Individual Exercise 1
Resource: Ch. 3 of Financial Accounting Complete Brief Exercises BE3-4, BE3-5, BE3-6, BE3-9, BE3-10, and BE3-11
Submit as either a Microsoft® Excel® or Microsoft® Word document. page 138 textbook.
BE3-4 asks you about the effect of a debit or credit on an account and its normal balance. For assets, their normal balance is a debit. For liabilities and stockholders’ equity accounts, their normal balance is a credit. In double-entry accounting, the debits and credits have to be equal for journal entries. On financial statements such as the balance sheet, assets=liabilities + equity.
One way to remember that the normal balance of an asset is a debit is to remember that in the assets=liabilities + equity equation, assets are on the left of the equation. In T-ledgers, you will find that debits are also on the left. For liabilities and stockholders’ equity, everything is the opposite from assets. Liabilities and stockholders’ equity are on the right side of the equation, and in T-ledgers you will find them on the right also.
BE3-5 asks you to identify accounts to be debited and credited. Let’s look at the transaction on June 1: Marlin Company is issuing common stock to investors in exchange for cash. This means that Marlin Company is giving investors stock and the investors are giving Marlin Company cash for those stock. So Marlin Company is going to get some cash and is going to issue or increase its common stock to give to investors.
This means their cash is going to increase and their common stock is going to increase. Cash is an asset. How does an asset increase? Debit or credit? Common stock is part of stockholders’ equity. How does stockholders’ equity increase? Debit or credit? Let’s say that to increase cash, Marlin Co. has to debit cash. That means in order to keep things in balance they have to credit common stock because it’s the other side of this transaction. Let me give you a hint on the June 2 transaction:
anytime you see that someone bought something “on account,” that means they did NOT pay cash for it.
BE3-6 is asking you to journalize the transactions in BE3-5. All you have to do is tell the names of the accounts debited and credited and the corresponding amounts. Hint: the debits and credits must equal each other.
BE3-9 is very similar to BE 3-6 except that you are journalizing the transactions in BE3-8. BE3-8 is NOT an assigned problem so you will only use it to complete BE3-9. Again, just like BE3-6,
all you have to do is tell the names of the accounts debited and credited and the corresponding amounts. Hint: the debits and credits must equal each other.
In Brief Exercise BE3-10, you are asked to transfer the journal entries listed to T accounts. Study Objective 7 starting on page 120 of our textbook discusses “posting.” Illustrations 3-32 through 3-33 on pages 127 and 128 give a great example of what you are being asked to do in BE3-10.
In Brief Exercise BE3-11, you are asked to create a fairly basic trial balance. Study Objective 8, starting on page 129, of our textbook discusses the trial balance. The total of the debits and credits in a trial balance must be equal. BE3-11 says that “all account balances are normal.” This means that assets are debits and liabilities and stockholders’ equity are credits. Expenses are debits and revenues are credits.
