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University of California, Berkeley *

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101

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Accounting

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Jan 9, 2024

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Journalizing, Posting, and Creating Financial Statements-ANSWER © 2023 Quantic Holdings, Inc. All rights reserved. /21 1 SME-Dr. Carr Step 1: Journalize the following transactions using the chart of accounts provided: Assets Revenue Cash Service Revenue Accounts Receivable Prepaid Insurance Expenses Supplies Rent Expense Equipment Insurance Expense Accumulated Depreciation Depreciation Expense Salary Expense Liabilities Utility Expense Accounts Payable Supplies Expense Salary Payable Interest Expense Deferred Revenue Notes Payable Dividends Equity Paid in Capital Retained Earnings 1. On January 1, Adam Wurst invests $10,000 cash to fund his startup, Wurst Company. January 1 Cash 10,000 Paid in Capital 10,000 2. On January 1, $5,000 of Office equipment is purchased with the signing of a 3-month, 12% annual interest rate, $5,000 notes payable. January 1 Equipment 5,000 Notes Payable 5,000 3. On January 25, Wurst Company receives a $1,200 cash advance from Abby Normal, a customer, for services that are expected to be delivered June 1. January 25 Cash 1,200 Deferred Revenue 1,200 4. On February 1, Wurst incurs office rent for February and pays in cash for $900. February 1 Rent Expense 900 Cash 900

Journalizing, Posting, and Creating Financial Statements-ANSWER © 2023 Quantic Holdings, Inc. All rights reserved. /21 2 SME-Dr. Carr 5. On March 1, Wurst pays $600 for a 12 month insurance policy that will provide coverage through to February 28 of next year. March 1 Prepaid Insurance 600 Cash 600 6. On March 1, Wurst incurs office rent for March and pays in cash for $900. March 1 Rent Expense 900 Cash 900 7. On March 10, Wurst purchases supplies on account for $2,500. Vendor terms are payment within 60 days (Net 60), Wurst will defer payment until then. In addition, instead of expensing immediately, Wurst decides to setup an asset for the supplies and record an expense at the end of the quarter for items that have been used. March 10 Supplies 2,500 Accounts Payable 2,500 8. On March 15, Wurst hires four employees to begin work on April 19. Each employee is to receive a weekly salary of $500 which will be payable every 2 weeks. March 15 – no entry at this point, as a business transaction has not occurred. There is only an agreement between the employer and employees to enter into a business transaction starting April 19. 9. On March 30, Wurst Company declares and pays cash dividends of $500 to its sole shareholder, Adam Wurst. March 30 Dividends 500 Cash 500 Note: You could make this entry with a debit to Retained Earnings instead of Dividends, however, since there is a dividend account available, that is what is being used. 10. On March 31, Wurst Company’s note payable comes due. Record both the principal payment and interest paid to the lender. (See transaction 2 above for more information.) March 31 Notes Payable 5,000 Interest Expense 150 Cash 5,150 Interest Expense calculation: (5000 x 12%) x 3/12 months

Journalizing, Posting, and Creating Financial Statements-ANSWER © 2023 Quantic Holdings, Inc. All rights reserved. /21 3 SME-Dr. Carr 11. On April 1, Wurst incurs office rent for April and pays in cash for $900. April 1 Rent Expense 900 Cash 900 12. On April 15, Wurst receives $10,000 in cash for services provided and earned. April 15 Cash 10,000 Service Revenue 10,000 13. On April 30, Wurst Company owes its four employees’ salaries for two weeks of work and pays them in cash. (See transaction 8 above for further information and amounts.) April 30 Salary Expense 4,000 Cash 4,000 4 employees at $500 per week for two weeks work. (4 employees x $500 per week x 2 weeks) 14. Record depreciation expense for the first four months of the year ending April 30th for the equipment on a straight-line basis. The Office furniture has a useful life of 5 years, round to the nearest dollar. (See transaction 2 above for additional information.) April 30 Depreciation Expense 333 Accumulated Depreciation 333 ($5,000/5 years) x 4/12 months as equipment was place in service January 1) 15. Record the insurance expense that has expired and has been incurred through April 30th. (See transaction 5 above for the specifics.) April 30 Insurance Expense 100 Prepaid Insurance 100 ($600 x 2/12 months for March and April) 16. Wurst Company used $1,000 worth of supplies during the past few months. Record the supply expense incurred as of April 30 th . (See transaction 7 for additional information.) April 30 Supply Expense 1,000 Supplies 1,000

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