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Q42CP

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Horngren'S Financial And Managerial Accounting
Found in: Page 114

Short Answer

Journalizing transactions, posting to T-accounts, and preparing a trial balance

Problem P2-42 continues with the company introduced in Chapter 1, Canyon Canoe Company. Here you will account for Canyon Canoe Company’s transactions as it is actually done in practice. Begin by reviewing the transactions from Chapter 1. The transactions have been reprinted below.

Nov. 1 Received $16,000 cash to begin the company and issued common stock to Amber and Zach.

2 Signed a lease for a building and paid $1,200 for the first month’s rent.

3 Purchased canoes for $4,800 on account.

4 Purchased office supplies on account, $750.

7 Earned $1,400 cash for rental of canoes.

13 Paid $1,500 cash for wages.

15 Paid $50 dividends to stockholders.

16 Received a bill for $150 for utilities. (Use separate payable account.)

20 Received a bill for $175 for cell phone expenses. (Use separate payable account.)

22 Rented canoes to Early Start Daycare on account, $3,000.

26 Paid $1,000 on account related to the November 3 purchase.

28 Received $750 from Early Start Daycare for canoe rental on November 22.

30 Paid $100 dividends to stockholders

In addition, Canyon Canoe Company completed the following transactions for December.

Dec. 1 Amber and Zack contributed land on the river (worth $85,000) and a small building to use as a rental office (worth $35,000) in exchange for common stock.

1 Prepaid $3,000 for three months’ rent on the warehouse where the company stores the canoes.

2 Purchased canoes signing a note payable for $7,200

4 Purchased office supplies on account for $500.

9 Received $4,500 cash for canoe rentals to customers.

15 Rented canoes to customers for $3,500, but will be paid next month.

16 Received a $750 deposit from a canoe rental group that will use the canoes next month.

18 Paid the utilities and telephone bills from last month.

19 Paid various accounts payable, $2,000.

20 Received bills for the telephone ($325) and utilities ($295) which will be paid later.

31 Paid wages of $1,800. 31 Paid cash dividend to stockholders, $300.

Requirements

1. Journalize the transactions for both November and December, using the following accounts: Cash; Accounts Receivable; Office Supplies; Prepaid Rent; Land; Building; Canoes; Accounts Payable; Utilities Payable; Telephone Payable; Unearned Revenue; Notes Payable; Common Stock; Dividends; Canoe Rental Revenue; Rent Expense; Utilities Expense; Wages Expense; and Telephone Expense. Explanations are not required. (Hint: For November transactions, refer to your answer for Chapter 1.)

2. Open a T-account for each of the accounts.

3. Post the journal entries to the T-accounts, and calculate account balances. Formal posting references are not required.

4. Prepare a trial balance as of December 31, 2018.

5. Prepare the income statement of Canyon Canoe Company for the two months ended December 31, 2018.

6. Prepare the statement of retained earnings for the two months ended December 31, 2018.

7. Prepare the balance sheet as of December 31, 2018.

8. Calculate the debt ratio for Canyon Canoe Company at December 31, 2018

Journal entries are passed. T-accounts are opened and prepared. The trial balance is prepared. The financial statements are prepared such as income statement, statement of owner’s equity and balance sheet. The debt ratio is computed as 0.075 or 7.5%

See the step by step solution

Step by Step Solution

Step-by-Step SolutionStep 1: Recording Journal Entries

Journal

Date

Particulars

Debit ($)

Credit ($)

Nov

1

Cash

$16,000

Wilson Capital

$16,000

2

Rent Expense

$1,200

Cash

$1,200

3

Canoes

$4,800

Accounts Payable

$4,800

4

Office Supplies

$750

Accounts Payable

$750

7

Cash

$1,400

Canoe Rental Revenue

$1,400

13

Wages Expense

$1,500

Cash

$1,500

15

Wilson, Withdrawals

$50

Cash

$50

16

Utilities Expense

$150

Utilities Payable

$150

20

Telephone Expense

$175

Telephone Payable

$175

22

Accounts Receivables

$3,000

Canoe Rental Revenue

$3,000

26

Accounts Payable

$1,000

Cash

$1,000

28

Cash

$750

Accounts Receivables

$750

30

Wilson, Withdrawal

$100

Cash

$100

Dec.

1

Land

$85,000

Building

$35,000

Wilson, Capital

$120,000

1

Prepaid Rent

$3,000

Cash

$3,000

2

Canoes

$7,200

Notes Payable

$7,200

4

Office Supplies

$500

Accounts payable

$500

9

Cash

$4,500

Canoe Rental Revenue

$4,500

15

Accounts Receivables

$3,500

Canoe Rental Revenue

$3,500

16

Cash

$750

Unearned Revenue

$750

18

Utilities Payable

$150

Telephone payable

$175

Cash

$325

19

Accounts Payable

$2,000

Cash

$2,000

20

Telephone Expense

$325

Utilities Expense

$295

Telephone Payable

$325

Utilities Payable

$295

31

Wages Expense

$1,800

Cash

$1,800

31

Wilson, Withdrawal

$300

Cash

$300

Step 2: Opening T-accounts and Posting to T-account

CASH

Nov 1 $16,000

$1,200 Nov 2

Nov 7 $1,400

$1,500 Nov 13

Nov 28 $750

$50 Nov 15

Dec 9 $4,500

$1,000 Nov 26

Dec 16 $750

$100 Nov 30

$3,000 Dec 1

$325 Dec 18

$2,000 Dec 19

$1,800 Dec 31

$300 Dec 31

Balance $12,125

Accounts Receivable

Nov 22 $3,000

750 Nov 28

Dec 15 $3,500

Balance $5,750

Office Supplies

Nov 4 $750

Dec 4 $500

Balance $1,250

Prepaid Rent

Dec 1 $3,000

Balance $3,000

Land

Dec 1 $85,000

Balance $85,000

Building

Dec 1 $35,000

Balance $35,000

Canoes

Nov 3 $4,800

Dec 2 $7,200

Balance $12,000

Accounts Payable

Nov 26 $1,000

$4,800 Nov 3

Dec 19 $2,000

$750 Nov 4

$500 Dec 4

$3,050 Balance

Utilities Payable

Dec 18 $150

$150 Nov 16

$295 Dec 20

$295 Balance

Telephone Payable

Dec 18 $175

$175 Nov 20

$325 Dec 20

$325 Balance

Unearned Revenue

$750 Dec 16

$750 Balance

Notes Payable

$7,200 Dec 2

$7,200 Balance

Wilson, Capital

$16,000 Nov 1

$120,000 Dec 1

$136,000 Balance

Wilson, Withdrawals

Nov 15 $50

Nov 30 $100

Dec 31 $300

Balance $450

Canoe Rental Revenue

$1,400 Nov 7

$3,000 Nov 22

$4,500 Dec 9

$3,500 Dec 15

$12,400 Balance

Rent Expense

Nov 2 $1,200

Balance $1,200

Wages Expense

Nov 13 $1,500

Dec 31 $1,800

Balance $3,300

Utilities Expense

Nov 16 $150

Dec 20 $295

Balance $445

Telephone Expense

Nov 20 $175

Dec 20 $325

Balance $500

Step 3: Preparation of Trial Balance

CANYON CANOE COMPANY
Trial Balance
December 31, 2018

Account Title

Debit ($)

Credit ($)

Cash

$12,125

Accounts Receivables

$5,750

Office Supplies

$1,250

Prepaid Rent

$3,000

Land

$85,000

Building

$35,000

Canoes

$12,000

Accounts Payable

$3,050

Utilities Payable

$295

Telephone Payable

$325

Unearned Revenue

$750

Notes Payable

$7,200

Wilson, Capital

$136,000

Wilson, Withdrawals

$450

Canoe Rental Revenue

$12,400

Rent Expense

$1,200

Wages Expense

$3,300

Utilities Expense

$445

Telephone Expense

$500

Total

$160,020

$160,020

Step 4: Preparation of Income Statement

CANYON CANOE COMPANY
Income Statement
Two months ended December 31, 2018

Particulars

Amount ($)

Amount ($)

Revenues:

Canoe Rental Revenue

$12,400

Expenses:

Wages Expense

$3,300

Rent Expense

$1,200

Telephone Expense

$500

Utilities Expense

$445

Total Expenses

$5,445

Net Income

$6,955

Step 5: Preparation of statement of Owner’s Equity

CANYON CANOE COMPANY
Statement of Owner’s Equity
Two months ended December 31, 2018

Amount ($)

Wilson, Capital, November 1, 2018

$0

Owner contribution

$136,000

Net Income for the month

$6,955

$142,955

Owner Withdrawals

-$450

Wilson, Capital, December 31, 2018

$142,505

Step 6: Preparation of Balance Sheet

CANYON CANOE COMPANY
Balance Sheet
December 31, 2018

Assets

Amount ($)

Liabilities

Amount ($)

Cash

$12,125

Accounts Payable

$3,050

Accounts Receivables

$5,750

Utilities Payable

$295

Office Supplies

$1,250

Telephone Payable

$325

Prepaid Rent

$3,000

Unearned Revenue

$750

Land

$85,000

Notes Payable

$7,200

Building

$35,000

Total Liabilities

$11,620

Canoes

$12,000

Owner’s Equity

Wilson, Capital

$142,505

Total assets

$154,125

Total liabilities and owner’s Capital

$154,125

Step 7: Computation of Debt Ratio

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