Question

On April 1, Jiro Nozomi created a new travel agency, Adventure Travel. The following transactions occurred during the company’s first month.

April		1		Nozomi invested $49,000 cash and computer equipment worth $35,000 in the company in exchange for common stock.
		2		The company rented furnished office space by paying $2,800 cash for the first month’s (April) rent.
		3		The company purchased $1,500 of office supplies for cash.
		10		The company paid $3,000 cash for the premium on a 12-month insurance policy. Coverage begins on April 11.
		14		The company paid $1,600 cash for two weeks' salaries earned by employees.
		24		The company collected $15,500 cash for commissions earned.
		28		The company paid $1,600 cash for two weeks' salaries earned by employees.
		29		The company paid $550 cash for minor repairs to the company's computer.
		30		The company paid $1,500 cash for this month's telephone bill.
		30		The company paid $1,900 cash in dividends.

The company's chart of accounts follows:

101	Cash	405	Commissions Earned
106	Accounts Receivable	612	Depreciation Expense—Computer Equip.
124	Office Supplies	622	Salaries Expense
128	Prepaid Insurance	637	Insurance Expense
167	Computer Equipment	640	Rent Expense
168	Accumulated Depreciation—Computer Equip.	650	Office Supplies Expense
209	Salaries Payable	684	Repairs Expense
307	Common Stock	688	Telephone Expense
318	Retained Earnings	901	Income Summary
319	Dividends

Use the following information:

1. Prepaid insurance of $167 has expired this month.
2. At the end of the month, $700 of office supplies are still available.
3. This month’s depreciation on the computer equipment is $300.
4. Employees earned $600 of unpaid and unrecorded salaries as of month-end.
5. The company earned $2,200 of commissions that are not yet billed at month-end.

Required:
1. & 2. Prepare journal entries to record the transactions for April and post them to the ledger accounts in Requirement 6b. The company records prepaid and unearned items in balance sheet accounts.
3. Using account balances from Requirement 6b, prepare an unadjusted trial balance as of April 30.
4. Journalize the adjusting entries for the month and prepare the adjusted trial balance.
5a. Prepare the income statement for the month of April 30.
5b. Prepare the statement of retained earnings for the month of April 30.
5c. Prepare the balance sheet at April 30.
6a. Prepare journal entries to close the temporary accounts and then post to Requirement 6b.
6b. Post the journal entries to the ledger.
7. Prepare a post-closing trial balance.

Prepare the income statement for the month of April 30.

ADVENTURE TRAVEL Income Statement For Month Ended April 30 Revenues: Expenses: Total expenses

Options for Revenue and Expenses

• 01: Cash
• 106: Accounts receivable
• 124: Office supplies
• 128: Prepaid insurance
• 167: Computer equipment
• 168: Accumulated depreciation—computer equip.
• 209: Salaries payable
• 307: Common stock
• 319: Dividends
• 405: Commissions earned
• 612: Depreciation expense—Computer equip.
• 622: Salaries expense
• 637: Insurance expense
• 640: Rent expense
• 650: Office supplies expense
• 684: Repairs expense
• 688: Telephone expense
• 901: Income summary

Options for both the Retained Earnings

• Add: Net income
• Less: Net income

Prepare the balance sheet at April 30.

Continued

Options for the top box

• Assets
• Equity
• Expense
• Liabilities
• Revenue

Options for the left column

• 101: Cash
• 106: Accounts receivable
• 124: Office supplies
• 128: Prepaid insurance
• 209: Salaries payable
• 307: Common stock
• 318: Retained earnings
• 319: Dividends
• 405: Commissions earned
• 612: Depreciation expense—Computer equip.
• 622: Salaries expense
• 637: Insurance expense
• 640: Rent expense
• 650: Office supplies expense
• 684: Repairs expense
• 688: Telephone expense
• 901: Income summary

Prepare journal entries to close the temporary accounts and then post to Req 6B General Ledger, using April 30 Close as the date.

2) April 30) Record the entry to close the expense account(s).

3) April 30) Record the entry to close the income summary.

4) April 30) Record the entry to close the dividends account.

Options for the General journal for every table 1 through 4

• 101: Cash
• 106: Accounts receivable
• 124: Office supplies
• 128: Prepaid insurance
• 167: Computer equipment
• 168: Accumulated depreciation—Computer equip.
• 209: Salaries payable
• 307: Common stock
• 318: Retained earnings
• 319: Dividends
• 405: Commissions earned
• 612: Depreciation expense—Computer equip.
• 622: Salaries expense
• 637: Insurance expense
• 640: Rent expense
• 650: Office supplies expense
• 684: Repairs expense
• 688: Telephone expense
• 901: Income summary

Options for the dates for every table

• April 1
• April 2
• April 3
• April 10
• April 14
• April 24
• April 28
• April 29
• April 30
• April 30 Adj.
• April 30 Close

Options for the Account title

• : Cash
• 106: Accounts receivable
• 124: Office supplies
• 128: Prepaid insurance
• 167: Computer equipment
• 168: Accumulated depreciation— Computer equip.
• 209: Salaries payable
• 307: Common stock
• 318: Retained earnings
• 319: Dividends
• 405: Commissions earned
• 612: Depreciation expense— Computer equip.
• 622: Salaries expense
• 637: Insurance expense
• 640: Rent expense
• 650: Office supplies expense
• 684: Repairs expense
• 688: Telephone expense

Options for the Account title

• 01: Cash
• 106: Accounts receivable
• 124: Office supplies
• 128: Prepaid insurance
• 167: Computer equipment
• 168: Accumulated depreciation— Computer equip.
• 209: Salaries payable
• 307: Common stock
• 318: Retained earnings
• 319: Dividends
• 405: Commissions earned
• 612: Depreciation expense— Computer equip.
• 622: Salaries expense
• 637: Insurance expense
• 640: Rent expense
• 650: Office supplies expense
• 684: Repairs expense
• 688: Telephone expense

Answer 1

1) Journal Entries: Credit Credit Debit $49,000 $35,000 Debit $15,500 $15,500 $84,000 $1,600 $2,800 $1,600 $2,800 Date General Ledger Apr. 1 Cash Computer Equipment Common Stock Apr. 2 Rent Expense Cash Apr. 3 Office Supplies Cash Apr. 10 Prepaid Insurance Cash Apr. 14 Salaries Expense Cash Date General Ledger Apr. 24 Cash Commissions Earned Apr. 28 Salaries Expense Cash Apr. 29 Repairs Expense Cash Apr. 30 Telephone Expense Cash Apr. 30 Dividends Cash $550 $1,500 $550 $1,500 $1,500 $3,000 $1,500 $3,000 $1,900 $1,600 $1,900 $1,600

2) General Ledger Accounts: 106: Accounts Receivable Date Debit Credit Balance Date 124: Office Supplies Debit Credit $1,500 Apr. 3 Date Apr. 1 Apr. 2 Apr. 3 Apr. 10 Apr. 14 Balance $1,500 $1,500 $1,500 $1,500 $0 101: Cash Debit Credit $49,000 $2,800 $1,500 $3,000 $1,600 $15,500 $1,600 $550 $1,500 $1,900 Balance $49,000 $46,200 $44,700 $41,700 $40,100 $55,600 $54,000 $53,450 $51,950 $50,050 Apr. 24 128: Prepaid Insurance Date Debit Credit Apr. 10 $3,000 Date Apr. 1 167: Computer Equipment Debit Credit $35,000 Apr. 28 Apr. 29 Apr. 30 Apr. 30 Balance $3,000 $3,000 $3,000 $3,000 Balance $35,000 $35,000 $35,000 $35,000 168: Accumulated Dep. - Off. Equipment Date Debit Credit Balance 209: Salaries Payable Debit Credit Date Balance Date Apr. 1 307: Common Stock Debit Credit $84,000 Balance $84,000 $84,000 $84,000 $84,000 $0

308: Retained Earnings Debit Credit Date Balance Date Apr. 24 405: Commissions Earned Debit Credit $15,500 Balance $15,500 $15,500 $15,500 $15,500 612: Dep. Exp. - Comp. Equipment Date Debit Credit Balance 319: Dividends Date Debit Credit Balance Apr. 30 $1,900 $1,900 $1,900 $1,900 $1,900 622: Salaries Expense Date Debit Credit Balance Apr. 14 $1,600 $1,600 Apr. 28 $1,600 $3,200 $3,200 $3,200 650: Office Supplies Expense Date Debit Credit Balance 637: Insurance Expense Debit Credit Date Balance Date Apr. 2 Date 640: Rent Expense Debit Credit $2,800 Balance 684: Repairs Expense Debit Credit $550 Date Apr. 29 $550 Balance $2,800 $2,800 $2,800 $2,800 $550 $550 $550

688: Telephone Expense Debit Credit $1,500 901: Income Summary Debit Credit Date Date Apr. 30 Balance Balance $1,500 $1,500 $1,500 $1,500

3) Credit Adventure Travel Unadjusted Trial Balance April 30 Account Titles Debit 101: Cash $50,050 106: Accounts Receivable 124: Office Supplies $1,500 128: Prepaid Insurance $3,000 167: Computer Equipment $35,000 168: Accumulated Dep. - Comp. Equipment 209: Salaries Payable 307: Common Stock 308: Retained Earnings 319: Dividends $1,900 405: Commissions Earned 612: Dep. Exp. - Comp. Equipment 622: Salaries Expense $3,200 637: Insurance Expense 640: Rent Expense $2,800 650: Office Supplies Expense 684: Repairs Expense $550 688: Telephone Expense $1,500 Totals $99,500 $84,000 $15,500 $99,500

4) Adjusting Entries: Credit Debit $167 1) $167 2) $800 [$1500 - $700] $800 3) Date Account Titles and Explanation Apr. 30 Insurance Expense Prepaid Insurance Apr. 30 Office Supplies Expense Office Supplies Apr. 30 Depreciation Expense Accum. Dep. - Off. Equipment Apr. 30 Salaries Expense Salaries Payable Apr. 30 Accounts Receivable Commissions Earned $300 $300 4) $600 $600 5) $2,200 $2,200

General Ledger Accounts: Date 101: Cash Debit $49,000 Credit 106: Accounts Receivable Debit Credit $2,200 Date Apr. 30 Date 124: Office Supplies Debit Credit $1,500 $800 Apr. 3 Balance $2,200 $2,200 $2,200 $2,200 $2,800 $1,500 $3,000 $1,600 Apr. 30 Balance $1,500 $700 $700 $700 Apr. 1 Apr. 2 Apr. 3 Apr. 10 Apr. 14 Apr. 24 Apr. 28 Apr. 29 Apr. 30 Apr. 30 Balance $49,000 $46,200 $44,700 $41,700 $40,100 $55,600 $54,000 $53,450 $51,950 $50,050 $15,500 Date Apr. 10 Apr. 30 128: Prepaid Insurance Debit Credit $3,000 $167 Date Apr. 1 167: Computer Equipment Debit Credit $35,000 $1,600 $550 $1,500 $1,900 Balance $3,000 $2,833 $2,833 $2,833 Balance $35,000 $35,000 $35,000 $35,000 Date 209: Salaries Payable Debit Credit $600 Date Apr. 1 307: Common Stock Debit Credit $84,000 Apr. 30 168: Accumulated Dep. - Comp. Equipment Date Debit Credit Balance Apr. 30 $300 $300 $300 $300 $300 Balance $600 $600 $600 $600 Balance $84,000 $84,000 $84,000 $84,000

308: Retained Earnings Debit Credit Date Balance Date Apr. 30 319: Dividends Debit Credit $1,900 $0 405: Commissions Earned Debit Credit $15,500 $2,200 Balance $1,900 $1,900 $1,900 $1,900 Date Apr. 24 Apr. 30 $0 Balance $15,500 $17,700 $17,700 $17,700 $0 622: Salaries Expense Debit Credit $1,600 $1,600 $600 Date Apr. 30 637: Insurance Expense Debit Credit $167 Date Apr. 14 Apr. 28 Apr. 30 Balance $1,600 $3,200 $3,800 $3,800 Balance $167 $167 $167 $167 612: Dep. Exp. - Comp. Equipment Date Debit Credit Balance Apr. 30 $300 $300 $300 $300 $300 640: Rent Expense Date Debit Credit Balance Apr. 2 $2,800 $2,800 $2,800 $2,800 $2,800 650: Office Supplies Expense Date Debit Credit Apr. 30 $800 Balance $800 $800 Date Apr. 29 684: Repairs Expense Debit Credit $550 Balance $550 $550 $550 $550 $800 $800

688: Telephone Expense Debit Credit $1,500 901: Income Summary Debit Credit Date Date Apr. 30 Balance Balance $1,500 $1,500 $1,500 $1,500

5a) $17,700 Adventure Travel Adjusted Trial Balance April 30 Account Titles Debit Credit 101: Cash $50,050 106: Accounts Receivable $2,200 124: Office Supplies $700 128: Prepaid Insurance $2,833 167: Computer Equipment $35,000 168: Accumulated Dep. - Comp. Equipment $300 209: Salaries Payable $600 307: Common Stock $84,000 308: Retained Earnings 319: Dividends $1,900 405: Commissions Earned $17,700 612: Dep. Exp. - Comp. Equipment $300 622: Salaries Expense $3,800 637: Insurance Expense $167 640: Rent Expense $2,800 650: Office Supplies Expense $800 684: Repairs Expense $550 688: Telephone Expense $1,500 Totals $102,600 $102,600 Adventure Travel Income Statement For the Month Ended April 30 Revenues: Commissions Earned Expenses: Dep. Exp. - Comp. Equipment $300 Salaries Expense $3,800 Insurance Expense $ 167 Rent Expense $2,800 Office Supplies Expense $800 Repairs Expense $550 Telephone Expense $1,500 Total Expenses Net Income $9,917 $7,783 5b) $o Adventure Travel Statement of Retained Earnings For the Month Ended April 30 Retained Earnings - Beginning Balance Add: Net Income $7,783 Less: Dividends $1,900 Net increase in retained earnings Retained Earnings - Ending Balance [Ref: Income Statement] $5,883 $5,883

5c) Adventure Travel Balance Sheet April 30 Liabilities & Shareholders' Equity Liabilities: Salaries Payable $600 Assets Current Assets: Cash Accounts Receivable Office Supplies Prepaid Insurance Total Current Assets $50,050 $2,200 $700 $2,833 $55,783 Shareholders' Equity: Common Stock Retained Earnings Shareholders' Equity $84,000 $5,883 $89,883 [Ref: Statement of Retained Earnings] Property, Plant and Equipment: Computer Equipment Accumulated Dep. - Comp. Equip Property, Plant and Equipment, Net $35,000 $300 $34,700 Total Assets $90,483 Total Liabilities & Shareholders' equity $90,483 6a) Closing entries are those entries recorded at the last day of reporting period to close revenue and expense accounts to retained earnings using a temperary account called income summary. When closing entries are recorded for revenues, Income Summary account shall be credited and Revenue accounts shall be debited; Similarly, when closing entries are recorded for expenses, Income Summary account shall be debited and Expense accounts shall be credited.

Finally, balance in Income Summary account will represent either Net income or Net loss for the reporting period which shall be closed to Retained Earnings. Therefore, it is clear that dividends account shall be closed to retained earnings whereas other balance sheet related accounts shall not be closed. CREDIT DEBIT $17,700 $17,700 $9,917 DATE ACCOUNT TITLES AND EXPLANATION April 30 Commissions Earned Income Summary (To zero out revenue accounts) April 30 Income Summary Dep. Exp. - Comp. Equipment Salaries Expense Insurance Expense Rent Expense Office Supplies Expense Repairs Expense Telephone Expense (To zero out expense accounts) April 30 Income Summary Retained Earnings (To transfer profit to Retained Earnings) April 30 Retained Earnings Dividends (To close dividends to Retained Earnings) $300 $3,800 $167 $2,800 $800 $550 $1,500 $7,783 [Ref: Income Statement] $7,783 $1,900 $1,900

6b) 101: Cash Debit $49,000 Credit Date Apr. 30 106: Accounts Receivable Debit Credit $2,200 Balance $2,200 $2,200 $2,200 $2,200 Date Apr. 3 Apr. 30 124: Office Supplies Debit Credit $1,500 $800 $2,800 $1,500 $3,000 $1,600 Date Apr. 1 Apr. 2 Apr. 3 Apr. 10 Apr. 14 Apr. 24 Apr. 28 Apr. 29 Apr. 30 Apr. 30 Balance $1,500 $700 $700 $700 Balance $49,000 $46,200 $44,700 $41,700 $40,100 $55,600 $54,000 $53,450 $51,950 $50,050 $15,500 Date Date Apr. 10 Apr. 30 128: Prepaid Insurance Debit Credit $3,000 $167 167: Computer Equipment Debit Credit $35,000 Apr. 1 $1,600 $550 $1,500 $1,900 Balance $3,000 $2,833 $2,833 $2,833 Balance $35,000 $35,000 $35,000 $35,000 168: Accumulated Dep. - Comp. Equipment Date Debit Credit Balance Apr. 30 $300 $300 $300 Date Apr. 30 209: Salaries Payable Debit Credit $600 Date Apr. 1 307: Common Stock Debit Credit $84,000 Balance $600 $600 $600 $600 Balance $84,000 $84,000 $84,000 $84,000 $300 $300

Date Apr. 30 Apr. 30 319: Dividends Debit Credit $1,900 $1,900 Balance $1,900 $0 $0 Date Apr. 24 Apr. 30 Apr. 30 405: Commissions Earned Debit Credit $15,500 $2,200 $17,700 Balance $15,500 $17,700 $0 308: Retained Earnings Date Debit Credit Balance April 30 $7,783 $7,783 April 30 $1,900 $5,883 $5,883 $5,883 612: Dep. Exp. - Comp. Equipment Date Debit Credit Balance Apr. 30 $300 $300 Apr. 30 $300 $0 622: Salaries Expense Debit Credit $1,600 $1,600 $600 $3,800 Date Apr. 14 Apr. 28 Apr. 30 Apr. 30 Balance $167 Date Apr. 30 Apr. 30 637: Insurance Expense Debit Credit $167 $167 Balance $1,600 $3,200 $3,800 $0 $0 So Date Apr. 2 Apr. 30 640: Rent Expense Debit Credit $2,800 $2,800 Balance $2,800 650: Office Supplies Expense Date Debit Credit Apr. 30 $800 Apr. 30 $800 Balance $800 $0 Date Apr. 29 Apr. 30 684: Repairs Expense Debit Credit $550 $550 Balance $550 $o $0

Date Apr. 30 Apr. 30 688: Telephone Expense Debit Credit $1,500 $1,500 Balance $1,500 Date Apr. 30 Apr. 30 Apr. 30 901: Income Summary Debit Credit $17,700 $9,917 $7,783 Balance $17,700 $7,783 Credit Adventure Travel Post-Closing Trial Balance April 30 Account Titles Debit 101: Cash $50,050 106: Accounts Receivable $2,200 124: Office Supplies $700 128: Prepaid Insurance $2,833 167: Computer Equipment $35,000 168: Accumulated Dep. - Comp. Equipment 209: Salaries Payable 307: Common Stock 308: Retained Earnings Totals $90,783 $300 $600 $84,000 $5,883 $90,783