Question

Part 1:

Katy McCall opens a tax consulting business called Horizon Consultants Inc. and completes the following transactions in March:

March 1: As a sole shareholder, McCall invested $125,000 cash along with $45,000 of office equipment in the company.

March 2:  Horizon Consultants Inc. completed services for a client and immediately received $4,000 cash.

March 3: Horizon made credit purchases for office equipment for $1,500 and office supplies for $2,100. Payment is due within 10 days.

March 6: Horizon Consultants Inc. pre-paid $6,000 cash for six months’ rent for their office.

March 10: Horizon completed a $4,250 project for a client who must pay within 45 days.

March 12: Horizon paid $3,600 cash to settle the account payable created on March 3.

March 19: Horizon paid a $6,000 cash premium on a 12-month insurance policy.

March 22: Horizon received $3,250 cash as a partial payment for the work completed on March 10.

March 25: Horizon completed work for another client for $4,250 on credit.

March 29: McCall paid herself a dividend of $3,000 cash.

March 30: Horizon purchased $750 of additional office supplies on credit.

March 31: Horizon paid $350 cash for this month’s utility bill.

Instructions:

Using the following chart of accounts and template, prepare journal entries for the above economic transactions. Include the effect that each transaction has on the accounting equation. Enter your journals to the general ledger using the same file name.

Chart of accounts: cash, office equipment, capital stock, prepaid rent, prepaid insurance, office supplies, accounts payable, consulting revenue, accounts receivable, dividend, utility expense.

Answer 1

Mar.19 Prepaid insurance Dr Cr 6,000 To cash Insurance paid for the entire 12 months) 6,000 Mar.22Cash A/o Dr 3,250 To Accounts Receivable Being received partial payment for the work completed on March 10 3,250 Mar.25 Accounts receivable A/c Dr 4,250 To consulting revenue Being completed work for another client for $4,250 on credit) 4,250 Mar 2QDividend A/c Dr 3,000 To Cash A/c Being rent paid prepaid for 6 Months 3,000 Mar 30 Office Supplies A/c Dr Cr 750 To Accounts Payable Credit revenue booked) 750 Mar.31 |Utility Expenses Dr 350 To Cash A/c eing pavable created on 3rd march settled) 350 Total Note:- Adjustments can be made for insurance expenses charged to P&L for the current Month. Hence prepaid would be booked for only 11 Months. The adjustment has been ignored as separate chart of accounts is not provided. Same can be considered with prepaid rent also Note:- The Revenue and expenses Items have been sent to trading and P&L Account in ledger accounts only Further the Net profit has not been calculated as this was not the requirement of the question.