Problem 1. Analyzing General Journal Entries.
The following general journal entries (presented in a simplified format) were made recently by the bookkeeper of Chandlers' Hilltop Texaco:
General Journal
Account Debit Credit
Supplies 400
Cash 400
Interest Expense 270
Cash 270
Equipment 4,000
Notes Payable 4,000
Required:
(1) Briefly describe the transaction that resulted in each of these journal entries.
(2) Suppose that the bookkeeper inadvertently recorded the third entry by debit¬ing Notes Payable and crediting Equipment, each for $4,000. How would this error have affected the assets and liabilities of Chandlers' Hilltop Texaco?
(3) How would the error in Part 2 affect the trial balance prepared at the end of the period for Chandlers' Hilltop Texaco?
2. General Journal Entries
Following are two recent transactions of Grady Real Estate Company:
(a) Received $24,000 advance payment for one year's rent on an office building being leased to an accounting firm by Grady.
(b) Paid $6,000 in advance for six months of newspaper advertising.
Required:
(1) Prepare a general journal entry to record each of these transactions in Grady's accounting records.
(2) Prepare a general journal entry for each transaction from the point of view of the other party (company) to the transaction.
(3) Were Grady's total assets increased, decreased, or unchanged as a result of each of these transactions?