Question

Comprehensive Problem Instructions

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. 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).

2. 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.

Answer 1

Aerial Architects, Inc. Journal entries Date Account Cash Accounts Receivable Credit Calculation Debit $ 72,000 $ 72,000 Cash Accounts Receivable Fees Earned $ 70,000 $ 42,000 $ 112,000 $ 70,000 Supplies expense Cash Accounts Payable $ 20,000 $ 50,000 $ 47,000 Accounts Payable Cash $ 47,000 $ 24,000 Prepaid Insurance Cash $ 24,000 $ 18,000 Rent expense Cash $ 18,000 Salaries Payable Salaries expense Cash $ 2,000 $ 39,000 $ 41,000 $ 30,000 Equipment Cash Long-term notes payable $ $ 5,000 25,000 $ 4,000 $ 4,000 Dividends Cash Adjusting entries Unearned Fees Fees Earned $ 5,000 $ 5,000 k $ 13,000 Drafting supplies Supplies expense $ 13,000 $ 11,000 Fees Earned Unearned Fees $ 11,000 m $ 1,500 =25,000*8%*9/12 Interest expense Interest Payable $ 1,500 $ 3,000 Prepaid Rent Rent expense $ 3,000 $ 16,000 =6,000+(24,000/12*5) Insurance expense Prepaid Insurance $ 16,000 $ 8,000 Depreciation expense Accumulated Depreciation $ 8,000 $ 15,000 Accounts Receivable Fees Earned $ 15,000 $ 4,000 $ 4,000 Salaries expense Salaries Payable Closing entries Fees Earned Income Summary S $ 121,000 $ 121,000 $ 140,500 Income Summary Supplies expense Salaries expense Insurance expense Rent expense Depreciation expense Interest expense $ 57,000 $ 43,000 $ 16,000 $ 15,000 $ 8,000 $ 1,500 $ 19,500 Retained earnings Income Summary $ 19,500 $ 4,000 Retained earnings Dividends $ 4,000

Credit Date Date Credit Date Credit Deblt Date Credit Accounts Receivable $ 48,000 $ 42,000 a $72,000 Deblt Date Drafting supplies $21,000 Deblt Date Prepaid Insurance $ 6,000 S 24,000 Op bal Aerial Architects, Inc. T Accounts Date Debit Date Cash Op bal $ 34,000 a $ 72,000 C b $ 70,000 d e f E h 1 1 Op bal b Op bal e $ 20,000 $ 47,000 $ 24,000 $ 18,000 $ 41,000 $ 5,000 $ 4.000 Unadj Bal. $ 17,000 Unadj Bal. $ 30,000 Unadj Bal. $ 18,000 4 $ 15,000 Unadj Bal. $ 21,000 k $ 13,000 o $ 16,000 Adj Bal. $ 17,000 Adj Bal. $33,000 Adi Bal. $ 34,000 Adi Bal. $14,000 Bal. Bal. Bal. $ 34.000 Bal. $ 14,000 $ 17,000 Prepaid Rent $ 4,000 $ 33,000 Equipment $32,000 $30,000 Accumulated Depreciation Op bal $ 4,000 Op bal Op bal h Unadi Bal. $ 61,000 Unadi Bal. $ n $ 4,000 3,000 Unadj Bal $4,000 p $ 8,000 Adj Bal. $ 7,000 Ad) Bal. $ 61,000 Adj Bal. $12,000 Bal. Bal. $12,000 $ 7,000 Accounts Payable Op bal $ 47,000 C $ 61,000 Salaries Payable Op bal $2,000 Bal. Uneamed Fees Op bal Interest Payable Op bal $ 2,000 $5,000 $ . d $ 7,000 $50,000 Unadj Bal. $ 10,000 Unadj Bal $ - $ 4,000 ] $5,000 Unadj Bal $ 5,000 $ 11,000 Unadj Bal $ $ - 1,500 Adj Bal. $ 10,000 Adi Bal. $ 4,000 Adi Bal. $ 11,000 Adj Bal. $ 1,500 $ 4,000 11.000 $ 1,500 Bal. $10,000 Long term notes payable Op bal $ h $ 25,000 Bal. Common Stock Op bal Bal. Retained earnings Op bal Bal. Dividends . 4,000 $50,000 $ 76,000 Op bal $ T $ Unadj Bal. $ 25,000 Unadj Bal. $ 50,000 Unadj Bal. $ 76,000 Unadj Bal. $ 4,000 Adj Bal. $ 25,000 Adi Bal. $ 50.000 Adj Bal. $ 76,000 Adj Bal. $ 4,000 v $ 4,000 u V $19.500 $ 4,000 Bal, $ 25.000 $ 50.000 $ 52.500 Bal. Bal. Supplies expense $70,000 Fees Eamed b Bal. Salarles expense $39,000 Insurance expense $112,000 8 Unadj Bal. $ 70,000 $ 11,000 Unadj Bal. $ 112,000 $ 5,000 4 $ 15,000 Unadj Bal. $ 39,000 $4,000 Unadj Bal. $ - O $ 16,000 $ 13,000 Adi Bal. $121,000 Adi Bal. $ 57,000 Adi Bal. $ 43,000 Adi Bal. $ 16,000 5 $121,000 t $ 57,000 $43,000 t $ 16,000 Bal. $ Bal. S . Bal. $ Bals - Income Summary Depreciation expense Interest expense Rent expense $ 18,000 f Unadi Bal. $ 18,000 Unadj Bal. $ . Unadj Bal. $ - P $ 8,000 Unadj Bal. $ - m $ 1,500 m $ 3,000 Adj Bal. $ 15,000 Adj Bal. $ 8,000 Adj Bal. $ 1,500 t $ 15,000 t $ 8,000 t $1,500 $140,500 Adj Bal. $ u $ - $ 121,000 $ 19,500 Bal. Bal. S .

Unadjusted TB Debit Credit 17,000 18,000 21,000 30,000 4,000 61,000 4,000 10,000 Aerial Architects, Inc. Account Names Cash Accounts Receivable Drafting supplies Prepaid Insurance Prepaid Rent Equipment Accumulated Depreciation Accounts Payable Salaries Payable Unearned Fees Interest Payable Long-term notes payable Common Stock Retained earnings Dividends Fees Earned Supplies expense Salaries expense Insurance expense Rent expense Depreciation expense Interest expense Totals 5,000 Adjusted TB Debit Credit 17,000 33,000 34,000 14,000 7,000 61,000 12,000 10,000 4,000 11,000 1,500 25,000 50,000 76,000 4,000 121,000 57,000 43,000 16,000 15,000 8,000 1,500 310,500 310,500 Post Closing TB Debit Credit 17,000 33,000 34,000 14,000 7,000 61,000 12,000 10,000 4,000 11,000 1,500 25,000 50,000 52,500 25,000 50,000 76,000 4,000 112,000 70,000 39,000 18,000 282,000 282,000 166,000 166,000