Chapter 3 Review ProblemE3-18Popovich Co. had the following transactions during June.a. $20,000 of supplies were purchased with cashb. $6,000 of supplies were consumed.c. $60,000 of merchandise was sold. 40% of the saleswere on credit. The merchandise cost Popovich$28,000.d. $200,000 was borrowed from a banke. Interest of $2,000 was incurred and paidf. $100,000 of equipment was purchased by issuing anote payable.g. $4,000 of equipment value was consumed.OtherTrans. Cash Assets Liab Equity Rev ExpBegABCDEFGEndChapter 4 – Processing AccountingInformationDouble-Entry AccountingStart with the expanded balance sheet equationAssets = Liabilities + Owners Eq. + Revenues – ExpensesA short-hand way of recording transactions is to use“Debits” and “Credits”.Accounts use T – Accounts to represent balances. The left-side of the T – Account is a debit and the right-side is acredit.Accounts CommonCash Payable StockDebit Credit Debit Credit Debit CreditSales Cost of InterestRevenue Goods Sold ExpenseDebit Credit Debit Credit Debit CreditDebits = CreditsAssets = Liabilities + Owners Eq. + Revenues – ExpensesAssets + Expenses = Liabilities + Owners Eq. + RevenuesDebits (increase) = Credits (increase)Uses of Funds = Sources of FundsTransactions are recorded into accounting records through“journal entries”. Journal entries specify each account andthe debit or credit amount of the account.Return to Delivery, Inc.’s transactions: Delivery, Inc.charges $10 per delivery.1. Made 1,500 deliveries and billed customers.2. Received advance payments for 300 deliveries.3. On January 1, 2000 Delivery sold 1,000 shares of stockfor $5 a share.4. On January 1, 2000 Delivery took out a loan for $20,000from the bank. Interest is 1% per month.5. On January 1, 2000 Delivery purchases a truck for$20,000 and expects to use the truck for 4 years.6. On January 1, 2000 Delivery pays $3,000 for a 2-yearinsurance policy.7. Made 200 deliveries for customers that paid in advance.8. Paid $750 for gasoline.9. On January 1, 2000 hired an employee for $100 perweek. At the end of the year, you still owed theemployee for the last two weeks. (Assume a 52-weekyear).Account Debit Credit1We can also represent the transactions using “T-accounts”Accounts DeliveryCash Receivable RevenueDebit Credit Debit Credit Debit CreditUnearned Common LoanRevenue Stock PayableDebit Credit Debit Credit Debit CreditInterest DepreciationExpense Truck ExpenseDebit Credit Debit Credit Debit CreditPrepaid Insurance GasolineInsurance Expense ExpenseDebit Credit Debit Credit Debit CreditWage WagesExpense PayableDebit Credit Debit Credit Debit CreditPrepare Journal Entries for the transactions in E 3-18.Account Debit Credit1A Word About “Adjusting” EntriesThe journal entries we have been discussing are usuallymade in two stages. We first record the transactions as theyoccur. We then “adjust” the books at the end of thereporting period. This serves to correct the balances andrecord expenses associated with the passage of time.Example: On January 1, 2001 we purchase a 3-yearinsurance policy for $6,000. On January 1, 2001 we wouldrecord the following entry:Dr. Prepaid Insurance (asset) $6,000Cr. Cash (asset) $6,000If we wanted to prepare our financial statements onDecember 31, 2001, we need to recognize that we used upone-third of that insurance policy. Alternatively, we cansee that we have two-thirds of the policy left. We wouldthen record the following entry:Dr. Insurance Expense $2,000Cr. Prepaid Insurance $2,000The first entry records a transaction (the purchase of theinsurance policy). The second entry “adjusts” our