Question

The End of the Accounting Cycle: Jam J, Corp. provides guitar lessons to customers. As of December 31, 2017, Jam J has the following balances in its unadjusted trial balance at the end of its annual accounting period (assume all accounts have their ‘normal’ debit/credit balance): Cash $21,325; Accounts Receivable: $16,200; Supplies: $10,400; Prepaid Insurance: $0; Building: $65,000; Accumulated Depreciation-Building: $0; Accounts Payable: $10,500; Salaries Payable: $0; Utilities Payable: $0; Interest Payable: $0; Deferred Revenue: $450; Notes Payable: $40,000; Common Stock: $11,775; Retained Earnings: $10,500; Service Revenue: $194,900; Salaries Expense: $141,300; Depreciation Expense: $0; Insurance Expense: $0; Supplies Expense: $0; Utilities Expense: $11,400; Interest Expense: $0; Dividends: $2,500.

       The following additional information was gathered at December 31, 2017, the end of Jam J Corp.’s annual accounting period. Assume Jam J uses an annual accounting period and all adjustments and adjusting entries are made only at the end of the annual accounting period on December 31^st (i.e. no adjusting entries have been made yet for 2017 related to the below items):

1. A physical count of supplies revealed that $1,630 worth of supplies remain on hand as of 12/31/17.
2. Workers at Jam J are paid a total of $5,650 every two weeks (assume 10 work days per two-week pay period). Jam J last paid wages to workers for the two-week pay period of December 11-25 on Friday, December 25^th. Workers will next be paid $5,650 on Friday, January 8^th for the two-week pay period 12/26/17-1/8/18 (assume there are 4 work days left in December 2017 and 6 work days in January 2018 for this pay period).
3. Jam J charges $45 for each private 30-minute guitar lesson. On November 4^th, Jam J agreed to provide 12 private guitar lessons to a customer, Kim, during the period of November 4^th, 2017 - January 23^rd, 2018. As of December 31^st, 2017, 8 of the 12 private lessons have been provided to Kim. Assume no entries have been made yet to record the revenue earned from these 8 lessons and that Kim will not pay for these lessons until January 23^rd, 2018.
4. The $65,000 building was purchased on April 1, 2017, has an expected useful life of 30 years and has no resale value at the end of its life. Assume Jam J uses straight-line depreciation (i.e. the asset depreciates evenly) over the expected life of the building.
5. Jam J charges $45 for each private 30-minute guitar lesson. On December 1^st, 2017 Jam J received $450 in cash from a customer, Lee, who prepaid for 10 private 30-minutes guitar lessons from Jam J. This was recorded as Deferred Revenue. As of December 31^st, Jam J had provided 7 of the 10 lessons to Lee.
6. The $40,000 bank note was signed on 10/1/17. The note is due in 6 years and has an annual interest rate of 3.5%. The first interest payment will be made on 9/30/18.

Part A: Record Adjusting Journal Entries (AJEs): Record the six AJEs related to the information above that Jam J would make on 12/31/17. Make sure to include a brief description of each entry (i.e. “to record…”) in order to earn full credit. You must show all of your work on calculations to receive full credit.

Part B: Prepare an adjusted trial balance: Prepare an adjusted trial balance for Jam J as of December 31, 2017 with the list of accounts in the following order: assets, liabilities, common stock, retained earnings, revenues, expenses, and dividends.

Part C: Prepare the financial statements: Prepare the following financial statements for Jam J:

• Income statement for the period ended December 31^st, 2017.
• Statement of Shareholders’ Equity for the period ended December 31^st, 2017. Assume during 2017 no additional stock was issued and $2,500 in dividends were paid in cash.
• Classified balance sheet as of December 31^st, 2017.

Answer 1

Adjusting Entries

Account Titles	Debit	Credit
Supplies Expense	$             8,770		=10400-1630
Supplies		$                8,770
Salaries Expense	$             2,260		=565*4
Salaries Payable		$                2,260
Accounts Receivable	$                 360		=45*8
Service Revenue		$                    360
Depreciation Expense	$             1,625		=65000/30*9/12
Accumulated Depreciation		$                1,625
Deferred Revenue	$                 315		=45*7
Service Revenue		$                    315
Interest Expense	$                 350		=40000*3.5%*0.25
Interest Payable		$                    350

B.

Adjusted Trial Balance
Account Title	Debits	Credits
Cash	$           21,325
Accounts receivable	$           16,560
Supplies	$             1,630
Prepaid insurance	$                    -
Building	$           65,000
Accumulated depreciation		$                1,625
Accounts payable		$              10,500
Salaries payable		$                2,260
Notes payable		$              40,000
Interest payable		$                    350
Deferred revenue		$                    135
Common stock		$              11,775
Retained earnings		$              10,500
Service revenue		$           195,575
Salaries expense	$        143,560
Depreciation expense	$             1,625
Interest expense	$                 350
Supplies expense	$             8,770
Utilities expense	$           11,400
Dividends	$             2,500
Totals	$        272,720	$           272,720

C.

Income Statement
Service Revenue		$           195,575
Expenses
Salaries expense	$        143,560
Depreciation expense	$             1,625
Interest expense	$                 350
Supplies expense	$             8,770
Utilities expense	$           11,400
Total Expenses		$           165,705
Net Income		$              29,870

Statement of Shareholders Equity
	Common Stock	Retained Earnings
Beginning Balance	$           11,775	$              10,500
Add : Net Income		$              29,870
Less : Dividend		$                2,500
Ending Balance	$           11,775	$              37,870

Balance Sheet
Assets
Current Assets
Cash	$           21,325
Accounts receivable	$           16,560
Supplies	$             1,630
Prepaid Insurance	$                    -
Total Current Assets		$              39,515
Property, Plant and Equipment
Building	$           65,000
Less : Accumulated Depreciation	$             1,625	$              63,375
Total Assets		$           102,890
Liabilities
Current Liabilities
Accounts payable	$           10,500
Salaries payable	$             2,260
Notes payable	$           40,000
Interest payable	$                 350
Deferred revenue	$                 135
Total Current Liabilities		$              53,245
Stockholder's Equity
Common Stock	$           11,775
Retained Earnings	$           37,870
Total Stockholder's Equity		$              49,645
Total Liabilities & Stockholder's Equity		$           102,890