Question

At June 30, 2017, the end of its most recent fiscal year, Green River Computer Consultants’ post-closing trial balance was as follows:

		Debit		Credit
Cash		$5,230
Accounts receivable		1,200
Supplies		690
Accounts payable				$400
Unearned service revenue				1,120
Common stock				3,600
Retained earnings				2,000
		$7,120		$7,120

The company underwent a major expansion in July. New staff was hired and more financing was obtained. Green River conducted the following transactions during July 2017, and adjusts its accounts monthly.

July	1		Purchased equipment, paying $4,000 cash and signing a 2-year note payable for $20,000. The equipment has a 4-year useful life. The note has a 6% interest rate which is payable on the first day of each following month.
	2		Issued 20,000 shares of common stock for $50,000 cash.
	3		Paid $3,600 cash for a 12-month insurance policy effective July 1.
	3		Paid the first 2 (July and August 2017) months’ rent for an annual lease of office space for $4,000 per month.
	6		Paid $3,800 for supplies.
	9		Visited client offices and agreed on the terms of a consulting project. Green River will bill the client, Connor Productions, on the 20th of each month for services performed.
	10		Collected $1,200 cash on account from Milani Brothers. This client was billed in June when Green River performed the service.
	13		Performed services for Fitzgerald Enterprises. This client paid $1,120 in advance last month. All services relating to this payment are now completed.
	14		Paid $400 cash for a utility bill. This related to June utilities that were accrued at the end of June.
	16		Met with a new client, Thunder Bay Technologies. Received $12,000 cash in advance for future services to be performed.
	18		Paid semi-monthly salaries for $11,000.
	20		Performed services worth $28,000 on account and billed customers.
	20		Received a bill for $2,200 for advertising services received during July. The amount is not due until August 15.
	23		Performed the first phase of the project for Thunder Bay Technologies. Recognized $10,000 of revenue from the cash advance received July 16.
	27		Received $15,000 cash from customers billed on July 20.

Adjustment data:

1.		Adjustment of prepaid insurance.
2.		Adjustment of prepaid rent.
3.		Supplies used, $1,250.
4.		Equipment depreciation, $500 per month.
5.		Accrual of interest on note payable.
6.		Salaries for the second half of July, $11,000, to be paid on August 1.
7.		Estimated utilities expense for July, $800 (invoice will be received in August).
8.		Income tax for July, $1,200, will be paid in August.

A. Post to the ledger accounts

B. Prepare a trial balance at July 31st

C. Prepare an adjusted trial balance

D. Prepare a retained earnings statement for July

E. Journalize and post closing entries and complete the closing process

F. Prepare a post-closing trial balance at July 31st

Answer 1

Prepare journal entries as follows:

Debit Credit Date Account Titles July 1 Equipment Note payable Cash $24,000 $20,000 $4,000 $50,000 2 Cash Common stock $50,000 $3,600 3 Prepaid Insurance Cash $3,600 $8,000 3 Prepaid rent Cash $8.000 $3,800 6 Supplies Cash $3,800 9 No entry $1,200 10 Cash Accounts receivable $1,200

$1,120 13 Unearned service revenue Service revenue earned $1,120 $400 14 Accounts payable Cash $400 $12,000 16 Cash Unearned service revenue $12,000 $11,000 18 Salary expense Cash $11,000 $28,000 20 Accounts receivable Service revenue earned $28,000 $2,200 20 Advertising expense Accounts payable $2,200 $10,000 23 Unearned service revenue Service revenue earned $10,000 $15,000 27 Cash Accounts receivable $15.000

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Adjusting entries: Adj. 1 Insurance expense Prepaid insurance ($3600/12) $300 $300 $4,000 Adj. 2 Rent expense Prepaid rent $4,000 $1,250 Adj. 3 Supplies expense Supplies $1,250 $500 Adj. 4 Depreciation expense Accumulated depreciation Equipment $500 $100 Adj. 5 Interest expense ($20000 x 6%< 1/12) | Interest payable $100 $11,000 Adj. 6 Salaries expense Salaries payable $11,000 $800 Adj. 7 Utilities expense Utilities payable $800 $1,200 Adj. 8 Income tax expense Income tax payable $1,200

A. Post to the ledger accounts

Cash					Accounts payable
Beg. Bal.	$5,230	1	$4,000		14	$400	Beg. Bal.	$400
2	$50,000	3	$3,600				20	$2,200
10	$1,200	3	$8,000
16	$12,000	6	$3,800				End. Bal.	$2,200
27	$15,000	14	$400
		18	$11,000		Unearned service revenue
					13	$1,120	Beg. Bal.	$1,120
End. Bal.	$52,630				23	$10,000	16	$12,000
Accounts receivable							End. Bal.	$2,000
Beg. Bal.	$1,200	10	$1,200
20	$28,000	27	$15,000		Common stock
							Beg. Bal.	$3,600
End. Bal.	$13,000						2	$50,000
Supplies							End. Bal.	$53,600
Beg. Bal.	$690	Adj. 3	$1,250
6	$3,800				Note payable
							1	$20,000
End. Bal.	$3,240
							End. Bal.	$20,000
Equipment
1	$24,000				Service revenue earned
							13	$1,120
End. Bal.	$24,000						20	$28,000
							23	$10,000
Prepaid insurance
3	$3,600	Adj. 1	$300				End. Bal.	$39,120
End. Bal.	$3,300				Salaries payable
							Adj. 6	$11,000
Prepaid rent
3	$8,000	Adj. 2	$4,000				End. Bal.	$11,000
End. Bal.	$4,000				Interest payable
							Adj. 5	$100
Salaries expense
18	$11,000						End. Bal.	$100
Adj. 6	$11,000
					Accumulted depreciation
End. Bal.	$22,000						Adj. 4	$500
Interest expense							End. Bal.	$500
Adj. 5	$100
					Utilities expense
End. Bal.	$100				Adj. 7	$800
Depreciation expense					End. Bal.	$800
Adj. 4	$500
					Utilities payable
End. Bal.	$500						Adj. 7	$800
Rent expense							End. Bal.	$800
Adj. 2	$4,000
					Income tax payable
End. Bal.	$4,000						Adj. 8	$1,200
Insurance expense							End. Bal.	$1,200
Adj. 2	$300
					Supplies expense
End. Bal.	$300				Adj. 3	$1,250
Income tax expense					End. Bal.	$1,250
Adj. 8	$1,200
End. Bal.	$1,200
Advertisement expense
20	$2,200
End. Bal.	$2,200

______________________________________________________________

Prepare an adjusted trial balance

Credit Adjusted Trial balance Debit Cash $52,630 Accounts receivable $13,000 Supplies $3,240 Prepaid Insurance $3,300 Prepaid Rent $4,000 Equipment $24,000 Accounts payable Note payable Income tax payable Utilities payable Interest payable Salaries payable Common stock Accumulated depreciation Retained earnings Unearned service revenue Servivce revenue $2,200 $20,000 $1,200 $800 $100 $11,000 $53,600 $500 $2,000 $2,000 $39,120

Salaries expense Insurance expense Rent expense Depreciation expense supplies expense utilties expense Interest expense Advertisement expense Income tax expense Total $22,000 $300 $4,000 $500 $1,250 $800 $100 $2,200 $1,200 $132.520 $132.520

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Prepare statement of retained earnings

$39,120 Income statement Revenue: Servivce revenue Less: operating expense: Salaries expense Insurance expense Rent expense Depreciation expense supplies expense utilties expense Interest expense Advertisement expense Income tax expense $22.000 $300 $4.000 $500 $1,250 $800 $100 $2,200 $1,200 $32,350 Net Income $6,770 Statement of retained Earnings Beginning balance Add: Net Income Ending balance $2,000 $6.770 $8,770