Chapter 3 Transactions Exercise (Solutions)

(1) 1/1/2014: $100,000 in cash is invested in the business by investors in exchange for the investor
receiving $100,000 of common stock.
Cash (Asset) Increases Increases with a Debit
Common Stock (Common Stock) Increases Increases with a Credit

(2) 1/4/2014: Business borrowed $25,000 from the bank by signing a 3-month, 6%, $25,000 note
payable.
Cash (Asset) Increases Increases with a Debit
Notes Payable (Liability) Increases Increases with a Credit

(3) 1/4/2014: Purchased $2,000 in equipment for cash.

Equipment (Asset) Increases Increases with a Debit
Cash (Asset) Decreases Decreases with a Credit

(4) 1/5/2014: Received $1,000 in cash from client for work to be performed in the future.
Cash (Asset) Increases Increases with a Debit
Unearned Revenue (Liability) Increases Increases with a Credit

(5) 1/5/2014: Performed $1,200 in services for client, client billed for work.
Accounts Receivable (Asset) Increases Increases with a Debit
Service Revenue (Revenue) Increases Increases with a Credit

(6) 1/5/2014: Paid office rent for the month in cash, $900
Rent Expense (Expense) Increases Increases with a Debit
Cash (Asset) Decreases Decreases with a Credit

(7) 1/5/2014: Paid $600 for a six months insurance policy.

Prepaid Expense (Asset) Increases Increases with a Debit
Cash (Asset) Decreases Decreases with a Credit

(8) 1/7/2014: Purchased $900 in supplies for cash.

Supplies (Asset) Increases Increases with a Debit
Cash (Asset) Decreases Decreases with a Credit

(9) 1/7/2014: Hired new employee to begin work on the first of next month for a salary of $2,000 per
month, payable bimonthly on the 5th and 20th of each month.
No entry

(10) 1/31/2014: One month of time has passed on the six month insurance policy paid in number (7).
Insurance (Expense) Increases Increases with a Debit
Prepaid Insurance (Asset) Decreases Decreases with a Credit

(11) 2/1/2014: Received the $1,200 for the services billed to client in number (5)
Cash (Asset) Increases Increases with a Debit
Accounts Receivable (Asset) Decreases Decreases with a Credit

(12) 2/1/2014: Declared a $500 cash dividend to shareholders to be paid on 2/25/2014.

Dividend (Dividend) Increases Increases with a Debit
Dividend Payable (Liability) Increases Increases with a Credit

(13) 2/15/2014: Employee hired in (9) worked the first half of the February, earning $1,000 in salary,
payable on the 20th.
Salaries Expense (Expense) Increases Increases with a Debit
Salaries Payable (Liability) Increases Increases with a Credit

(14) 2/20/2014: Its the 20th and the paycheck is being issued for the salary in number (13)
Salaries Payable (Liability) Decreases Decreases with a Debit
Cash (Asset) Decreases Decreases with a Credit

(15) 2/25/2014: Paid the $500 cash dividend declared in (12) to shareholders.
Dividend Payable (Liability) Decreases Decrease with a Debit
Cash (Asset) Decreases Decreases with a Credit