Question

Apply the accrual basis of accounting to correctly create adjusting entries in the preparation of financial statements:

A. Step Five: Prepare the unadjusted trial balance. Note that you should use the T account balances completed in the previous step to prepare the unadjusted trial balance portion of the “Trial Balance” tab in your workbook.

B. Step Six: Complete the “Adjusting Entries” tab in your workbook using the Step Six data in the appendix. Note that you should take the adjusting entries from this worksheet and enter them into the “Trial Balance” tab in your workbook.

C. Step Seven: Apply adjusting entries to create the adjusted trial balance. Note that the adjusting entries from Step Six will apply to affected accounts in the unadjusted trial balance to arrive at the adjusted trial balance.

The following events occur in July, 2018: July 1: You take $10,000 from your personal savings account and buy common stock in Peyton Approved. July 1: Purchase $6,500 in baking supplies from vendor, on account. July 3: Your parents lend the company $10,000 cash in exchange for a two-year, 6 % note payable. Interest and the principal are repayable at maturity. July 7: Enter into a lease agreement for bakery space. The agreement is for 1 year. The rent is $1,500 per month, and the last month's rent payment of $1,500 is required at time of lease agreement. The payment was made in cash. Lease period is effective July 1, 2018, through June 30, 2019 July 10: Pay $375 to the county for a business license. July 11: Purchase a cash register for $250 (deemed to be not material enough to qualify as depreciable equipment-use misc. exp.). July 13: You have baking equipment, including an oven and mixer, which you have been using for your home-based business and will now start using in the bakery. You estimate that the equipment is currently worth $6,000, and you transfer the equipment into the business in exchange for additional common stock. The equipment has a 5-year useful life July 13: Pay $200 for business cards/flyers/posters/ads to use for advertising. July 14: Pay $300 for office supplies. July 15: Hire part-time helper to be paid $12 per hour. Pay periods are the 1t through the 15th and 16th through the end of the month, with paydays being the 20th for the first pay period and the 5th of the following month for the second pay period. (No entry is required on this date; it is here for informational purposes only.) July 30: Received telephone bill for July in amount of $75. Payment is due on August 10. July 31: Pay $2,400 for a 12-month insurance policy. Policy effective dates are August 1, 2018, through July 31, 2019 July 31: Accrue wages earned for employee for period of 16th through 31st of July (Wage calculations table provided below)

Answer 1

Adjusting entries Debit Credit 17,400.00 Sep Unadjusted TB Debit Credit 32,236.75 18,500.00 175.65 1,500.00 2,400.00 6,000.00 400.00 250.00 550.00 600.00 7,700.00 10,000.00 150.00 5,000.00 480.00 16,000.00 Peyton Approved Account Names Cash Baking Supplies Merchandise Inventory (FIFO) Prepaid Rent Prepaid Insurance Baking Equipment Accumulated Depreciation Office Supplies Accounts Receivable Notes Payable Interest Payable Accounts Payable Wages Payable Common Stock Dividends Bakery Sales Merchandise Sales Baking Supplies expense Rent expense Interest expense Insurance expense Depreciation expense Misc. expense Office Supplies expense Business License expense Advertising expense Wages expense Telephone expense Cost of goods sold (FIFO) Totals Sep Adjusted TB Debit Credit 32,236.75 1,100.00 175.65 1,500.00 2,000.00 6,000.00 250.00 50.00 7,700.00 10,000.00 150.00 5,000.00 480.00 16,000.00 10,000.00 55,000.00 221.00 17,400.00 4,500.00 150.00 400.00 250.00 250.00 550.00 375.00 200.00 1,956.00 150.00 157.60 87,101.00 87,101.00 10,000.00 55,000.00 221.00 17,400.00 4,500.00 150.00 400.00 250.00 250.00 550.00 375.00 200.00 1,956.00 150.00 157.60 86,701.00 86,701.00 18,750.00 18,750.00

Peyton Approved Journal entries Date Account 1-Jul Cash Common Stock Credit Debit 10,000.00 10,000.00 6,500.00 1-Jul Baking Supplies Accounts Payable 6,500.00 10,000.00 3-Jul Cash Notes Payable 10,000.00 7-Jul Prepaid Rent Rent expense Cash 1,500.00 1,500.00 3,000.00 375.00 10-Jul Business License expense Cash 375.00 250.00 11-Jul Misc. expense Cash 250.00 6,000.00 13-Jul Baking Equipment Common Stock 6,000.00 200.00 13-Jul Advertising expense Cash 200.00 300.00 14-Jul Office Supplies Cash 300.00 15-Jul No entry 75.00 30-Jul Telephone expense Accounts Payable 75.00 2,400.00 31-Jul Prepaid Insurance Cash 2,400.00 120.00 31-Jul Wages expense Wages Payable 120.00 31-Jul Cash Accounts Receivable Bakery Sales 10,000.00 5,000.00 15,000.00 Total 54,220.00 54,220.00

Credit Date Account 5-Aug Wages Payable Cash Debit 120.00 120.00 3,800.00 8-Aug Cash Accounts Receivable 3,800.00 75.00 10-Aug Accounts Payable Cash 75.00 5,000.00 15-Aug Baking Supplies Accounts Payable 5,000.00 480.00 15-Aug Wages expense Wages Payable 480.00 1,500.00 15-Aug Rent expense Cash 1,500.00 3,000.00 18-Aug Cash Accounts Receivable 3,000.00 8,500.00 20-Aug Accounts Payable Cash 8,500.00 480.00 20-Aug Wages Payable Cash 480.00 300.00 22-Aug Office Supplies Cash 300.00 75.00 31-Aug Telephone expense Accounts Payable 75.00 420.00 31-Aug Wages expense Wages Payable 420.00 31-Aug Cash Accounts Receivable Bakery Sales 12,500.00 7,500.00 20,000.00 Total 43,750.00 43,750.00

Credit Calculation Date Account 1-Sep Dividends Cash Debit 10,000.00 10,000.00 420.00 5-Sep Wages Payable Cash 420.00 60.00 7-Sep Merchandise Inventory Cash 60.00 4,000.00 8-Sep Cash Accounts Receivable 4,000.00 75.00 10-Sep Accounts Payable Cash 75.00 7,000.00 11-Sep Baking Supplies Accounts Payable 7,000.00 5,000.00 13-Sep Accounts Payable Cash 5,000.00 456.00 15-Sep Wages expense Wages Payable 456.00 1,500.00 15-Sep Rent expense Cash 1,500.00 68.00 =8*8.50 68.00 15-Sep Cash Merchandise Sales Cost of goods sold Merchandise Inventory 48.00 See Inventory Valuation tab 48.00 456.00 20-Sep Wages Payable Cash 456.00 122.00 See Inventory Valuation tab 20-Sep Merchandise Inventory Cash 122.00 153.00 =18*8.50 153.00 24-Sep Cash Merchandise Sales Cost of goods sold Merchandise Inventory 109.60 See Inventory Valuation tab 109.60 151.25 See Inventory Valuation tab 30-Sep Merchandise Inventory Cash 151.25 480.00 30-Sep Wages expense Wages Payable 480.00 14,000.00 6,000.00 20,000.00 30-Sep Cash Accounts Receivable Bakery Sales Adjusting entries 30-Sep Depreciation expense Accumulated Depreciation Calculation =6,000/5*2.5/12 250.00 250.00 150.00 =10,000*6%*3/12 30-Sep Interest expense Interest Payable 150.00 400.00 =2,400/12*2 30-Sep Insurance expense Prepaid Insurance 400.00 17,400.00 =6,500+5,000+7,000-1,100 30-Sep Baking Supplies expense Baking Supplies 17,400.00 550.00 =300+300-50 30-Sep Office Supplies expense Office Supplies 550.00

Peyton Approved Perpetual Inventory System FIFO Purchases Date Quantity Cost per unit Total cost 7-Sep 10 $ 6.00 $ 60.00 15-Sep 20-Sep 20 $ 6.10 $ 122.00 Sales Cost per unit Quantity Total cost 8 $ 6.00 $ 48. 00 Ending Inventory Quantity Cost per unit Total cost 10 $ 6.00 $ 60.00 2 $ 6.00 $ 12.00 2 $ 6.00 $ 12.00 20 $ 6.10 $ 122.00 $ 134.00 24-Sep 2 16 18 $ $ 6.00 6.10 $ $ $ 12.00 97.60 109.60 4 $ 6.10 $ 24.40 30-Sep 25 $ 6.05 $ 151.25 4 25 $ $ 6.10 6.05 $ $ $ $ 24.40 151.25 175.65 175.65 Totals 55 $ 333. 25 2 6 $ 157.60 29