Chapter 3, Problem 2BP

a & b

To determine

Prepare the necessary journal entries and post to the ledger accounts.

Explanation of Solution

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

Prepare the journal entries in the books of M Research firms.

Date	Account titles and Explanation	Debit ($)	Credit ($)
June  1	Cash (A+)	28,000
	Common stock (E+)		28,000
	(To record the issuance of common stock)
June  2	Equipment (A+)	11,040
	Supplies (A+)	2,840
	Cash(A-)		4,000
	Accounts payable (L+)		9,880
	(To record  the purchase of asset)
June  3	Rent expense (L-)	1,275
	Cash (A-)		1,275
	(To record the rent expense)
June  4	Prepaid advertisement (A+)	975
	Cash (A-) $\left(\$325\times 3\right)$		975
	(To record the prepaid advertisement)
June  5	Cash (A+)	6,400
	Unearned service revenue (L+) $\left(\$3,200\times 2\right)$		6,400
	(To record the unearned service revenue)
June  6	Accounts receivable (A+)	7,500
	Service revenue (E+)		7,500
	(To record the service revenue)
June  7	Salaries expense (E-)	3,600
	Cash (A-)		3,600
	(To record the Salaries expense)
June  8	Travel expense (E-)	1,440
	Cash (A-)		1,440
	(To record the travel expense)
June  9	Postage expense(E-)	520
	Cash (A-)		520
	(To record the postage expense)
June  10	Salaries  expense(E-)	3,600
	Cash (A-)		3,600
	(To record the salaries expense)
June  11	Accounts receivable (A+)	7,200
	Service revenue (E+)		7,200
	(To record the service revenue)
June  12	Cash (A+)	7,800
	Accounts receivable (A-)		7,800
	(To record the accounts receivable)
June  13	Dividends (E-)	2,500
	Cash(A-)		2,500
	(To record the payment of cash dividends)

Table (1)

T-account:

T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.

The components of the T-account are as follows:

a) The title of the account

b) The left or debit side

c) The right or credit side

Prepare the T-accounts:

c.

To determine

Prepare an unadjusted trial balance as of 30th June.

Explanation of Solution

Unadjusted trial balance:

Unadjusted trial balance is that statement which contains complete list of accounts with their unadjusted balances. This statement is prepared at the end of every financial period.

Prepare the unadjusted trial balance as of 30^th June.

T Company
Unadjusted Trial Balance
June 30, 2014
Accounts	Debit ($)	Credit ($)
Cash	23,965
Supplies	2,840
Accounts receivable	6,900
Prepaid advertising	1,300
Equipment	11,040
Accounts Payable		9,880
Common Stock		28,000
Dividends	2,500
Service Revenue		14,700
Unearned Service Revenue		6,400
Salaries Expense	7,200
Rent expense	1,275
Travel expense	1,440
Postage expense	520
Total	58,980	58,980

Table (2)

Conclusion

The debit column and credit column of the unadjusted trial balance are agreed, both having balance of $58,980.

d.

To determine

Prepare the adjusting entries and post to the ledger accounts.

Explanation of Solution

Adjusting entries: Adjusting entries are the journal entries which are recorded at the end of the accounting period to correct or adjust the revenue and expense accounts, to concede with the accrual principle of accounting.

Prepare the adjusting entries in the books of W Catering Service.

Date	Account titles and Explanation	Debit ($)	Credit ($)
June  30	Office Supplies Expense (E+) (1)	1,010
	Office Supplies (A–)		1,010
	(To record the adjusting entry for office supplies expense)
June 30	Salaries Expense (E+)	925
	Salaries Payable (L+)		925
	(To record the adjusting entry for salaries expense)
June 30	Depreciation Expense- Equipment (E+) (2)	115
	Accumulated Depreciation -  Equipment (A–)		115
	(To record the amount of depreciation for June )
June 30	Advertising Expense (E–)	325
	Prepaid Insurance(A–)		325
	(To record the amount of prepaid advertising expired during the period)
June 30	Unearned Service (L–)	3,200
	Service Revenue (E+)		3,200
	(To record the amount of unearned service revenue earned for the month of June)

Table (3)

Working note:

Calculate the amount of office supplies used during the year:

$\begin{array}{c}\text{Office}\text{Supplies used}=\text{Balance}\text{in}\text{the}\text{trial}\text{balance}-\text{Balance}\text{in}\text{hand}\\ =\text{\$2,840}-\text{\$1,830}\\ =\text{\$1,010}\end{array}$ (1)

Calculate the amount of depreciation on equipment for the month June:

$\begin{array}{c}\text{Depreciation Expense = }\frac{\text{Cost of the Asset}}{\text{Useful Life of the Asset }}\times \frac{1}{12}\\ =\frac{\$11,040}{8}\times \frac{1}{12}\\ =\$115\end{array}$ (2)

T-account:

T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.

The components of the T-account are as follows:

a) The title of the account

b) The left or debit side

c) The right or credit side

Prepare the T-accounts: