Concept explainers
Accounting for Operating Activities (Including Depreciation) and Preparing Financial Statements (Chapters 3, 4, 8, and 9)
Grid Iron Prep Inc. (GIPI) is a service business incorporated in January of the current year to provide personal training for athletes aspiring to play college football. The following transactions occurred during the month ended January 31.
- 1. GIPI issued stock in exchange for $ 100.000 cash on 1/01.
- 2. GIPI purchased a gymnasium building and gym equipment on 1/02 for $50,000, 80% of which related to the gymnasium and 20% to the equipment.
- 3. GIPI paid $260 cash on 1/03 to have the gym equipment refurbished before it could be used.
- 4. GIPI provided $4,000 in training on 1/04 and expected collection in February.
- 5. GIPI collected $36,000 cash in training fees on 1/10, of which $34,000 was earned in January and $2,000 would be earned in February.
- 6. GIPI paid $23,000 of wages and $7,000 in utilities on 1/30.
- 7. GIPI will
depreciate the gymnasium building using the straight-line method over 20 years with a residual value of $2,000. Gym equipment will be depreciated using the double-declining-balance method, with an estimated residual value of $2,250 at the end of its four- year useful life. Record depreciation on l/31 equal to one-twelfth the yearly amount. - 8. GIPI received a bill on 1/31 for $350 for advertising done on 1/31. The bill has not been paid or recorded.
- 9. GIPI uses the aging method for estimating doubtful accounts and. on 1/31, will record an estimated 3 percent of its under-30-day-old accounts as not collectible.
- 10. GIPI’s income tax rate is 30%. Assume depreciation for tax is the same amount as depreciation for financial reporting purposes.
Required:
- 1. Prepare
journal entries to record the transactions and adjustments listed in (1)-(10). - 2. If you are completing this problem manually,
post the entries from requirement 1 to T-accounts and then prepare an adjustedtrial balance at December 31. Show a zero balance forRetained Earnings in the adjusted trial balance. (If you are completing this problem in Connect, this requirement will be completed automatically for you using your responses to requirement 1.) - 3. Prepare GIPI's annual income statement, statement of retained earnings, and classified balance sheet.
1.
To prepare: the journal entries to record the transactions and adjustments
Answer to Problem 1COP
Prepare the journal entries to record the transactions and adjustments.
Date | Account title and Explanation | Post ref | Debit (in $) |
Credit (in $) |
1 | Cash | 100,000 | ||
Common Stock | 100,000 | |||
(To record the issue of the common stock) | ||||
2 | Building | 40,000 | ||
Equipment | 10,000 | |||
Cash | 50,000 | |||
(To record the purchase of building and equipment ) | ||||
3 | Equipment | 260 | ||
Cash | 260 | |||
(To record equipment refurbished expense ) | ||||
4 | Accounts Receivable | 4,000 | ||
Service Revenue | 4,000 | |||
(To recordthe accounts receivables) | ||||
5 | Cash | 36,000 | ||
Service Revenue | 34,000 | |||
Unearned Revenue | 2,000 | |||
(To record the service revenue) | ||||
6 | Salaries and Wages Expense | 23,000 | ||
Utilities Expense | 7,000 | |||
Cash | 30,000 | |||
(To record salaries and wages expense and utilities expenses) | ||||
7 | Depreciation Expense | 586 | ||
Accumulated Depreciation-Building (1) | 158 | |||
Accumulated Depreciation-Equipment (2) | 428 | |||
(To record depreciation expense) | ||||
8 | Advertising Expense | 350 | ||
Accounts Payable | 350 | |||
(To record advertising expense) | ||||
9 | Bad Debt Expense | 120 | ||
Allowance for Doubtful Accounts | 120 | |||
(To record the bad debts expense) | ||||
10 | Income Tax Expense | 2,083 | ||
Income Tax Payable (3) | 2,083 | |||
(To record the income tax expense) |
Table (1)
Working notes:
Calculate the accumulated depreciation on building.
Straight-line Depreciation: Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset. The formula to calculate the depreciation cost of the asset using the residual value is shown as below:
Cost of the building is $50,000; estimated life time of the building is 20 years; residual value is $2,000.
Hence, depreciation on building for the month of January is $158.
Calculate the accumulated depreciation on equipment.
Double-declining balance method (Accelerated method): In this method of depreciation, the diminishing value of the asset is taken into consideration for determining the depreciation for the succeeding years.
Cost of the equipment is $10,260
Hence, depreciation on equipment for the month of January is $428.
Explanation of Solution
Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.
Debit: A debit, in an accounting term refers to the left side of an account. The term debit can be denoted by (Dr). The amounts which are recorded on the left side of the account are known as debiting.
Credit: A credit, in an accounting term refers to the right side of an account. The term credit can be denoted as (Cr). The amounts which are recorded on the right side of the account are known as crediting.
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
- Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
Adjusting entries:
Adjusting entries are those entries which are made at the end of the accounting period, to record the revenues in the period of which they have been earned and to record the expenses in the period of which have been incurred, as well as to update all the balances of assets and liabilities accounts on the balance sheet, and to ascertain accurate amount of net income (loss) on the income statement to maintain the records according to the accrual basis principle.
Accounting rules for journal entries:
- To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
- To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.
2.
To prepare: T accounts by posting the journal entries from requirement 1 and prepare adjusted trial balance at December 31.
Answer to Problem 1COP
Prepare T accounts by posting the journal entries from requirement 1.
Cash (A) | |||
Balance | 0 | ||
1 | 100,000 | 2 | 50,000 |
5 | 36,000 | 3 | 260 |
6 | 30,000 | ||
55,740 |
Accounts Receivable (A) | |||
Balance | 0 | ||
4 | 4,000 | ||
4,000 |
Allowance for Doubtful Accounts (XA) | |||
Balance | 0 | ||
9 | 120 | ||
120 |
Building (A) | ||||
Balance | 0 | |||
2 | 40,000 | |||
40,000 |
Accumulated Depreciation–Building (XA) | |||
Balance | 0 | ||
7 | 158 | ||
158 |
Accumulated Depreciation–Equipment (XA) | |||||||
Balance | 0 | ||||||
7 | 428 | ||||||
428 | |||||||
Unearned Revenue (L) |
|||||||
Balance | 0 | ||||||
5 | 2000 | ||||||
2,000 |
Income Tax Payable (L) | |||
Balance | 0 | ||
10 | 2,083 | ||
2,083 |
Common Stock (SE) | |||
Balance | 0 | ||
1 | 100,000 | ||
100,000 |
Service Revenue (R) | |||
Balance | 0 | ||
4 | 4,000 | ||
5 | 34,000 | ||
38,000 |
Salaries and Wages Expense (E) | |||
Balance | 0 | ||
6 | 23,000 | ||
23,000 |
Utilities Expense (E) | |||
Balance | 0 | ||
6 | 7,000 | ||
7,000 |
Advertising Expense (E) | ||
Balance | 0 | |
8 | 350 | |
350 |
Depreciation Expense (E) | |||
Balance | 0 | ||
7 | 586 | ||
586 |
Bad Debt Expense (E) | |||
Balance | 0 | ||
9 | 120 | ||
120 |
Income Tax Expense (E) | |||
Balance | 0 2,083 | ||
10 | |||
2,083 |
Equipment (A) | ||||
Balance | 0 | |||
2 | 10,000 | |||
3 | 260 | |||
10,260 |
Accounts Payable (L) | |||
Balance | 0 | ||
8 | 350 | ||
350 |
Prepare the adjusted trial balance.
Incorporation GIP | ||
Adjusted trial balance | ||
as of December 31 | ||
Account Titles | Debit (In $) |
Credit (In $) |
Cash | $ 55,740 | |
Accounts Receivable | $ 4,000 | |
Allowance for Doubtful Accounts | $ 120 | |
Building | $ 40,000 | |
Accumulated Depreciation–Building | $ 158 | |
Equipment | $ 10,260 | |
Accumulated Depreciation–Equipment | $ 428 | |
Accounts Payable | $ 350 | |
Unearned Revenue | $ 2,000 | |
Income Tax Payable | $ 2,083 | |
Common Stock | $ 100,000 | |
Retained Earnings | $ 0 | |
Service Revenue | $ 38,000 | |
Salaries and Wages Expense | $ 23,000 | |
Utilities Expense | $ 7,000 | |
Depreciation Expense | $ 586 | |
Advertising Expense | $ 350 | |
Bad Debt Expense | $ 120 | |
Income Tax Expense | 2,083 | |
Totals | $ 143,139 | $ 143,139 |
Table (2)
Explanation of Solution
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
Adjusted trial balance:
Adjusted trial balance is that statement which contains complete list of accounts with their adjusted balances, after all relevant adjustments have been made. This statement is prepared at the end of every financial period.
3.
To prepare: the annual income statement, statement of retained earnings and classified balance sheet.
Answer to Problem 1COP
Prepare the annual income statement of Incorporation GIP for the year ended 2015.
INCORPORATION GIP | ||
Income Statement | ||
For the Year Ended December 31 | ||
Amount (in $) |
Amount (in $) |
|
Service Revenue | $ 38,000 | |
Expenses: | ||
Salaries and Wages Expense | 23,000 | |
Utilities Expense | 7,000 | |
Depreciation Expense | 586 | |
Advertising Expense | 350 | |
Bad Debt Expense | 120 | |
Total Operating Expenses | (31,056) | |
Income before Income Tax Expense | 6,944 | |
Income Tax Expense (3) | (2,083) | |
Net Income | $ 4,861 |
Table (3)
Net income for the year ended December 31st is $4,861.
Prepare the statement of retained earnings for the year ended December 31st.
Incorporation GIP | |
Statement of retained earnings | |
For the Year Ended December 31 | |
Amount (in $) |
|
Balance, January 1st | 0 |
Net Income | 4,861 |
Dividends | 0 |
Balance, December 31 | $ 4,861 |
Table (4)
Prepare the classified balance sheet of Incorporation GIP as of December 31st.
GRID IRON PREP, INC. | |
Balance Sheet | |
As of December 31 | |
Amount (in $) |
|
Current assets: | |
Cash | $ 55,740 |
Accounts Receivable | 4,000 |
Less: Allowance for Doubtful Accounts | (120) |
Total Current Assets | 59,620 |
Property and Equipment, at cost | 50,260 |
Less: Accumulated Depreciation | (586) |
Total Assets | $ 109,294 |
Current Liabilities: | |
Accounts Payable | $ 350 |
Unearned Revenue | 2,000 |
Income Tax Payable | 2,083 |
Total Liabilities | 4,433 |
Stockholders’ Equity: | |
Common Stock | 100,000 |
Retained Earnings | 4,861 |
Total Stockholders’ Equity | 104,861 |
Total Liabilities and Stockholders’ Equity | $ 109,294 |
Table (5)
Explanation of Solution
Compute the income tax expense.
Income before income tax expense is $6,944. Income tax rate is 30%
Income statement:
The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Statement of Retained Earnings:
Statement of retained earnings shows, the changes in the retained earnings, and the income left in the company after payment of the dividends, for the accounting period.
Balance Sheet:
Balance Sheet summarizes the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Classified balance sheet:
This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.
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Chapter 9 Solutions
FINANCIAL ACCT -CONNECT CODE ONLY
- Transaction Analysis and Financial Statements Expert Consulting Services Inc. was organized on March 1 by two former college roommates. The corporation provides computer consulting services to small businesses. The following transactions occurred during the first month of operations: March 2: Received contributions of $20,000 from each of the two principal owners of the new business in exchange for shares of stock. March 7: Signed a two-year promissory note at the bank and received cash of $15,000. Interest, along with the $15,000, will be repaid at the end of the two years. March 12: Purchased $700 in miscellaneous supplies on account. The company has 30 days to pay for the supplies. March 19: Billed a client $4,000 for services rendered by Expert in helping to install a new computer system. The client is to pay 25% of the bill upon its receipt and the remaining balance within 30 days. March 20: Paid $1,300 bill from the local newspaper for advertising for the month of March. March 22: Received 25% of the amount billed to the client on March 19. March 26: Received cash of $2,800 for services provided in assisting a client in selecting software for its computer. March 29: Purchased a computer system for $8,000 in cash. March 30: Paid $3,300 of salaries and wages for March. March 31: Received and paid $1,400 in gas, electric, and water bills. Required Prepare a table to summarize the preceding transactions as they affect the accounting equation. Use the format in Exhibit 3-1. Identify each transaction with the date. Prepare an income statement for the month of March. Prepare a classified balance sheet at March 31. From reading the balance sheet you prepared in part (3), what events would you expect to take place in April? Explain your answer.arrow_forwardJournal Entries, Trial Balance, and Financial Statements Neveranerror Inc. was organized on June 2 by a group of accountants to provide accounting and tax services to small businesses. The following transactions occurred during the first month of business: June 2: Received contributions of $10,000 from each of the three owners of the business in exchange for shares of stock. June 5: Purchased a computer system for $12,000. The agreement with the vendor requires a down payment of $2,500 with the balance due in 60 days. June 8: Signed a two-year promissory note at the bank and received cash of $20,000. June 15: Billed $12,350 to clients for the first half of June. Clients are billed twice a month for services performed during the month, and the bills are payable within ten days. June 17: Paid a $900 bill from the local newspaper for advertising for the month of June. June 23: Received the amounts billed to clients for services performed during the first half of the month. June 28: Received and paid gas, electric, and water bills. The total amount is $2,700. June 29: Received the landlords bill for $2,200 for rent on the office space that Neveranerror leases. The bill is payable by the 10th of the following month. June 30: Paid salaries and wages for June. The total amount is $5,670. June 30: Billed $18,400 to clients for the second half of June. June 30: Declared and paid dividends in the amount of $6,000. Required Prepare journal entries on the books of Neveranerror Inc. to record the transactions entered into during the month. Ignore depreciation expense and interest expense. Prepare a trial balance at June 30. Prepare the following financial statements: Income statement for the month of June Statement of retained earnings for the month of June Classified balance sheet at June 30 Assume that you have just graduated from college and have been approached to join this company as an accountant. From your reading of the financial statements for the first month, would you consider joining the company? Explain your answer. Limit your answer to financial considerations only.arrow_forwardEntries Prepared from a Trial Balance and Proof of the Cash Balance Russell Company was incorporated on January 1 with the issuance of capital stock in return for $120,000 of cash contributed by the owners. The only other transaction entered into prior to beginning operations was the issuance of a $50,000 note payable in exchange for equipment and fixtures. The following trial balance was prepared at the end of the first month by the bookkeeper for Russell Company: Required Determine the balance in the Cash account. Identify all of the transactions that affected the Cash account during the month. Use a T account to prove what the balance in Cash will be after all transactions are recorded.arrow_forward
- Journal Entries and a Balance Sheet Krittersbegone Inc. was organized on July 1 by a group of technicians to provide termite inspections and treatment to homeowners and small businesses. The following transactions occurred during the first month of business: July 2: Received contributions of $3,000 from each of the six owners in exchange for shares of stock. July 3: Paid $1,000 rent for the month of July. July 5: Purchased flashlights, tools, spray equipment, and ladders for $18,000, with a down payment of $5,000 and the balance due in 30 days. July 17: Paid a $200 bill for the distribution of door-to-door advertising. July 28: Paid August rent and July utilities to the landlord in the amounts of $1,000 and $450, respectively. July 30: Received $8,000 in cash from homeowners for services performed during the month. In addition, billed $7,500 to other customers for services performed during the month. Billings are due in 30 days. July 30: Paid commissions of $9,500 to the technicians for July. Required Prepare journal entries on the books of Krittersbegone to record the transactions entered into during the month. Ignore depreciation expense. Prepare a classified balance sheet dated July 31. From the balance sheet, what cash inflow and what cash outflow can you predict in the month of August? Who would be interested in the cash flow information? Why?arrow_forwardUsing the income statement for Adventure Travel Service shown in Practice Exercise 1-4A, prepare a statement of owners equity for the year ended April 30, 2019. Jerome Foley, the owner, invested an additional 60,000 in the business during the year and withdrew cash of 40,000 for personal use. Jerome Foley, capital as of May 1, 2018, was 1,020,000.arrow_forwardDuring December of this year, G. Elden established Ginnys Gym. The following asset, liability, and owners equity accounts are included in the chart of accounts: During December, the following transactions occurred: a. Elden deposited 35,000 in a bank account in the name of the business. b. Bought exercise equipment for cash, 8,150, Ck. No. 1001. c. Bought advertising on account from Hazel Company, 105. d. Bought a display rack on account from Cyber Core, 790. e. Bought office equipment on account from Office Aids, 185. f. Elden invested her exercise equipment with a fair market value of 1,200 in the business. g. Made a payment to Cyber Core, 200, Ck. No. 1002. h. Sold services for the month of December for cash, 800. Required 1. Write the account classifications (Assets, Liabilities, Capital, Drawing, Revenue, Expense) in the fundamental accounting equation, as well as the plus and minus signs and Debit and Credit. 2. Write the account names on the T accounts under the classifications, place the plus and minus signs for each T account, and label the debit and credit sides of the T accounts 3. Record the amounts in the proper positions in the T accounts. Write the letter next to each entry to identify the transaction. 4. Foot and balance the accounts.arrow_forward
- The transactions completed by PS Music during June 2019 were described at the end of Chapter 1. The following transactions were completed during July, the second month of the businesss operations: July 1.Peyton Smith made an additional investment in PS Music by depositing 5,000 in PS Musics 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 music 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 cash from customers on account. 3.On behalf of PS Music, Peyton signed a contract with a local radio station, KXMD, to provide guest spots for the next three months. The contract requires PS Music 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 250 to creditors 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 Page 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. July 21. Paid 620 to Upload Music for use of its current music demos in making various music 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, 2019. 27.Paid electric bill, 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 500, with the remainder due on August 9, 2019. 31.Received 3,000 for serving as a disc jockey for a party. 31.Paid 1,400 royalties (music expense) to National Music Clearing for use of various artists music during July. 31.Withdrew 1,250 cash from PS Music for personal use. PS Musics chart of accounts and the balance of accounts as of July 1, 2019 (all normal balances), are as follows: Instructions 1. Enter the July 1, 2019, 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, 2019.arrow_forwardThe transactions completed by PS Music during June 2019 were described at the end of Chapter 1. The following transactions were completed during July, the second month of the business's operations: July 1. Peyton Smith made an additional investment in PS Music by depositing 5,000 in PS Music's 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 music: 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 cash from customers on account. 3. On behalf of PS Music, Peyton signed a contract with a local radio station, KXMD, to provide guest spots for the next three months. The contract requires PS Music to provide a guest disc jockey for SO hours per month for a monthly fee of 3,600. Any additional hours beyond SO 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 250 to creditors 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. 11. Paid wages of 1,200 to receptionist and part-time assistant. Enter the following transactions on Page 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. July 21. Paid 620 to Upload Music for use of its current music demos in making various music 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, 2019. 27. Paid electric bill, 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 500, with the remainder due on August 9, 2019. 31. Received 3,000 for serving as a disc jockey for a party. 31. Paid 1,400 royalties (music expense) to National Music Clearing for use of various artists' music during July. 31. Withdrew l,250 cash from PS Music for personal use. PS Music's chart of accounts and the balance of accounts as of July 1, 2019 (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 Peyton smith, Drawing 4,000 32 Fees Earned 500 41 Wages Expense 6,200 50 Office Rent Expense 400 51 Equipment Rent Expense 800 52 Utilities Expense 675 53 Supplies 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, 2019, 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, 2019.arrow_forwardOn October 1, 2019, Jay Pryor established an interior decorating business, Pioneer Designs. During the month, Jay completed the following transactions related to the business: Oct. 1. Jay transferred cash from a personal bank account to an account to be used for the business, 18,000. 4.Paid rent for period of October 4 to end of month, 3,000. 10.Purchased a used truck for 23,750, paying 3,750 cash and giving a note payable for the remainder. 13.Purchased equipment on account, 10,500. 14.Purchased supplies for cash, 2,100. 15.Paid annual premiums on property and casualty insurance, 3,600. 15.Received cash for job completed, 8,950. Enter the following transactions on Page 2 of the two-column journal: 21.Paid creditor a portion of the amount owed for equipment purchased on October 13, 2,000. 24.Recorded jobs completed on account and sent invoices to customers, 14,150. 26.Received an invoice for truck expenses, to be paid in November, 700. 27.Paid utilities expense, 2,240. 27.Paid miscellaneous expenses, 1,100. Oct. 29. Received cash from customers on account, 7,600. 30.Paid wages of employees, 4,800. 31.Withdrew cash for personal use, 3,500. Instructions 1. Journalize each transaction in a two-column journal beginning on Page 1, referring to the following chart of accounts in selecting the accounts to be debited and credited. (Do not insert the account numbers in the journal at this time.) Journal entry explanations may be omitted. 2. Post the journal to a ledger of four-column accounts, inserting appropriate posting references as each item is posted. Extend the balances to the appropriate balance columns after each transaction is posted. 3. Prepare an unadjusted trial balance for Pioneer Designs as of October 31, 2019. 4. Determine the excess of revenues over expenses for October. 5. Can you think of any reason why the amount determined in (4) might not be the net income for October?arrow_forward
- For each of the following situations write the principle, assumption, or concept that justifies or explains what occurred. A. A landscaper received a customers order and cash prepayment to install sod at a house that would not be ready for installation until March of next year. The owner should record the revenue from the customer order in March of next year, not in December of this year. B. A company divides its income statements into four quarters for the year. C. Land is purchased for $205,000 cash; the land is reported on the balance sheet of the purchaser at $205,000. D. Brandys Flower Shop is forecasting its balance sheet for the next five years. E. When preparing financials for a company, the owner makes sure that the expense transactions are kept separate from expenses of the other company that he owns. F. A company records the expenses incurred to generate the revenues reported.arrow_forwardJournal entries and trial balance On August 1, 20Y7, Rafael Masey established Planet Realty, which completed the following transactions during the month: a. Rafael Masey transferred cash from a personal bank account to an account to be used for the business in exchange for common stock, 17,500. b. Purchased supplies on account, 2,300. c. Earned sales commissions, receiving cash, 13,300. d. Paid rent on office and equipment for the month, 3,000. e. Paid creditor on account, 1,150. f. Paid dividends, 1,800. g. Paid automobile expenses (including rental charge) for month, 1,500, and miscellaneous expenses, 400. h. Paid office salaries, 2,800. i. Determined that the cost of supplies used was 1,050. Instructions 1. Journalize entries for transactions (a) through (i), using the following account titles: Cash, Supplies, Accounts Payable, Common Stock, Dividends, Sales Commissions, Rent Expense, Office Salaries Expense, Automobile Expense, Supplies Expense, Miscellaneous Expense. Journal entry explanations may be omitted. 2. Prepare T accounts, using the account titles in (1). Post the journal entries to these accounts, placing the appropriate letter to the left of each amount to identify the transactions. Determine the account balances, after all posting is complete. Accounts containing only a single entry do not need a balance. 3. Prepare an unadjusted trial balance as of August 31, 20Y7. 4. Determine the following: a. Amount of total revenue recorded in the ledger. b. Amount of total expenses recorded in the ledger. c. Amount of net income for August. 5. Determine the increase or decrease in retained earnings for August.arrow_forwardThe transactions completed by PS Music during June 20Y5 were described at the end of Chapter 1. The following transactions were completed during July, the second month of the businesss operations: July 1. Peyton Smith made an additional investment in PS Music in exchange for common stock by depositing 5,000 in PS Musics 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 music 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 Music, Peyton signed a contract with a local radio station, KXMD, to provide guest spots for the next three months. The contract requires PS Music 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 250 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 Page 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 Music for use of its current music demos in making various music 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, 20Y5. 27. Paid electric bill, 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 500, 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 (music expense) to National Music 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: 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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