Question

P3.7 (LO 3,4) (Adjusting Entries and Financial Statements) Rolling Hills Golf Inc. was orga- nized on July 1, 2020. Quarterly financial statements are prepared. The unadjusted trial balance and adjusted trial balance on September 30 are shown below. Rolling Hills Golf Inc. Trial Balance September 30, 2020 Unadjusted Dr. Cr. $ 6,700 400 1,800 1,200 15,000 $ 5,000 1,070 Cash Accounts Receivable Prepaid Rent Supplies Equipment Accumulated Depreciation Equipment Notes Payable Accounts Payable Salaries and Wages Payable Interest Payable Unearned Rent Revenue Common Stock Retained Earnings Dividends Service Revenue Rent Revenue Salaries and Wages Expense Rent Expense Depreciation Expense Supplies Expense Utilities Expenses Interest Expense Adjusted Dr. Cr. $ 6,700 1,000 900 180 15,000 $ 350 5,000 1,070 600 50 800 14,000 0 600 14,700 900 9,400 1,800 1,000 14,000 0 600 14,100 700 8,800 900 350 470 1,020 470 $35.870 $35,870 $35,870 $35,870 $37,470 37,470 $37,470 Instructions a. Journalize the adjusting entries that were made. b. Prepare an income statement and a retained earnings statement for the 3 months ending September 30 and a classified balance sheet at September 30. c. Identify which accounts should be closed on September 30. d. If the note bears interest at 12%, how many months has it been outstanding?

Answer 1

Rolling Hills Golf Club, Inc. Journal entries Date Account 30-Sep Accounts Receivable Service Revenue Credit Debit $ Calculation =1,000-400 600 $ 600 $ 900 =1,800-900 30-Sep Rent expense Prepaid rent $ 900 $ 1,020 =1,200-180 30-Sep Supplies expense Supplies $ 1,020 $ 350 =350-0 30-Sep Depreciation expense Accumulated Depreciation Equipment $ 350 30-Sep $ 50 =50-0 Interest expense Interest payable $ 50 $ 200 =1,000-800 30-Sep Unearned Rent Revenue Rent Revenue $ 200 $ 600 =600-0 30-Sep Salaries and wages expense Salaries and wages payable $ 600

WORKINGS

Adjustments Debit Credit Calculation Credit Debit Unadjusted TB Debit Credit 6,700 400 600 =1,000-400 1,800 900 1,020 =1,800-900 =1,200-180 1,200 15,000 Adjusted TB Debit Credit 6,700 1,000 900 180 15,000 350 5,000 1,070 600 50 800 14,000 350 =350-0 5,000 1,070 =600-0 600 50 Rolling Hills Golf Club, Inc. Account Names Cash Accounts Receivable Prepaid rent Supplies Equipment Accumulated Depreciation Equipment Notes payable Accounts payable Salaries and wages payable Interest payable Unearned Rent Revenue Common Stock Retained Earnings Dividends Service Revenue Rent Revenue Salaries and wages expense Rent expense Depreciation expense Supplies expense Utilities expense Interest expense Totals =50-0 200 =1,000-800 1,000 14,000 600 600 14,100 700 14,700 900 600 200 =14,700-14,100 =900-700 8,800 900 9,400 1,800 350 1,020 470 600 900 350 1,020 =9,400-8,800 =1,800-900 =350-0 =1,020-0 50 =50-0 50 3,720 35,870 35,870 37,470 37,470 3,720

14,700 900 15,600 Rolling Hills Golf Club, Inc. Income Statement For 3 Months Ended September 30, 2020 Revenues Service Revenue Rent Revenue Total Revenues Operating Expenses Salaries and wages expense Rent expense Depreciation expense Supplies expense Utilities expense Total Operating Expenses Operating Income Interest expense Net Income 9,400 1,800 350 1,020 470 13,040 2,560 2,510 Statement of Retained Earnings For 3 Months Ended September 30, 2020 Beginning Retained Earnings Net Income Less Dividends Ending Retained Earnings 2,510 (600) 1,910

Rolling Hills Golf Club, Inc. Balance Sheet September 30, 2020 Assets Current Assets Cash Accounts Receivable Prepaid rent Supplies Total Current Assets 6,700 1,000 900 180 8,780 Property, Plant & Equipment Equipment Accumulated Depreciation Equipment Total Property, Plant & Equipment Total Assets 15,000 (350) 14,650 23,430 Liabilities & Stockholders Equity Liabilities Notes payable Accounts payable Salaries and wages payable Interest payable Unearned Rent Revenue Total Liabilities 5,000 1,070 600 50 800 7,520 Stockholders Equity Common Stock Retained earnings Total Stockholders Equity Total Liabilities & Stockholders Equity 14,000 1,910 15,910 23,430

Which accounts should be closed? Accounts not closed Cash Accounts Receivable Prepaid rent Supplies Equipment Accumulated Depreciation Equipment Notes payable Accounts payable Salaries and wages payable Interest payable Unearned Rent Revenue Common Stock Retained Earnings Accounts to be closed Dividends Service Revenue Rent Revenue Salaries and wages expense Rent expense Depreciation expense Supplies expense Utilities expense Interest expense Yes Yes Dividends, Revenues and Yes Expenses are all closed to Yes Retained Earnings account Yes Yes Yes

Reg If loan bears interest at 12%, how many months has it been outstanding? Loan has been outstanding for 1 month Workings Loan amount * Interest rate * Term Term (months) Interest expense Interest expense/ (Loan amount * Interest rate) *12 =50/(5,000*12%)*12 1 month Term (months)