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College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

Journalizing, Posing, and Preparing a Trial Balance

A friend of yours, Anika Valli, has decided to open a spa to serve her small resort town of about 7,000 people and 4 million tourists annually. She has named the business All About You Spa to convey the idea that the business intends to pamper those who enter its doors. She will operate the spa five days a week, Tuesday through Saturday, but a phone line will always be available to answer questions and schedule appointments. Hours will be from 8 A.M. to 8 P.M. She has asked you to be the bookkeeper for this new business. At the end of the month of October, the owner, Anika Valli, would like you to provide the following:

  1. 1. General journal
  2. 2. General ledger
  3. 3. Trial balance
  4. 4. Income statement
  5. 5. Statement of owner’s equity
  6. 6. Balance sheet

She has kept a checkbook and a file folder with summary evidence of October’s spa activity: a check register, a summary report of charges by customers for services provided, all receipts that were issued, and a summary of charges made by All About You Spa. Most of the income from services is received in cash and as charges to credit cards. No checks are accepted, except from approved clients (primarily conference planners and other organizations that book packages as prizes for attendees or gifts for employees, speakers, or other people they want to thank with a spa service or package of services). Anika deposits cash receipts on customer’s accounts on the 7th, 14th, 21st, and last day of each month.

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The first page in the file folder contains the following chart of accounts. Currently, you will not use or may not be familiar with some of the accounts listed here. Ignore those accounts for now; we will use them later.

The basis of your entries will be the following documents:

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Other information that require journal entries:

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Required

  1. 1. Journalize the transactions for October (in date order) in the general journal.

    — If you are using GL, review the instructions for the program on the textbook website. If you are preparing the journal entries manually, enter your transactions beginning on page 1.

  2. 2. Post the entries to the general ledger accounts.

    — Ignore this step if you are using CLGL.

  3. 3. Prepare a trial balance as of October 31, 20–.
  4. 4. Prepare an income statement for the month ended October 31, 20–.
  5. 5. Prepare a statement of owner’s equity for the month ended October 31, 20—.
  6. 6. Prepare a balance sheet as of October 31, 20–.

*If you are using CLGL, use the year 2020 when recording journal entries and preparing reports.

1.

To determine

Prepare journal entries for the given transactions.

Explanation

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • ■ Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • ■ Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Prepare journal entries for the given transactions.

Transaction on October 1:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
October1Cash11125,000 
   AV, Capital311 25,000
  (Record cash invested in the business by AV)   

Table (1)

Description:

  • ■ Cash is an asset account. Since cash is invested in the business, asset account increased, and an increase in asset is debited.
  • ■ AV, Capital is an equity account. Since cash is contributed as capital by the owner, equity value increased, and an increase in equity is credited.

Transaction on October 1:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
October1Spa Equipment1283,575 
   AV, Capital311 3,575
  (Record equipment invested in the business by AV)   

Table (2)

Description:

  • ■ Spa Equipment is an asset account. Since equipment is invested in the business, asset account increased, and an increase in asset is debited.
  • ■ AV, Capital is an equity account. Since equipment is contributed as capital by the owner, equity value increased, and an increase in equity is credited.

Transaction on October 3:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
October3Prepaid Insurance117840 
     Cash111 840
  (Record payment of insurance in advance)   

Table (3)

Description:

  • ■ Prepaid Insurance is an asset account. Since insurance is paid in advance, it is recorded as asset until it is consumed. So, asset value is increased, and an increase in asset is debited.
  • ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

Transaction on October 3:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
October3Spa Equipment1285,550 
   Cash111 3,000
   Accounts Payable211 2,550
  (Record purchase of equipment)   

Table (4)

Description:

  • ■ Spa Equipment is an asset account. Since equipment is bought, asset account increased, and an increase in asset is debited.
  • ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
  • ■ Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Transaction on October 3:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
October3Rent Expense6121,000 
   Cash111 1,000
  (Record payment of rent expense)   

Table (5)

Description:

  • ■ Rent Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
  • ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

Transaction on October 3:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
October3Spa Supplies115685 
   Accounts Payable211 685
  (Record purchase of supplies)   

Table (6)

Description:

  • ■ Spa Supplies is an asset account. Since supplies are bought, asset account increased, and an increase in asset is debited.
  • ■ Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Transaction on October 5:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
October5Office Supplies114230 
   Cash111 230
  (Record purchase of supplies)   

Table (7)

Description:

  • ■ Office Supplies is an asset account. Since supplies are bought, asset account increased, and an increase in asset is debited.
  • ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

Transaction on October 5:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
October5Promotional Expense630115 
   Cash111 115
  (Record payment for promotional items)   

Table (8)

Description:

  • ■ Promotional Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
  • ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

Transaction on October 5:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
October5Office Equipment124520 
   Accounts Payable211 520
  (Record purchase of equipment)   

Table (9)

Description:

  • ■ Office Equipment is an asset account. Since equipment is bought, asset account increased, and an increase in asset is debited.
  • ■ Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Transaction on October 5:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
October 5Advertising Expense616415 
   Accounts Payable211 415
  (Record receipt of advertising expense bill)   

Table (10)

Description:

  • ■ Advertising Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
  • ■ Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Transaction on October 5:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
October5Office Equipment124825 
   Accounts Payable211 825
  (Record purchase of equipment)   

Table (11)

Description:

  • ■ Office Equipment is an asset account. Since equipment is bought, asset account increased, and an increase in asset is debited.
  • ■ Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Transaction on October 5:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
October5Office Supplies114125 
   Accounts Payable211 125
  (Record purchase of supplies)   

Table (12)

Description:

  • ■ Office Supplies is an asset account. Since supplies are bought, asset account increased, and an increase in asset is debited.
  • ■ Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Transaction on October 7:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
October7Wages Expense6112,075 
   Cash111 2,075
  (Record payment of wages expense)   

Table (13)

Description:

  • ■ Wages Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
  • ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

Transaction on October 7:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
October7Cash1113,465 
   Income from Services411 3,465
  (Record services performed for cash)   

Table (14)

Description:

  • ■ Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
  • ■ Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.

Transaction on October 7:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
October7Accounts Receivable113350 
   Income from Services411 350
  (Record services performed on account)   

Table (15)

Description:

  • ■ Accounts Receivable is an asset account. The amount is increased because amount to be received increased, and an increase in asset is debited.
  • ■ Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.

Transaction on October 11:

DateAccount Titles and ExplanationsPost...

2.

To determine

Post the journalized transactions in the ledger accounts of the general ledger.

3.

To determine

Prepare the trial balance for ABY Spa as at October 31, 20--, based on the account balances derived in Part (2).

4.

To determine

Prepare an income statement of ABY Spa for the month ended October 31, 20--, based on the account balances derived in Part (2).

5.

To determine

Prepare a statement of owners’ equity of ABY Spa, based on the account balances derived in Part (2), and net income computed in Part (4).

6.

To determine

Prepare a balance sheet for ABY Spa, based on the account balances derived in Part (2), and capital of the owner from the statement of owners’ equity prepared in Part (5).

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