 950,000 May 4 1,800 May 20 120,000 May 30 90,000
May 30 90,000 May 5 600
May 18 15,000
May 29 500
May 31 32,000
May 31 bal. 990,100 May 31 bal. 30,000

Office Supplies Office Equipment

May 5 600 May 15 12,400

May 31 bal. 600 May 31 bal. 12,400

Vehicles Notes Payable

May 18 45,000 May 18 30,000

May 31 bal. 45,000 May 31 bal. 30,000

Accounts Payable Dividends Payable

May 15 12,400 May 26 8,000

May 31 bal. 12,400 May 31 bal. 8,000

Capital Stock Client Revenue

May 3 950,000 May 20 120,000

May 31 bal. 950,000 May 31 bal. 120,000

 Office Rent Expense Salary Expense
May 4 1,800 May 31 32,000

May 31 bal. 1,800 May 31 bal. 32,000

Utilities Expense Dividends

May 29 500 May 26 8,000

May 31 bal. 500 May 31 bal. 8,000

c.

Janet Enterprises Incorporated

Trial Balance
May 31, Current Year

Cash……………………………………. $ 990,100
Accounts receivable……………………… 30,000
Office supplies………………………… 600
Office equipment……………………… 12,400
Vehicles……………………………….. 45,000
Notes payable…………………………. $ 30,000
Accounts payable………………………. 12,400
Dividends payable…………………….. 8,000
Dividends……………………………….. 8,000
Capital stock………………………….. 950,000
Client revenue…………………………. 120,000
Office rent expense……………………… 1,800
Salary expense……………………….. 32,000
Utilities expense……………………….. 500
Total……………………………………. $ 1,120,400 $ 1,120,400