Question

Need Help with #4

Aerial Architects, Inc. has been designing skyscrapers since 2010. The Company’s post-closing trial balance as of December 31, 2018 is given below.

Account	DR	CR
Cash	$34,000
Accounts receivable	48,000
Drafting supplies	21,000
Prepaid insurance	6,000
Prepaid rent	4,000
Equipment	31,000
Accumulated depreciation		$4,000
Accounts payable		7,000
Salaries payable		2,000
Unearned fees		5,000
Long-term notes payable		0
Common stock		50,000
Retained earnings		76,000
	$144,000	$144,000

Aerial had the following transactions during 2019 (not in date order):

1. Aerial collected $72,000 on accounts receivable during the year.

b. The company created architectural renderings for clients totaling $112,000 in fees earned. $70,000 was collected in cash, with the remainder on account.

c. Aerial purchased $70,000 worth of supplies during the year. $20,000 was paid in cash and the remainder was purchased on account. Record the purchase in the Supplies Expense account

d. The company paid $47,000 on accounts payable during the year.

e. On August 1 Aerial paid its $24,000 annual insurance premium. Record this payment as Prepaid Insurance.

f. During the year Aerial paid $18,000 of rent for office space. Record this payment as Rent Expense.

g. Aerial paid its employees total cash salaries of $41,000. This includes the amount owed for salaries at the beginning of the year.

h. On April 1 the company purchased a new computer design system for $30,000. $5,000 was paid in cash and the company issued a long-term note with an 8% annual interest rate for the balance.

i. Aerial paid cash dividends to shareholders totaling $4,000.

Instructions

1. Prepare the Journal entry for each transaction (a – i) in the journal (Journal tab of the Working Papers). The first transaction is journalized and posted for you.

2. Post the journalized transactions to the general ledger (T-accounts), identifying the transactions using their respective letters a. thru i. (Ledger tab of the Working Papers).  Transaction a. has been posted.

3. After computing balances in the ledger, prepare a trial balance as of December 31, 2019 (Trial Balances & Statements tab of the Working Papers). Column balances should equal $282,000.

*4. Using the adjustment data below, prepare adjusting entries (Journal tab of the Working Papers).*

j.   Aerial completed and delivered the architectural renderings for which they had been paid during 2018.

k. Supplies that cost $34,000 were left on hand at year-end.

l. $11,000 of the cash received for printing jobs in transaction b. had not been earned by December 31, 2019. It was for work that Aerial will complete during 2020.

m.   Interest should be accrued on the note in transaction h. The note was issued on April 1 and bears an annual interest rate of 8%.

n. Rent that applies to 2020 is $7,000.

o. Prepaid insurance at the beginning of the year has completely expired. In addition, the premium payment made in transaction “e” was made on August 1 and covers 12 months. As a result, part of that payment has also expired. Your adjusting entry should record the expiration of the prior year prepaid insurance as well as the amount of the current year premium that has expired.

p. Depreciation on the equipment is $8,000 for the year.

q. At the end of the year, Aerial had provided $15,000 of services which had not been billed or recorded yet.

r. Salaries of $4,000 were owed to employees at year-end (earned by employees but not paid).

5. Post the adjusting entries to the general ledger (Ledger tab of the Working Papers) and enter the adjusted balances in each account. Prepare an adjusted trial balance as of December 31, 2019 (Trial Balances & Statements tab of the Working Papers).

6. Prepare an Income Statement, Statement of Retained Earnings, and Balance Sheet (Trial Balances & Statements tab of the Working Papers). Use proper headings, $ signs, underlines, and other formats based on the examples in the book or handouts. Be sure to include a subtotal for current assets. The ending balance in Retained Earnings should be $60,500.

7. Prepare closing entries (Journal tab of the Working Papers) and post them to the general ledger (Ledger tab of the Working Papers). Show ending balances in all ledger accounts.

8. Prepare a post-closing trial balance based on the ending balances in the T-accounts (Trial Balances & Statements tab of the Working Papers).

Answer 1

Adjusting Entries
No.	Accounts	Debit	Credit
j	Unearned Fees Dr	$5,000
	To Revenue		$5,000
(Being completed and delivered the architectural renderings for which payment was received in 2018.)
k	Supplies Expense Dr	$57,000		=21000+70000-34000
	To Drafting supplies		$57,000
(Being supplies used debited as expense.)
l	Revenue Dr	$11,000
	To Unearned Fees		$11,000
(Being cash received for work to be completed in 2020.)
m	Interest Expense Dr	$1,500		=25000*8%*9/12
	To Interest Payable on Note		$1,500
(Being interest @ 8% for 9 months on $25000 note for computer design system.)
n	Prepaid Rent Dr	$7,000
	To Rent Expense		$7,000
(Being rent for 2020.)
o	Insurance Expense Dr	$16,000		=6000+(24000*5/12)
	To Prepaid Insurance		$16,000
(Being Insurance for current year debited.)
p	Depreciation Expense Dr	$8,000
	To Accumulated Depreciation		$8,000
(Being depreciation on the equipment for the year.)
q	Accounts Receivable Dr	$15,000
	To Revenue		$15,000
(Being services provided, but not billed or recorded.)
r	Salaries expense Dr	$4,000
	To Salaries Payable		$4,000
(Being salaries owed to employees.)