Question

On January 1, 20X7, Jacqueline Fernandez formed a corporation to purchase wheat harvesting equipment and provide contract support services to farmers throughout the Midwest.  Information about the first year of operation follows:[1]
	Jan. 1	Investors provided $2,500,000 of cash in exchange for stock of Fernandez Corporation
	Jan. 1	Purchased combines and trucks in exchange for $1,000,000 cash and a $3,000,000 note payable
	Feb. 7	Purchased $40,000 of supplies on account that will be needed during the upcoming harvest
	Mar. 3	Paid wages of $65,400
	Apr. 1	Billed customers for services in the amount of $230,000
	Apr. 11	Paid $30,000 toward the purchase of February 7
	May 1	Purchased a $24,000 insurance policy, recorded as prepaid insurance
	June 6	Collected $210,000 on accounts receivable
	June 9	Paid wages of $130,600
	June 15	Paid $30,200 for fuel costs
	June 20	Paid $12,500 for lodging costs incurred by crew
	June 30	Paid $120,000 of interest and $80,000 to reduce the balance of the note payable
	Aug. 1	Billed customers for services provided in the amount of $812,000
	Sept. 3	Collected $715,000 on accounts receivable
	Sept. 16	Purchased $25,000 of supplies on account
	Sept. 25	Paid $61,200 for fuel costs
	Oct. 20	Paid $8,100 for lodging costs incurred by crew
	Nov. 3	Paid wages of $125,900
	Dec. 15	Collected $100,000 as deposits from customers who contracted for 20X8 harvesting services
	Dec. 31	Declared and paid a $25,000 dividend to shareholders
Fernandez Corporation uses the following accounts:
	Cash
	Accounts Receivable
	Supplies
	Prepaid Insurance
	Equipment
	Accumulated Depreciation
	Accounts Payable
	Interest Payable
	Unearned Revenue
	Notes Payable
	Capital Stock
	Retained Earnings
	Dividends
	Revenues
	Wage Expense
	Fuel Expense
	Lodging Expense
	Insurance Expense
	Supplies Expense
	Interest Expense
	Depreciation Expense
	Income Summary
(b)	Post the transactions to the appropriate general ledger accounts.
(c)	Prepare a trial balance as of December 31.
(d)	Journalize and post adjusting entries based on the following additional information.
	The equipment had 25-year life, with no salvage value.
	Supplies on hand at year end amount to $20,000. B62
	At year end, $115,000 of additional interest is due on the note payable.
	The insurance policy covered a 12-month period commencing on May 1.
	At year end, Fernandez had provided $30,000 of unbilled services to customers.  These services will be billed in early 20X8.
(e)	Prepare an adjusted trial balance as of December 31.
(f)	Prepare an income statement and statement of retained earnings for 20X7, and a classified balance sheet as of the end of the year.
(g)	Journalize and post closing entries.
(h)	Prepare a post-closing trial balance as of December 31.

Answer 1

a.

General Journal
Date	Account Titles	Debit	Credit
20X7		$	$
Jan 1	Cash	2,500,000
	Capital Stock		2,500,000
Jan 1	Equipment	4,000,000
	Cash		1,000,000
	Notes Payable		3,000,000
Feb 7	Supplies	40,000
	Accounts Payable		40,000
Mar 3	Wage Expense	65,400
	Cash		65,400
Apr 1	Accounts Receivable	230,000
	Revenues		230,000
Apr 11	Accounts Payable	30,000
	Cash		30,000
May 1	Prepaid Insurance	24,000
	Cash		24,000
Jun 6	Cash	210,000
	Accounts Receivable		210,000
June 9	Wage Expense	130,600
	Cash		130,600
June 15	Fuel Expense	30,200
	Cash		30,200
June 20	Lodging Expense	12,500
	Cash		12,500
June 30	Interest Expense	120,000
	Notes Payable	80,000
	Cash		200,000
Aug 1	Accounts Receivable	812,000
	Revenues		812,000
Sep 3	Cash	715,000
	Accounts Receivable		715,000
Sep 16	Supplies	25,000
	Accounts Payable		25,000
Sep 25	Fuel Expense	61,200
	Cash		61,200

Contd.

Oct 20	Lodging Expense	8,100
	Cash		8,100
Nov 3	Wage Expense	125,900
	Cash		125,900
Dec 15	Cash	100,000
	Unearned Revenue		100,000
Dec 31	Dividends	25,000
	Cash		25,000

c.

Fernandez Corporation Trial Balance December 31, 20X7
Account Titles	Debit	Credit
	$	$
Cash	1,812,100
Accounts Receivable	117,000
Supplies	65,000
Prepaid Insurance	24,000
Equipment	4,000,000
Accumulated Depreciation		0
Accounts Payable		35,000
Interest Payable		0
Unearned Revenue		100,000
Notes Payable		2,920,000
Capital Stock		2,500,000
Dividends	25,000
Revenues		1,042,000
Wage Expense	321,900
Fuel Expense	91,400
Lodging Expense	20,600
Insurance Expense	0
Supplies Expense	0
Interest Expense	120,000
Depreciation Expense	0
Totals	$ 6,597,000	$ 6,597,000

d.

Adjusting Entries
Date	Account Titles	Debit	Credit
20X7		$	$
Dec 31	Depreciation Expense	160,000
	Accumulated Depreciation		160,000
Dec 31	Supplies Expense	45,000
	Supplies		45,000
Dec 31	Interest Expense	115,000
	Interest Payable		115,000
Dec 31	Insurance Expense	16,000
	Prepaid Insurance		16,000
Dec 31	Accounts Receivable	30,000
	Revenues		30,000

e.

Fernandez Corporation Adjusted Trial Balance December 31, 20X7
Account Titles	Debit	Credit
	$	$
Cash	1,812,100
Accounts Receivable	147,000
Supplies	20,000
Prepaid Insurance	8,000
Equipment	4,000,000
Accumulated Depreciation		160,000
Accounts Payable		35,000
Interest Payable		115,000
Unearned Revenue		100,000
Notes Payable		2,920,000
Capital Stock		2,500,000
Dividends	25,000
Revenues		1,072,000
Wage Expense	321,900
Fuel Expense	91,400
Lodging Expense	20,600
Insurance Expense	16,000
Supplies Expense	45,000
Interest Expense	235,000
Depreciation Expense	160,000
Totals	$ 6,902,000	$ 6,902,000