Chapter 5, Problem 1AP

1.

To determine

Prepare journal entries to record adventure T transactions occurring during the first six months of 2022.

Explanation of Solution

Prepare journal entries to record adventure T transactions occurring during the first six months of 2022 as follows:

Date	Account Title and Explanation		Debit ($)	Credit ($)
January 24,2022	Equipment		5,000
		Cash		5,000
	(To record the equipment purchased for cash)
February 25, 2022	Accounts receivable		3,000
		Service Revenue		3,000
	(To record providing services on account)
February 28, 2022	Cash		2,850
	Sales discounts		150
		Accounts Receivable		3,000
	(To record receipt of cash with discount )
March 19, 2022	Accounts receivable		4,000
		Service Revenue		4,000
	(To record providing services on account)
March 27, 2022	Cash		3,800
	Sales discounts		200
		Accounts Receivable		4,000
	(To record receipt of cash with discount )
April 7, 2022	Cash		7,500
		Deferred revenue		7,500
	(To record cash received in advance)
April 14, 2022	Deferred revenue		7,500
		Service Revenue		7,500
	(To record providing services on account)
May 9, 2022	Accounts Receivable		6,000
		Service Revenue		6,000
	(To record providing services on account)
May 31, 2022	Notes receivable		6,000
		Accounts receivable		6,000
	(To record acceptance of notes receivable)
June 15, 2022	Accounts Receivable		24,000
		Service Revenue		$24,000
	(To record providing services on account)

Table (1)

2.

To determine

Prepare adjusting journal entry to record following information as on 30^th June 2019.

Explanation of Solution

a.

Prepare adjusting journal entry to record uncollectible accounts.

Journal entry for uncollectible accounts:

Date	Account Title and Explanation		Debit($)	Credit($)
June 30, 2022	Bad debts expenses (1)		2,400
		Allowance for uncollectible accounts		2,400
	(To record the estimation of future bad debts)

Table (2)

Working note:

$\begin{array}{c}\text{Estimate future bad debts=}\left[\begin{array}{l}\text{Accounts receivable}\times \\ \text{estimated Percentage of uncollectible accounts}\end{array}\right]\\ =\$24,000\times 10\%\\ =\$2,400\end{array}$

(1)

Bad debt expense:

Bad debt expense is an expense account. The amounts of loss incurred from extending credit to the customers are recorded as bad debt expense. Estimated future uncollectible accounts receivable are known as bad debt expense.

• Bad debt expense is a component of stockholders’ equity and decreased it. So, debit bad debt expense for $2,400,
• Allowance for uncollectible accounts is a contra asset account and decreased it. So, credit allowance for uncollectible accounts for $2,400.

b.

Prepare adjusting entry to record accrue one month of interest on the notes receivable from Manufacturing M.

Date	Account Title and Explanation		Debit($)	Credit($)
June 30, 2022	Interest receivable		40
		Interest revenue (2)		40
	(To record accrued interest revenue)

Table (3)

Working note:

Calculate interest revenue.

$\begin{array}{c}\text{Interest revenue}\text{=}\text{Notes receivable}\times \text{Interest rate}\times \text{Time period}\\ \text{=}\text{\$6,000}\times \text{8\%}\times \frac{1}{12}\\ =\$40\end{array}$

(2)

• Interest receivable is a current asset, and it is increased. Therefore, debit interest receivable account for $40.
• Interest revenue is a component of stockholders’ equity, and it is increased. Therefore, credit interest revenue account for $40.

C.

Prepare a partial balance sheet showing the net accounts receivable section.

Incorporation GA
Partial Balance Sheet
As at June 30, 2022
Assets	Amount ($)	Amount ($)
Current assets:
Accounts receivable	24,000
Less: Allowance for uncollectible accounts	(2,400)
Net accounts receivable		21,600

Table (4)

Prepare existing trail balance of Incorporation GA.

Great Adventures, Inc.
Trial Balance
30th June 2022
Accounts	Debit ($)	Credit ($)
Cash	38,500
Accounts Receivable	-0-
Allowance for Uncollectible Accounts		-0-
Interest Receivable	-0-
Notes Receivable	-0-
Prepaid Rent	400
Equipment	40,000
Accumulated Depreciation		16,000
Accounts Payable		2,800
Deferred Revenue		-0-
Interest Payable		1,650
Notes Payable		30,000
Common Stock		20,000
Retained Earnings		33,450
Service Revenue		-0-
Interest Revenue		-0-
Sales Discounts	-0-
Depreciation Expense	8,000
Insurance Expense	2,400
Rent Expense	1,200
Salaries Expense	12,000
Supplies Expense	500
Bad Debt Expense	-0-
Interest Expense	900
Totals	103,900	103,900

Table (5)

(2)

Prepare financial statement of Incorporation GA.

Great Adventures, Inc.
Income Statement
For the period ended June 30, 2022
	Amount ($)	Amount ($)
Revenues:
Service revenue	44,500
Sales discounts	(350)
Interest revenue	40
Net revenues		44,190
Expenses:
Depreciation Expense	8,000
Insurance Expense	2,400
Rent Expense	1,200
Salaries Expense	12,000
Supplies Expense	500
Bad Debt Expense	2,400
Interest Expense	900
Total expenses		27,400
Net income		16,790

Table (6)

Great Adventures, Inc.
Balance Sheet
30th June 2022
	Amount ($)		Amount ($)
Assets		Liabilities
Current assets:		Current liabilities:
Cash	47,650	Accounts payable	2,800
Accounts receivable	24,000	Interest payable	1,650
Allowance for uncollectible accounts	-2,400	Total current liabilities	4,450
Interest receivable	40	Notes payable	30,000
Notes receivable	6,000	Total liabilities	34,450
Prepaid Rent	400
Total current assets	75,690	Stockholders’ Equity
Long-term assets:		Common stock	20,000
Equipment	29,000	Retained earnings	50,240
		Total stockholders’ equity	70,240
Total assets	104,690	Total liabilities and stockholders’ equity	104,690

Table (7)

(3)

Prepare closing entries of Incorporation GA.

Date	Account titles and Explanation	Debit	Credit
30 June 2021	Service revenue	$44,500
	Interest revenue	$40
	Sales discount		$350
	Retained earnings		$44,190
	(To record close revenue accounts)

Table (8)

• Service revenue is a component of stockholders’ equity, and it is decreased. Therefore, debit service revenue account for $44,500.
• Interest revenue is a component of stockholders’ equity, and it is decreased. Therefore, debit interest revenue account for $40.
• Sales discount is a contra revenue account, and it is decreased. Therefore, credit sales discount account for $350.
• Retained earnings are a component of stockholders’ equity, and it is increased. Therefore, credit retained earnings account for $44,190.

Date	Account titles and Explanation	Debit	Credit
30 June 2021	Retained earnings	$27,400
	Depreciation expense		$8,000
	Insurance expense		$2,400
	Rent expense		$1,200
	Salaries expense		$12,000
	Supplies expense		$500
	Bad debt expense		$2,400
	Interest expense		$900
	(To record close expense accounts)

Table (9)

• Retained earnings are a component of stockholders’ equity, and it is decreased. Therefore, debit retained earnings account for $27,400.
• Depreciation expense is a component of stockholders’ equity, and it is increased. Therefore, credit depreciation expense account for $8,000.
• Insurance expense is a component of stockholders’ equity, and it is increased. Therefore, credit insurance expense account for $2,400.
• Rent expense is a component of stockholders’ equity, and it is increased. Therefore, credit rent expense account for $1,200.
• Salaries expense is a component of stockholders’ equity, and it is increased. Therefore, credit salaries expense account for $12,000.
• Supplies expense is a component of stockholders’ equity, and it is increased. Therefore, credit supplies expense account for $500.
• Bad debt expense is a component of stockholders’ equity, and it is increased. Therefore, credit bad debt expense account for $2,400.
• Interest expense is a component of stockholders’ equity, and it is increased. Therefore, credit interest expense account for $900.