Mastery Problem: Analyzing Transactions
KL Company Inc.
In February, Katie Long formed KL Company Inc. Transactions for the month of March have been posted to the T accounts. An intern has prepared a trial balance from the T accounts, but there seem to be some errors.
T accounts
| Cash |
| Bal. | 8,000 | 3/3 | 2,300 |
| 3/25 | 7,800 | 3/27 | 1,200 |
| 3/28 | 7,000 | 3/29 | 3,425 |
| 3/30 | 7,825 | 3/31 | 1,900 |
| Accounts Receivable |
| Bal. | 1,950 | | |
| 3/18 | 9,800 | 3/30 | 7,825 |
| Supplies |
| Bal. | 225 | | |
| 3/7 | 1,500 | | |
| Office Equipment |
| 3/2 | 18,000 | | |
| Accounts Payable |
| 3/27 | 1,200 | Bal. | 1,250 |
| | | 3/7 | 1,500 |
| Common Stock |
| | | Bal. | 7,500 |
| | | 3/28 | 7,000 |
| Retained Earnings |
| | | Bal. | 1,425 |
| Fees Earned |
| | | 3/18 | 9,800 |
| | | 3/25 | 7,800 |
Required:
Transactions
Descriptions of the transactions for the month of March are provided in the following table. Each of the transactions that follow has been posted to the T accounts. Referring to the T accounts, select the date on which each transaction occurred, enter the amount of the transaction, and select the account to debit and credit.
| Transaction | Date | Amount | Debit | Credit |
| Purchased equipment, giving a note payable for the purchase price. | 3/3 | $fill in the blank 642b62fdcfbafd7_2 | | |
| Paid rent for April. | | $fill in the blank 642b62fdcfbafd7_6 | | |
| Purchased supplies on account. | | $fill in the blank 642b62fdcfbafd7_10 | | |
| Recorded fees earned on account. | | $fill in the blank 642b62fdcfbafd7_14 | | |
| Received cash for fees earned. | | $fill in the blank 642b62fdcfbafd7_18 | | |
| Paid creditors on account. | | $fill in the blank 642b62fdcfbafd7_22 | | |
| KL Company Inc. issued additional shares of common stock in exchange for cash. | | $fill in the blank 642b62fdcfbafd7_26 | | |
| Paid wages. | | $fill in the blank 642b62fdcfbafd7_30 | | |
| Received cash from customers on account. | | $fill in the blank 642b62fdcfbafd7_34 | | |
| KL Company Inc. paid dividends to its stockholders. | | $fill in the blank 642b62fdcfbafd7_38 | | |
Trial Balance: Unequal Totals
The intern has prepared the following trial balance for the month of March.
| KL Company Inc. Unadjusted Trial Balance March 31, 20Y3 |
| Account Title | Debit Balances | Credit Balances |
| Cash | 26,400 | |
| Accounts Receivable | | 3,925 |
| Supplies | 1,725 | |
| Office Equipment | 18,000 | |
| Accounts Payable | 1,550 | |
| Notes Payable | | 18,000 |
| Common Stock | | 14,500 |
| Retained Earnings | 1,425 | |
| Dividends | | 1,900 |
| Fees Earned | | 9,800 |
| Rent Expense | 3,200 | |
| Wages Expense | | 3,425 |
| | 52,300 | 51,550 |
Trial Balance: Correct
The Trial Balance: Unequal Totals was prepared by the intern. The intern is puzzled by the unequal totals. Prepare a corrected trial balance. If an amount box does not require an entry, leave it blank.
| KL Company Inc. Unadjusted Trial Balance March 31, 20Y3 |
| Account Title | Debit Balances | Credit Balances |
| Cash | fill in the blank 32ba4804700901b_1 | fill in the blank 32ba4804700901b_2 |
| Accounts Receivable | fill in the blank 32ba4804700901b_3 | fill in the blank 32ba4804700901b_4 |
| Supplies | fill in the blank 32ba4804700901b_5 | fill in the blank 32ba4804700901b_6 |
| Office Equipment | fill in the blank 32ba4804700901b_7 | fill in the blank 32ba4804700901b_8 |
| Accounts Payable | fill in the blank 32ba4804700901b_9 | fill in the blank 32ba4804700901b_10 |
| Notes Payable | fill in the blank 32ba4804700901b_11 | fill in the blank 32ba4804700901b_12 |
| Common Stock | fill in the blank 32ba4804700901b_13 | fill in the blank 32ba4804700901b_14 |
| Retained Earnings | fill in the blank 32ba4804700901b_15 | fill in the blank 32ba4804700901b_16 |
| Dividends | fill in the blank 32ba4804700901b_17 | fill in the blank 32ba4804700901b_18 |
| Fees Earned | fill in the blank 32ba4804700901b_19 | fill in the blank 32ba4804700901b_20 |
| Rent Expense | fill in the blank 32ba4804700901b_21 | fill in the blank 32ba4804700901b_22 |
| Wages Expense | fill in the blank 32ba4804700901b_23 | fill in the blank 32ba4804700901b_24 |
| | fill in the blank 32ba4804700901b_25 | fill in the blank 32ba4804700901b_26 |
Errors on Trial Balance
Compare the trial balance prepared by the intern (Trial Balance: Unequal Totals) to the trial balance that you prepared (Trial Balance: Correct). In the following table, select the accounts for each type of error. Not all accounts contain errors.
| Error Type | Cash | Accounts Receivable | Supplies | Office Equipment | Accounts Payable | Notes Payable | Common Stock | Retained Earnings | Dividends | Fees Earned | Rent Expense | Wages Expense |
| Transposition | | | | | | | | | | | | |
| Incorrectly reported as a debit | | | | | | | | | | | | |
| Incorrectly reported as a credit | | | | | | | | | | | | |
| Balance computed incorrectly | | | | | | | | | | | | |
Accounting Equation
The intern is puzzled and asks "Are you sure the accounting equation is still in balance?" Using the corrected trial balance you prepared, prove that the accounting equation is in balance.
| Assets | = | Liabilities | + | Stockholders' Equity |
| $fill in the blank 8a554bfd0072fa0_1 | = | $fill in the blank 8a554bfd0072fa0_2 | + | $fill in the blank 8a554bfd0072fa0_3 |
Still puzzled, the intern asks "Why do none of the amounts in the accounting equation equal the totals on the trial balance?"
| a. | The accounts with debit balances are not all classified in the same element of the accounting equation. For example, not all accounts with debit balances are assets. |
| b. | This is because the revenue and expense accounts are part of the stockholders equity element. The accounts with debit balances should be part of the total assets. |
| c. | You point out the total of the assets, liabilities and stockholders equity is equal to the sum of the debit and credit totals on the trial balance. |
| d. | The accounts with credit balances are not all classified in the same element of the accounting equation. For example, not all accounts with credit balances are liabilities. |
| e. | The accounts that make up the total for stockholders equity have a mix of debit and credit balances. |
