Question

Case:

In 2017, Luke Whitney founded Luke’s Delivery Service and he come to your group for advice. He need to know how much net income the business earned during the first month of operation but he has no one currently to assist in providing him with the required information. The company completed the following transactions during its first month of operations for January 2017:

A. Luke’s Delivery Service began operations by receiving $6,000 cash and a truck valued at $11,000. The business gave Luke capital to acquire these assets.

B. Paid $300 cash for supplies.

C. Prepaid insurance, $700.

D. Performed delivery services for a customer and received $800 cash.

E. Completed a large delivery job, billed the customer $1,500, and received a promise to collect the $1,500 within one week.

F. Paid employee salary, $700.

G. Received $12,000 cash for performing delivery services.

H. Collected $600 in advance for delivery service to be performed later.

I. Collected $1,500 cash from a customer on account.

J. Purchased fuel for the truck, paying $800 with a company credit card. (Credit Accounts payable)

K. Performed delivery services on account, $900.

L. Paid office rent, $600. This rent is not paid in advance.

M. Paid $200 on account.

N. Owner withdrew cash of $2,100.

Requirements:

1. Record each transaction in the journal and key each transaction by its letter.

Explanations are not required.

2. Post the transactions that you recorded in their respective T-accounts.

Cash Service revenue

Accounts receivable Salary expense

Supplies Depreciation expense

Prepaid Insurance Insurance expense

Delivery truck Fuel expense

Accumulated depreciation Rent expense

Accounts payable Supplies expense

Salary payable Income summary

Unearned service revenue

Luke’s, Capital

Luke’s, Drawing

3. Prepare the following:

● Unadjusted Trial balance for the month ended January 31, 2017 based on the information already provided.

It is now a few days after January 31, and you are provided with the following additional information relating to that month:

O. Accrued salary expense, $700.

P. Depreciation expense, $60.

Q. Prepaid insurance expired, $250.

R. Supplies on hand, $200.

S. Unearned service revenue earned during January, $500.

4. Using the additional information provided above, complete the following:

● adjusting journal entries for transactions O to S. (Key each transaction by its letter. Explanations are not required).

● Post the transactions to their respective T-accounts.

5. Prepare the Adjusted trial balance, Luke’s Delivery Service’s Income Statement, Statement of Owner’s equity for the month ended January 31, 2017, and the Classified Balance sheet on that date.

6. Journalize and post the closing entries to their respective T-accounts.

7. Prepare a post-closing trial balance as at January 31, 2017.

Answer 1

Luke's Delivery Service Dr. Journal Enteries Trans. Particulars A. Cash a/c Truck a/c To Luke's, Capital (Capital Invested) Debit in $ Credit in $ 6000 11000 17000 Dr. B. Dr. 300 Supplies a/c To Cash (Supplies purchased) 300 C. 700 Prepaid insurance a/c Dr. To Cash (Insurance paid) 700 D. 800 Cash a/c Dr. To Service revenue (Services provided for cash) 800 E. 1500 Accounts Receivable a/c Dr. To Service revenue (Service on account) 1500 F. Dr. 700 Salary expense a/c To Cash (Salary paid) 700 G. 12000 Cash a/c Dr. To Service revenue (Services provided for cash) 12000 Dr. 600 Cash a/c To Unearned service revenue (Advance from client) 600 I. 1500 Cash a/c Dr. To Accounts Receivable (Cash from debtors) 1500 J. 800 Fuel expense a/c Dr. To Accounts payable (Fuel on account) 800 900 Accounts Receivable a/c Dr. To Service revenue (Service on account) 900 Dr. 600 Rent expense a/c To Cash (Rent paid) 600 M. Dr. Accounts payable a/c To Cash (Creditors paid) 200 N. 2100 Luke's, Drawing a/c Dr. To Cash (Cash drawn for personal use) 2100

Adjusting Enteries Trans. Particulars o. Salary Expense a/c To Salary Payable (Salary accrued) Dr. Debit in $ Credit in $ 700 700 P. Depreciation Expense a/c Dr. To Accum. Depre - Delivery truck (To record depreciation) 60 O. Dr. Insurance expense a/c To Prepaid insurance (Insurance expensed) 250 R. Dr. Supplies expense a/c To Supplies (Supplies expensed) 100 S. 500 Unearned service revenue a/c Dr. To Service revenue (Revenue earned) 500 Debit in $ Credit in $ 3210 700 800 Closing Enteries Trans. Particulars 31.1.2017 Income Summary a/c Dr. To Salary expense To Fuel expense To Rent expense To Salary Expense To Depreciation Expense To Insurance expense To Supplies expense (Expense accounts closed) 600 60 250 100 15700 31.1.2017 Service revenue a/c Dr. To Income Summary (Revenue accounts closed) 15700 Dr. 12490 31.1.2017 Income Summary a/c To Luke's, Capital (Profits transferred) 12490 Dr. 2100 31.1.2017 Luke's, Capital a/c To Luke's, Drawing (Drawings charged) 2100

Worksheet For the period ending 31.1.2017 450 600 Particulars Cash Accounts Receivable Prepaid insurance Supplies Truck Accum. Depre - Delivery truck Accounts payable Salary Payable Unearned service revenue Luke's, Capital Luke's, Drawing Service revenue Salary expense Fuel expense Rent expense Salary Expense Depreciation Expense Insurance expense Supplies expense Totals Unadjusted Adjustments Adjusted Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ 16300 16300 900 900 700 250 300 100 200 11000 11000 60 600 700 700 600 500 100 17000 17000 2100 2100 15200 500 15700 700 700 800 800 600 700 60 60 250 250 100 100 33400 33400 1610 1610 34160 34160 600 Statement of Income For the period ending 31.1.2017 Service revenue 15700 Less: 700 800 Salary expense Fuel expense Rent expense Salary Expense Depreciation Expense Insurance expense Supplies expense Net Income 60 250 100 3210 12490 Statement of Owner's Equity For the period ending 31.1.2017 Luke's, Capital Net Income 17000 12490 29490 -2100 27390 Luke's, Drawing

Amounts Amounts Balance sheet As at 31.1.2017 Assets Current Assets Cash Accounts Receivable Prepaid insurance Supplies Amounts Amounts Liabilities Current Liabilities 16300 Accounts payable 900 Salary Payable 450 Unearned service revenue 200 17850 600 700 100 1400 Non Current Assets Truck Accum. Depre - Delive Total Assets 11000 -60 Owner's Equity 10940 Luke's, Capital 28790 Total Liabilities & Equity 27390 28790