Question

D. Step Four: Transfer posted entries to T accounts.
II. 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.

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 1st 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).July 31: Total July bakery sales were $15,000. $5,000 of these sales are on accounts receivable.
August 5: Paid employee for period ending 7/31.
August 8: Receive payments from customers towards accounts receivable in amount of $3,800.
August 10: Paid July telephone bill.
August 15: Purchase additional baking supplies in amount of $5,000 from vendor, on account.
August 15: Accrue wages earned for employee from period of 1st through 15th of August (Wage calculations table provided below).
August 15: Pay rent on bakery space.
August 18: Receive payments from customers towards accounts receivable in amount of $3,000.
August 20: Paid $8,500 toward baking supplies vendor payable.
August 20: Pay employee for period ending 8/15.
August 22: $300 in office supplies purchased.
August 31: Received telephone bill for August in amount of $75. Payment is due on September 10.
August 31: Accrue wages earned for employee for period of August 16th through August 31st (Wage calculations table provided below).
August 31: August bakery sales total $20,000. $7,500 of this total is on accounts receivableStep Three (Click on the link to return to the prompt.)
Updated Scenario: Many customers have been asking for more hypoallergenic products, so in September you start carrying a line of hypoallergenic shampoos on a trial basis. The following information relates to the purchase and sales of the shampoo:
 You use the perpetual inventory method. You are uncertain as to which valuation method to use—FIFO, LIFO, or weighted average, so you calculate inventory using all three and then decide which one you would like to choose.
Data: The following events occur in September, 2018:
September 1: Paid dividends to self in amount of $10,000.
September 5: Pay employee for period ending 8/31.
September 7: Purchase merchandise for resale. See “Inventory Valuation” tab for details.
September 8: Receive payments from customers toward accounts receivable in amount of $4,000.
September 10: Pay August telephone bill.
September 11: Purchase baking supplies in amount of $7,000 from vendor on account.
September 13: Paid on supplies vendor account in amount of $5,000.
September 15: Accrue employee wages for period of September 1 through September 15.
September 15: Pay rent on bakery space: $1,500.
September 15: Record merchandise sales transaction. See “Inventory Valuation” tab for details.
September 15: Record impact of sales transaction on COGS and the inventory asset. See “Inventory Valuation” tab for details.
September 20: Pay employee for period ending 9/15.
September 20: Purchase merchandise inventory for resale to customers. See “Inventory Valuation” tab for details.
September 24: Record sales of merchandise to customers. See “Inventory Valuation” tab for details.

September 30: Purchase merchandise inventory for resale to customers. See “Inventory Valuation” tab for details.
September 30: Accrue employee wages for period of September 16th through September 30th
September 30: Total September bakery sales are $20,000. $6,000 of these sales are on accounts receivable.
Step Six Data (Click on the link to return to the prompt.)
On September 30, the following adjustments must be made:
 [Note: This is a sample.] Depreciation of baking equipment transferred to company on 7/13. Assume a half month of depreciation in July using the straight-line method.
 Accrue interest for note payable. Assume a full month of interest for July. (6% annual interest on $10,000 loan from parents.)
 Record insurance used for the year.
 Actual baking supplies on-hand as of September 30 are $1,100.
 Office supplies on-hand as of September 30 are $50.
Wage calculation data:MonthHoursRatePay31 Jul.101212015 Aug.401248031 Aug.351242015 Sep.381245630 Sep.4012480

Unadjusted trial balance Debit Credit Adjusting entries Debit Credit Adjusted trial balance Debit Credit 250.00 250.00 Account 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 COGS (FIFO) 250.00 250.00 Total: (FIFO) 250.00 250.00 250.00 250.00

Answer 1

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

Date Credit Credit Credit Debit Date Baking Supplies -Jul $ 6,500 Date Debit Date Prepaid Rent 7-Jul $ 1,500 Peyton Approved T Accounts Date Debit Date Credit Cash 1-Jul $10,000 7-Jul $ 3,000 3-Jul $10,000 10-Jul $ 375 31-Jul $10,000 11-Jul $ 250 13-Jul $ 200 14-Jul $ 300 31-Jul $ 2,400 Date Debit Date Prepaid Insurance 31-Jul $ 2,400 1 Bal. Bal. Bal. $ 23,475 Baking Equipment 13-Jul $ 6,000 Bal. $ 6,500 Office Supplies 14-Jul $ 300 $ 1,500 Accounts Receivable 31-Jul $ 5,000 $ 2,400 Accumulated Depreciation Bal. Bal. Bal. $ 6,000 Merchandise Inventory $ 300 Notes Payable 3-Jul $ 10,000 $ 5,000 Accounts Payable 1-Jul $ 6,500 30-Jul $ 75 Bal. $ Wages Payable 31-Jul $ 120 Bal. $ 6,575 Bal. $ 120 Bal. Retained Earnings Interest Payable Bal. $10,000 Common Stock 1-Jul $10,000 13-Jul $ 6,000 Dividends $ 16,000 - Bal. Bakery Sales 31-Jul $ 15,000 Bal. Merchandise Sales Bal. $ Baking Supplies expense Bal. $ Rent expense 7-Jul $ 1,500 $ 15,000 $ - Bal. Insurance expense Bal. Misc. expense 11-Jul $ 250 Bal. Bal. $ Business License expense 10-Jul $ 375 Bal. $ 1,500 Advertising expense 13-Jul $ 200 Bal. $ 375 Bal. Bal. $ . Wages expense 31-Jul $ 120 Bal. $ 250 Telephone expense 30-Jul $ 75 $ 200 Depreciation expense Interest expense Bal. $ 120 Bal. $ 75 Bal. $ - Bal.

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 Credit Credit Date Debit Date Baking Supplies 1-Aug $ 6,500 15-Aug $ 5,000 Date Debit Date Prepaid Rent 1-Aug $ 1,500 Peyton Approved T Accounts Date Debit Date Credit Cash 1-Aug $ 23,475 5-Aug $ 120 8-Aug $ 3,800 10-Aug $ 75 18-Aug $ 3,000 15-Aug $ 1,500 31-Aug $ 12,500 20-Aug $ 8,500 20-Aug $ 480 22-Aug $ 300 Date Debit Date Prepaid Insurance 1-Aug $ 2,400 Bal. Bal. $ 31,800 Baking Equipment 1-Aug $ 6,000 Bal. $ 11,500 Office Supplies 1-Aug $ 300 22-Aug $ 300 Bal. $ 1,500 Accounts Receivable 1-Aug $ 5,000 8-Aug $ 3,800 31-Aug $ 7,500 18-Aug $ 3,000 $ 2,400 Accumulated Depreciation 1-Aug $ - Bal. Bal. . $ 6,000 Merchandise Inventory $ 600 Notes Payable 1-Aug $ 10,000 Bal. $ 5,700 Accounts Payable 10-Aug $ 75 1-Aug $ 6,575 20-Aug $ 8,500 15-Aug $ 5,000 31-Aug $ 75 Bal. $ Wages Payable 5-Aug $ 120 1-Aug $ 20-Aug $ 480 15-Aug $ 31-Aug $ 120 480 420 Bal. $ 3,075 $ 420 Bal. $ 10,000 Common Stock 1-Aug $ 16,000 Bal. Retained Earnings Bal. Dividends Interest Payable Bal. $ 16,000 - Bal. Merchandise Sales Bal. $ Baking Supplies expense Bakery Sales 1-Aug $ 15,000 31-Aug $ 20,000 Bal. $ - Rent expense 1-Aug $ 1,500 15-Aug $ 1,500 $ 35,000 $ - Bal. Insurance expense Bal. Misc. expense 1-Aug $ 250 Bal. $ Business License expense 1-Aug $ 375 Bal. $ 3,000 Advertising expense 1-Aug $ 200 Bal. Bal. $ 375 Interest expense $ 200 Depreciation expense Bal. $ Wages expense 1-Aug $ 120 15-Aug $ 480 31-Aug $ 420 Bal. $ 250 Telephone expense 1-Aug $ 75 31-Aug $ 75 Bal. $1,020 Bal. $ 150 Bal. $ - Bal. $ .

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 26 $ 157.60 LIFO Purchases Cost per unit Total cost $ 6.00 $ 60.00 Sales Cost per unit Quantity Total cost Date Quantity 7-Sep 10 15-Sep 20-Sep 20 8 $ 6.00 $ 48.00 $ 6.10 $ 122.00 24-Sep 18 $ 6.10 $ 109.80 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 22 $ 134.00 2 $ 6.00 $ 12.00 2 $ 6.10 $ 12.20 4 $ 24.20 2 $ 6.00 $ 12.00 2 $ 6.10 $ 12.20 25 $ 6.05 $ 151.25 $ 175.45 $ 175.45 30-Sep 25 $ 6.05 $ 151.25 Totals 55 $ 333.25 26 $ 157.80 Sales Cost per unit Quantity Total cost Weighted Average cost Purchases Date Quantity Cost per unit Total cost 7-Sep 10 $ 6.00 $ 60.00 15-Sep 20-Sep 20 $ 6.10 $ 122.00 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 22 $ 6.09 $ 134.00 $ 24.38 $ 24.38 25 $ 6.05 $ 151.25 29 $ 5.22 $ 175.63 29 $ 175.63 18 $ 6.09 $ 109.62 24-Sep 30-Sep 25 $ 6.05 $ 151.25 Totals 55 $ 333.25 26 $ 157.62

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

Date Credit Date Date Debit Date Credit Baking Supplies 1-Sep 11,500.00 11-Sep 7,000.00 30-Sep 17,400.00 Debit Date Prepaid Rent 1,500.00 Debit Date Credit Prepaid Insurance 2,400.00 30-Sep 400.00 1-Sep Peyton Approved T Accounts Date Debit Date Credit Cash 1-Sep 31,800.00 1-Sep 10,000.00 8-Sep 4,000.00 5-Sep 420.00 15-Sep 68.00 7-Sep 60.00 24-Sep 153.00 10-Sep 75.00 30-Sep 14,000.00 13-Sep 5,000.00 15-Sep 1,500.00 20-Sep 456.00 20-Sep 122.00 30-Sep 151.25 1-Sep Bal. Bal. Bal. Bal. 32,236.75 Baking Equipment 6,000.00 1,100.00 Office Supplies 600.00 30-Sep 1,500.00 Accounts Receivable 5,700.00 8-Sep 4,000.00 6,000.00 2,000.00 Accumulated Depreciation 30-Sep 250.00 1-Sep 1-Sep 1-Sep 30-Sep 550.00 Bal. Bal. Bal. 6,000.00 Merchandise Inventory 1-Sep 7-Sep 60.00 15-Sep 20-Sep 122.00 24-Sep 30-Sep 151.25 50.00 Notes Payable 1-Sep 7,700.00 Accounts Payable 75.00 1-Sep 3,075.00 5,000.00 11-Sep 7,000.00 10,000.00 10-Sep 13-Sep 5-Sep 20-Sep Bal. 250.00 Wages Payable 420.00 1-Sep 420.00 456.00 15-Sep 456.00 30-Sep 480.00 48.00 109.60 Bal. 10,000.00 5,000.00 Bal. 480.00 175.65 Interest Payable 30-Sep Bal. Common Stock 1-Sep Bal. Retained Earnings Dividends 1-Sep 10,000.00 150.00 16,000.00 16,000.00 Bal. Bal. 150.00 Bakery Sales 1-Sep 35,000.00 30-Sep 20,000.00 Bal. Merchandise Sales 15-Sep 24-Sep Bal. Baking Supplies expense 30-Sep 17,400.00 10,000.00 Rent expense 3,000.00 1,500.00 68.00 153.00 1-Sep 15-Sep 55,000.00 221.00 Bal. Insurance expense 400.00 Bal. Misc. expense 250.00 Bal. 17,400.00 Business License expense 1-Sep 375.00 Bal. 4,500.00 Advertising expense 1-Sep 200.00 30-Sep 1-Sep Bal. Bal. Bal. 400.00 Wages expense 1,020.00 456.00 480.00 250.00 Telephone expense 150.00 375.00 Interest expense 150.00 Bal. 200.00 Depreciation expense 30-Sep 250.00 1-Sep 1-Sep 15-Sep 30-Sep 30-Sep 150.00 Bal. 250.00 Bal. 1,956.00 Office Supplies expense 30-Sep 550.00 15-Sep 24-Sep Cost of goods sold 48.00 109.60 Bal. 550.00 Bal. 157.60

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