Concept explainers
Problem 2-6B The Accounting Cycle
Sweetwater Temporary Clerical Help Service opened for business in June 2019. From the opening until the end of the year. Sweetwater engaged in the activities described below. So that a realistic
- Sold 10,000 shares of common stock for $4.50 per share.
- Purchased office equipment from Furniture Max Inc. for $18,110 cash.
- Received $112,880 from clients for services provided.
- Paid wages $87,300.
- Borrowed $20,000 from the Bank of America on a 3-year note payable.
- Paid office rent of $10,200
- Purchased office supplies on credit for $2,120 from Office Supply Inc.
- Paid $1,200 toward the payable established in Transaction g.
- Paid utility charges incurred during the year of $3,250.
Required:
1. Analyze the events for their effect on the
2. Prepare
3.
4. Prepare a trial balance at December 31, 2019.
Accounting Equation:
The accounting equation explains that the assets must be equal to the liabilities and stockholders’ equity on the occurrence of a business transaction. The dual aspect concept of accounting signifies that on each transaction the elements of the accounting equations are affected equally.
Requirement 1
Determine:
Analyze the events for their effect on the accounting equation.
Answer to Problem 61BPSB
Accounting Equation | |||
Asset = Liabilities + Stockholders’ Equity | |||
a. | $45,000 | $45,000 | |
b. | 18,710 | ||
(18,710) | |||
c. | 112,880 | 112,880 | |
d. | (87,300) | (87,300) | |
e. | 20,000 | 20,000 | |
f. | (10,200) | (10,200) | |
g. | 2,120 | 2,120 | |
h. | (1,200) | (1,200) | |
i. | (3,250) | (3,250) |
Explanation of Solution
Accounting Equation | |||
Asset = Liabilities + Stockholders’ Equity | |||
a. | Increase | Increase | |
b. | Increase | ||
Decrease | |||
c. | Increase | Increase | |
d. | Decrease | Decrease | |
e. | Increase | Increase | |
f. | Decrease | Decrease | |
g. | Increase | Increase | |
h. | Decrease | Decrease | |
i. | Decrease | Decrease |
Journal Entries:
Journal entries are medium of recording business transactions. A business enterprise must record all the business transaction to evaluate net income or loss and analyze the financial performance of a company during a specified accounting period.
Requirement 2
To Prepare:
Prepare journal entries for the transaction during 2019.
Answer to Problem 61BPSB
Events | Accounts and Explanation | Debit | Credit |
a. | Cash | $45,000 | |
Common Stock | $45,000 | ||
b. | Equipment | 18,710 | |
Cash | 18,710 | ||
c. | Cash | 112,880 | |
Service Revenue | 112,880 | ||
d. | Wages Expense | 87,300 | |
Cash | 87,300 | ||
e. | Cash | 20,000 | |
Notes Payable | 20,000 | ||
f. | Rent Expense | 10,200 | |
Cash | 10,200 | ||
g. | Supplies | ||
Accounts Payable | 2,120 | ||
2,120 | |||
h. | Accounts Payable | 1,200 | |
Cash | 1,200 | ||
i. | Utilities Expense | 3,250 | |
Cash | 3,250 | ||
Explanation of Solution
Accounting Equation | |||
Asset = Liabilities + Stockholders’ Equity | |||
a. | Increase (Cash) | Increase (Common Stock) | |
b. | Increase (Equipment) | ||
Decrease (Cash) | |||
c. | Increase (Cash) | Increase (Service Revenue) | |
d. | Decrease (Cash) | Decrease (Wages Expense) | |
e. | Increase (Cash) | Increase (Notes Payable) | |
f. | Decrease (Cash) | Decrease (Rent Expense) | |
g. | Increase (Supplies) | Increase (Accounts Payable) | |
h. | Decrease (Cash) | Decrease (Accounts Payable) | |
i. | Decrease (Cash) | Decrease (Utilities Expense) |
Introduction:
T-accounts as its name derived from shape of the account, is representation of business transaction in their respective account. It helps in organizing and analyzing the transaction according to their similar nature of account.
Requirement 3
Prepare:
Posting the journal entries to T-accounts.
Answer to Problem 61BPSB
Accounts | Balance |
Cash | $57,220 |
Supplies | 2,120 |
Equipment | 18,710 |
Accounts Payable | 920 |
Notes Payable | 20,000 |
Common Stock | 45,000 |
Service Revenue | 112,880 |
Rent Expense | 10,200 |
Utilities Expense | 3,250 |
Wages Expense | 87,300 |
Explanation of Solution
Cash
a. 45,000 c. 112,880 e. 20,000 | b. 18,710 d. 87,300 f. 10,200 h. 1,200 i. 3,250 |
Bal. 57,220 |
Supplies
g. 2,120 | |
Bal. 2,120 |
Equipment
b. 18,710 | |
Bal. 18,710 |
Accounts Payable
h. 1,200 | g. 2,120 |
Bal. 920 |
Notes Payable
e. 20,000 | |
Bal. 20,000 |
Common Stock
a. 45,000 | |
Bal. 45,000 |
Service Revenue
c. 112,880 | |
Bal. 112,880 |
Rent Expense
f. 10,200 | |
Bal. 10,200 |
Utilities Expense
i. 3,250 | |
Wages Expense
d. 87,300 | |
Bal. 87,300 |
Trial Balance:
A financial statement which integrates all the balance of ledger accounts is termed as a trial balance. The total balance of debit and credit in trial balance should be equal at end of an accounting period.
Requirement 3
Prepare:
Prepare the trial balance as of December 31, 2019.
Answer to Problem 61BPSB
The total balance of the trial balance for the year ending December 31, 2019 is $178,800.
Explanation of Solution
Sweetwater Temporary Clerical Help ServiceTrial Balance December 31, 2019 | ||
Accounts | Debit | Credit |
Cash | $57,220 | |
Supplies | 2,120 | |
Equipment | 18,710 | |
Accounts Payable | $920 | |
Notes Payable | 20,000 | |
Common Stock | 45,000 | |
Service Revenue | 112,880 | |
Rent Expense | 10,200 | |
Utilities Expense | 3,250 | |
Wages Expense | 87,300 | |
Total | $178,800 | $178,800 |
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Chapter 2 Solutions
CORNERSTONES OF FINAN.ACCT.>CUSTOM<
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- Case 2-69 CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT After much consideration, Cam and Anna decide to organize their company as a corporation. On January 11 2019, Front Row Entertainment Inc begins operations. Due to Cams family connections in the entertainment industry, Cam assumes the major responsibility for signing artists to a promotion contract. Meanwhile. Anna assumes the financial accounting and reporting responsibilities. The following business activities occurred during January: Jan. 1 Cam and Anna invest $8,000 each in the company in exchange for common stock. 1 The company obtains a $25,000 loan from a local bank. Front Row Entertainment agreed to pay annual interest of 9% each January I, starting in 202.0. It will repeat the amount borrowed in 5 years. 1 The company paid $1,200 in legal fees associated with incorporation. 1 Office equipment was purchased with $1000 in cash. 1 The company pays $800 to rent office space for January. 3 A 1-year insurance policy was purchased for $3,600. 3 Office supplies of $2,500 were purchased from Equipment Supply Services. Equipment Supply Services agreed to accept $1,000 in 15 days with the remainder due in 30 days. 5 The company signs Charm City, a local band with a growing cult following, to a four-city tour that starts on February 15. 8 Venues for all four Charm City concerts were reserved by paying $10,000 cash. 12 Advertising costs of $4,500 were paid to promote the concert tour. 18 Paid $1,000 to Equipment Supply Services for office supplies purchased on January 3. 25 To aid in the promotion of the upcoming tour, Front Row Entertainment arranged for Charm City to perform a 20-minute set at a local festival. Front Row Entertainment received $1,000 for Charm Citys appearance. Of this total amount. $400 was received immediate with the remainder due in 15 days. The festive] took place on January 23. 25 Paid Charm City $800 for performing at the festival. Note: Front Row Entertainment records the fees paid to the artist in an operating expense account called Artist Fee Expense. 23 Due to the success of the marketing efforts, Front Row Entertainment received $3300 in advance ticket sales for the upcoming tour. 30 The company collected $200 of the amount due from the January 25 festival. 30 Paid salaries of S1,200 each to Cam and Anna for the month of January. Required: 2. Post the transactions to the general ledger.arrow_forwardCase 2-69 CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT After much consideration, Cam and Anna decide to organize their company as a corporation. On January 11 2019, Front Row Entertainment Inc begins operations. Due to Cams family connections in the entertainment industry, Cam assumes the major responsibility for signing artists to a promotion contract. Meanwhile. Anna assumes the financial accounting and reporting responsibilities. The following business activities occurred during January: Jan. 1 Cam and Anna invest $8,000 each in the company in exchange for common stock. 1 The company obtains a $25,000 loan from a local bank. Front Row Entertainment agreed to pay annual interest of 9% each January I, starting in 202.0. It will repeat the amount borrowed in 5 years. 1 The company paid $1,200 in legal fees associated with incorporation. 1 Office equipment was purchased with $1000 in cash. 1 The company pays $800 to rent office space for January. 3 A 1-year insurance policy was purchased for $3,600. 3 Office supplies of $2,500 were purchased from Equipment Supply Services. Equipment Supply Services agreed to accept $1,000 in 15 days with the remainder due in 30 days. 5 The company signs Charm City, a local band with a growing cult following, to a four-city tour that starts on February 15. 8 Venues for all four Charm City concerts were reserved by paying $10,000 cash. 12 Advertising costs of $4,500 were paid to promote the concert tour. 18 Paid $1,000 to Equipment Supply Services for office supplies purchased on January 3. 25 To aid in the promotion of the upcoming tour, Front Row Entertainment arranged for Charm City to perform a 20-minute set at a local festival. Front Row Entertainment received $1,000 for Charm Citys appearance. Of this total amount. $400 was received immediate with the remainder due in 15 days. The festive] took place on January 23. 25 Paid Charm City $800 for performing at the festival. Note: Front Row Entertainment records the fees paid to the artist in an operating expense account called Artist Fee Expense. 23 Due to the success of the marketing efforts, Front Row Entertainment received $3300 in advance ticket sales for the upcoming tour. 30 The company collected $200 of the amount due from the January 25 festival. 30 Paid salaries of S1,200 each to Cam and Anna for the month of January. Required: Prepare a trial balance at January 31, 2019.arrow_forwardComprehensive Problem 1 8 Net income. 31,425 Kelly Pitney began her consulting business. Kelly Consulting, on April 1, 20Y8. The accounting cycle for Kelly Consulting for April, including financial statements, was illustrated in this chapter During May, Kelly Consulting entered into the following transactions: May 3.Received cash from clients as an advance payment for services to be provided and recorded it as unearned tree 4,500 5.Received cash from clients on account 2,450. 9.Paid cash for a newspaper advertisement 225. 13.Raid Office Station Co for part of the debt incurred on April , 640. 15.Recorded services provided on account for the period May 1-15, 9,180. 16 Paid part-time receptionist for two weeks salary including the amount owed on April 30, 750. 17.Recorded cash from cash clients for fees earned during the period May 116, 8,360. Record the following transactions on Page 6 of the Journal 20.Purchased support on account 735. 21.Recorded services provided on account for the period May 1620. 4,820 25.Recorded cash from cash clients for fees earned for the period May 1723, 7,900 27.Received cash from clients on account 9,520. 28.Paid part-time receptionist for two weeks salary. 7S0. 30.Raid telephone bill for May. 260 31.Paid electricity bill for May, 810. 31.Recorded cash from cash clients tor lees earned for the period May 2031. 3,300. 31.Recorded services provided on account for the remainder of May, 2,650. 31.Paid dividends 10,500 Instructions 1.The chart of accounts foe Kelly Consulting is shown us Exhibit 9. and the post-closing trial balance as of April 30, 20Y8, is shown in Exhibit 17. for each account in the post-closing trial balance, enter the balance in the appropriate Balance column of a four-column account. Date the balances May 1. 20Y8. and place a check mark () in the Posting Reference column. Journalize each of the May transactions in a two-column journal starting cm Page of the journal and using Kelly Consultings chart of accounts. (Do not insert the account numbers in the journal at this time.) 2.Post the journal to a ledger of four-column accounts. 5.Prepare an unadjusted trial balance. 4.At the end of May, the following adjustment data were assembled. Analyze and use these data to complete parts (5) and (6). (a)Insurance expired during May is 275. (b)Supplies on hand on May II are 715. (c)Depreciation of office equipment for May is 330. (d)Accrued receptionist salary on May 31 is 325. (e)Rent expired during May is 1600. (f)Unearned fees on May 31 are 3,210 5.(Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet 6.Journalize and post the adjusting entries. Record the adjusting entries on Page 7 of the journal. 7.Prepare an adjusted trial balance. 8.Prepare an income statement, a statement of stockholders equity, and a balance sheet. 9.Prepare and post the closing entries. Record the closing entries on Page 8 of the journal. Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry. 10.Prepare a post-closing trial balance.arrow_forward
- Kelly Pitney began her consulting business, Kelly Consulting, on April 1, 2016. The accounting cycle for Kelly Consulting for April, including financial statements, was illustrated in this chapter. During May, Kelly Consulting entered into the following transactions: May 3. Received cash from clients as an advance payment for services to be provided and recorded it as unearned fees, 4,500. 5. Received cash from clients on account, 2,450. 9. Paid cash for a newspaper advertisement, 225. 13. Paid Office Station Co. for part of the debt incurred on April 5, 640. 15. Recorded services provided on account for the period May 115, 9,180. 16. Paid part-time receptionist for two weeks' salary including the amount owed on April 30, 750. 17. Recorded cash from cash clients for fees earned during the period May 116, 8,360. Record the following transactions on Page 6 of the journal: 20. Purchased supplies on account, 735. 21. Recorded services provided on account for the period May 1620, 4,820. 25. Recorded cash from cash clients for fees earned for the period May 1723, 7,900. 27. Received cash from clients on account, 9,520. 28. Paid part-time receptionist for two weeks' salary, 750. 30. Paid telephone bill for May, 260. 31. Paid electricity bill for May, 810. 31. Recorded cash from cash clients for fees earned for the period May 2631, 3,300. 31. Recorded services provided on account for the remainder of May, 2,650. 31. Kelly withdrew 10,500 for personal use. Instructions 1. The chart of accounts for Kelly Consulting is shown in Exhibit 9, and the post-closing trial balance as of April 30, 2016, is shown in Exhibit 17. For each account in the post-closing trial balance, enter the balance in the appropriate Balance column of a four-column account. Date the balances May 1, 2016, and place a check mark () in the Posting Reference column. Journalize each of the May transactions in a two-column journal starting on Page 5 of the journal and using Kelly Consultings chart of accounts. (Do not insert the account numbers in the journal at this time.) 2. Post the journal to a ledger of four-column accounts. 3. Prepare an unadjusted trial balance. 4. At the end of May, the following adjustment data were assembled. Analyze and use these data to complete parts (5) and (6). a. Insurance expired during May is 275. b. Supplies on hand on May 31 are 715. c. Depreciation of office equipment for May is 330. d. Accrued receptionist salary on May 31 is 325. e. Rent expired during May is 1,600. f. Unearned fees on May 31 are 3,210. 5. (Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet. 6. Journalize and post the adjusting entries. Record the adjusting entries on Page 7 of the journal. 7. Prepare an adjusted trial balance. 8. Prepare an income statement, a statement of owners equity, and a balance sheet. 9. Prepare and post the closing entries. Record the closing entries on Page 8 of the journal. (Income Summary is account #33 in the chart of accounts.) Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry. 10. Prepare a post-closing trial balance.arrow_forwardBrief Exercise 2-30 Transaction Analysis Galle Inc. entered into the following transactions during January. Borrowed $50,000 from First Street Bank by signing a new payable. Purchased $25,000 of equipment for cash. (Continued) Paid $500 to landlord for rent for January. Performed services for customers on account, $10,000. Collected $31000 from customers for services performed in Transaction d. Paid salaries of $2,500 for the current month. Required: Show the effect of each transaction using the following model.arrow_forwardContinuing Problem 4.Total of Debit column: 40,750 The transactions completed by PS Music during June 20Y5 were described .it the end of Chapter 1. The following transactions were completed during July, the second month of businesss operations: July 1. Peyton Smith made an additional investment k PS Music in exchange for common stock by depositing 5,000 in PS Mu wet checking account. 1.Instead of continuing to share office space with a local real estate agency. Peyton decided to rent office space near a local musk store, Paid rent for July, 1,750. 1.Paid a premium of 2,700 for a comprehensive insurance policy covering liability, theft and fire. The policy covers a one year period. 2.Received 1,000 on account 3. On behalf of PS Musk, Peyton signed a contract with a local radio station. KXMD, to provide guest spots for the next three months. The contract requires PS Musk to provide a guest disc jockey for 80 hours per month for a monthly fee of 3,600. Any additional hours beyond 80 will be billed to KXMD at 40 per hour. In accordance with the contract Peyton received 7,200 from KXMD as an advance payment for the first two months. 3.Paid 2SO on account 4.Paid an attorney 900 for reviewing the July 3 contract with KXMD. (Record as Miscellaneous Expense.) 5.Purchased office equipment on account from Office Mart. 7,500. 8.Paid for a newspaper advertisement 200. 11.Received 1.000 for serving as a disc jockey for a party. 13.Paid 700 to a local audio electronics store for rental of digital recording equipment 14.Paid wages of 1,200 to receptionist and part-time assistant. Enter the following transactions on Pane 2 of the two-column journal: 16.Received 2,000 for serving as a disc jockey for a wedding reception. 18.Purchased supplies on account 850 21.Paid 620 to Upload Musk for use of its current musk demos in making various musk sets. 22.Paid 800 to a local radio station to advertise the services of PS Music twice daily for the remainder of July. 23.Served as disc jockey for a party for 2,500 Received 750, with the remainder due August 4.20YS. 27.Paid electric Ml 915. 28.Paid wages of 1,200 to receptionist and part-time assistant. 29.Paid miscellaneous expenses, 540. 30.Served as a disc jockey for a charity ball for 1,500, Received S00 with the remainder due on August 9. 20Y5. 31.Received 3,000 for serving as a disc jockey for a party. 31.Paid 1.400 royalties (musk expense) to National Musk Clearing for use of various artists music during July. 31. Paid dividends, 1,250. PS Musics chart of accounts and the balance of accounts as of July 1, 20Y5 (all normal balances), are as follows: 11 Cash 3,920 12 Accounts Receivable 1,000 14 Supplies 170 15 Prepaid Insurance 17 Office Equipment 21 Accounts Payable 250 23 Unearned Revenue 31 Common Stock 4.000 33 Dividends 500 41 Fees Earned 6,200 50 Wages Expense 400 51 Office Rent Expense 800 52 Equipment Rent Expense 67S 53 Utilities Expense 300 54 Music Expense 1.590 55 Advertising Expense 500 56 Supplies Expense 180 59 Miscellaneous Expense 415 Instructions 1. Enter the July 1, 20Y5, account balances in the appropriate balance column of a four-column account. Write Balance in the Item column, and place a check mark () in the Posting Reference column. (Hint: Verify the equality of the debit and credit balances in the ledger before proceeding with the next instruction.) 2. Analyze and journalize each transaction in a two-column journal beginning on Page 1, omitting journal entry explanations. 3. Post the journal to the ledger, extending the account balance to the appropriate balance column after each posting. 4. Prepare an unadjusted trial balance as of July 31, 20Y5.arrow_forward
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