Question

On April 1, Jiro Nozomi created a new travel agency, Adventure Travel. The following transactions occurred during the company’s first month.

April		1		Nozomi invested $39,000 cash and computer equipment worth $35,000 in the company in exchange for common stock.
		2		The company rented furnished office space by paying $1,800 cash for the first month’s (April) rent.
		3		The company purchased $1,300 of office supplies for cash.
		10		The company paid $2,500 cash for the premium on a 12-month insurance policy. Coverage begins on April 11.
		14		The company paid $1,300 cash for two weeks' salaries earned by employees.
		24		The company collected $14,000 cash for commissions earned.
		28		The company paid $1,300 cash for two weeks' salaries earned by employees.
		29		The company paid $400 cash for minor repairs to the company's computer.
		30		The company paid $1,000 cash for this month's telephone bill.
		30		The company paid $1,900 cash in dividends.

The company's chart of accounts follows:

101	Cash	405	Commissions Earned
106	Accounts Receivable	612	Depreciation Expense—Computer Equip.
124	Office Supplies	622	Salaries Expense
128	Prepaid Insurance	637	Insurance Expense
167	Computer Equipment	640	Rent Expense
168	Accumulated Depreciation—Computer Equip.	650	Office Supplies Expense
209	Salaries Payable	684	Repairs Expense
307	Common Stock	688	Telephone Expense
318	Retained Earnings	901	Income Summary
319	Dividends

Use the following information:

1. Prepaid insurance of $139 has expired this month.
2. At the end of the month, $600 of office supplies are still available.
3. This month’s depreciation on the computer equipment is $500.
4. Employees earned $510 of unpaid and unrecorded salaries as of month-end.
5. The company earned $2,150 of commissions that are not yet billed at month-end.

Required:
1. & 2. Prepare journal entries to record the transactions for April and post them to the ledger accounts in Requirement 6b. The company records prepaid and unearned items in balance sheet accounts.
3. Using account balances from Requirement 6b, prepare an unadjusted trial balance as of April 30.
4. Journalize the adjusting entries for the month and prepare the adjusted trial balance.
5a. Prepare the income statement for the month of April 30.
5b. Prepare the statement of retained earnings for the month of April 30.
5c. Prepare the balance sheet at April 30.
6a. Prepare journal entries to close the temporary accounts and then post to Requirement 6b.
6b. Post the journal entries to the ledger.
7. Prepare a post-closing trial balance.

Answer 1

1 & 2) The required journal entries and posting to ledger is shown as follows:-

Journal Entries (Amounts in $)

Date	Account Titles and Explanations	Debit	Credit
Apr 1	Cash	39,000
	Computer Equipment	35,000
	Common Stock (39,000+35,000)		74,000
	(To record the issue of common stock)
Apr 2	Rent Expense	1,800
	Cash		1,800
	(To record the rent expense)
Apr 3	Office Supplies	1,300
	Cash		1,300
	(To record the purchase of supplies)
Apr 10	Prepaid Insurance	2,500
	Cash		2,500
	(To record the prepaid insurance)
Apr 14	Salaries Expense	1,300
	Cash		1,300
	(To record the salaries expense)
Apr 24	Cash	14,000
	Commissions Earned		14,000
	(To record the commission earned)
Apr 28	Salaries Expense	1,300
	Cash		1,300
	(To record the salaries expense)
Apr 29	Repairs Expense	400
	Cash		400
	(To record the repairs expense)
Apr 30	Telephone Expense	1,000
	Cash		1,000
	(To record the telephone expense)
Apr 30	Dividends	1,900
	Cash		1,900
	(To record the dividends paid)

Posting of above journal entries to T-Accounts is shown as follows:- (Amounts in $)

Cash 101					Office Supplies 124
Apr 1	39,000	Apr 2	1,800		Apr 3		1,300
Apr 24	14,000	Apr 3	1,300		Balance		1,300
		Apr 10	2,500
		Apr 14	1,300
		Apr 28	1,300
		Apr 29	400
		Apr 30	1,000
		Apr 30	1,900
	53,000		11,500
Balance	41,500
Prepaid Insurance 128					Computer Equipment 167
Apr 10	2,500				Apr 1		35,000
Balance	2,500				Balance		35,000
Common Stock 307					Dividends 319
		Apr 1	39,000		Apr 30		1,900
		Apr 1	35,000		Balance		1,900
		Balance	74,000
Commissions Earned 405					Salaries Expense 622
		Apr 24	14,000		Apr 14		1,300
		Balance	14,000		Apr 28		1,300
					Balance		2,600
Rent Expense 640					Repairs Expense 684
Apr 2	1,800				Apr 29	400
Balance	1,800				Balance	400
Telephone Expense 640
Apr 30	1,000
Balance	1,000

3) Unadjusted Trial Balance as on April 30 (Amounts in $)

No	Account Titles	Debit	Credit
101	Cash	41,500
124	Office Supplies	1,300
128	Prepaid Insurance	2,500
167	Computer Equipment	35,000
307	Common Stock		74,000
319	Dividends	1,900
405	Commissions Earned		14,000
622	Salaries Expense	2,600
640	Rent Expense	1,800
684	Repairs Expense	400
640	Telephone Expense	1,000
	Totals	88,000	88,000

4) The adjusting journal entries for the given transactions are shown as follows:-

Journal Entries (Amounts in $)

Date	Account Titles and Explanations	Debit	Credit
Apr 30	Insurance Expense	139
	Prepaid Insurance		139
	(To record the insurance expense)
Apr 30	Office Supplies Expense	700
	Office Supplies (1,300-600)		700
	(To record the supplies expense)
Apr 30	Depreciation Expense—Computer Equip.	500
	Accumulated Depreciation—Computer Equip.		500
	(To record the depreciation expense)
Apr 30	Salaries Expense	510
	Salaries Payable		510
	(To record the salaries expense)
Apr 30	Accounts Receivable	2,150
	Commissions Earned		2,150
	(To record the commissions earned on account)

The adjusted trial balance is shown as follows:- (Amounts in $)

No	Account Titles	Debit	Credit
101	Cash	41,500
106	Accounts Receivable	2,150
124	Office Supplies (1,300-700)	600
128	Prepaid Insurance (2,500-139)	2,361
167	Computer Equipment	35,000
168	Accumulated Depreciation—Computer Equip.		500
209	Salaries Payable		510
307	Common Stock		74,000
319	Dividends	1,900
405	Commissions Earned (14,000+2,150)		16,150
612	Depreciation Expense—Computer Equip.	500
622	Salaries Expense (2,600+510)	3,110
637	Insurance Expense	139
640	Rent Expense	1,800
650	Office Supplies Expense	700
684	Repairs Expense	400
640	Telephone Expense	1,000
	Totals	91,160	91,160