Question

Acquired $54,000 cash from the issue of common stock.
Paid $13,900 cash in advance for rent. The payment was for the period April 1, Year 1, to March 31, Year 2.
Performed services for customers on account for $110,000.
Incurred operating expenses on account of $44,500.
Collected $84,000 cash from accounts receivable.
Paid $40,000 cash for salary expense.
Paid $35,600 cash as a partial payment on accounts payable.

Adjusting Entries

Made the adjusting entry for the expired rent. (See Event 2.)
Recorded $6,200 of accrued salaries at the end of Year 1.

Events for Year 2

Paid $6,200 cash for the salaries accrued at the end of the prior accounting period.
Performed services for cash of $59,000.
Purchased $4,700 of supplies on account.
Paid $16,200 cash in advance for rent. The payment was for one year beginning April 1, Year 2.
Performed services for customers on account for $126,000.
Incurred operating expenses on account of $60,500.
Collected $108,000 cash from accounts receivable.
Paid $58,000 cash as a partial payment on accounts payable.
Paid $33,400 cash for salary expense.
Paid a $10,000 cash dividend to stockholders.
Adjusting Entries

Made the adjusting entry for the expired rent. (Hint: Part of the rent was paid in Year 1.)
Recorded supplies expense. A physical count showed that $400 of supplies were still on hand.

A. Record the events and adjusting entries for Year 1 in general journal form

B. Post the Year 1 events to T-accounts.

C.Prepare a trial balance for Year 1.

D. Prepare an income statement for Year 1.

E. Prepare a statement of changes in stockholders’ equity for Year 1.

F. Prepare a balance sheet for Year 1.

G. Prepare a statement of cash flows for Year 1.

H. Record the entries to close the Year 1 temporary accounts to Retained Earnings in the general journal and post to the T-accounts.

I. Prepare a post-closing trial balance for December 31, Year 1

J. Repeat parts a through i for Year 2.

Answer 1

Debit Credit Calculation Journal entries Date Account Year 1 1 Cash Common Stock $ 54,000 $ 54,000 2 $ 13,900 Prepaid Rent Cash $ 13,900 3 $ 110,000 Accounts Receivable Service Revenue $ 110,000 4 $ 44,500 Operating Expenses Accounts Payable $ 44,500 5 $ 84,000 Cash Accounts Receivable $ 84,000 6 $ 40,000 Salaries Expenses Cash $ 40,000 $ 35,600 $ 35,600 7 Accounts Payable Cash Adjusting entries 8 Rent Expenses Prepaid Rent $ 10,425 =13,900/12*9 $ 10,425 $ 6,200 $ 6,200 9 Salaries Expenses Salaries Payable Closing entries 10 Service Revenue Retained Earnings $ 110,000 $ 110,000 11 $ 101,125 Retained Earnings Operating Expenses Salaries Expenses Rent Expenses $ 44,500 $ 46,200 $ 10,425

T Accounts Date Debit Credit Date Credit Date Credit Date Credit Date Cash Debit Date Accounts Receivable Debit Date Prepaid Rent Debit Date Supplies Year 1 Year 1 1 5 Year 1 3 Year 1 2 $110,000 5 $ 84,000 $ 13,900 8 $ 10,425 $ 54,000 $ 84,000 2 6 7 $ 13,900 $ 40,000 $ 35,600 Bal. Bal. $ Bal. $ $ 26,000 Salaries Payable 3,475 Common Stock Retained Earnings Bal. $ 48,500 Accounts Payable Year 1 7 $ 35,600 4 Year 1 Year 1 Year 1 11 $ 44,500 9 $ 6,200 1 $ 54,000 $ 101,125 10 $110,000 $ 8,900 $ 6,200 Bal. $ 54,000 $ 8,875 Bal. Dividends Serivce Revenue Year 1 Year 1 3 $ 110,000 10 $110,000 Bal. $ - $ - Operating Expenses Rent Expenses Supplies Expenses Bal. Salaries Expenses Year 1 6 $ 40,000 9 $ 6,200 11 Year 1 4 Year 1 Year 1 8 $ 44,500 $ 10,425 11 $ 44,500 $ 46,200 11 $ 10,425 Bal. $ . . Bal. $ Bal. $ $

Adjusted TB Year 1 Debit Credit 48,500 26,000 3,475 Company Trial Balance Cash Accounts Receivable Prepaid Rent Supplies Accounts Payable Salaries Payable Common Stock Retained Earnings Dividends Service Revenue Operating Expenses Salaries Expenses Rent Expenses Supplies Expenses Totals 8,900 6,200 54,000 110,000 44,500 46,200 10,425 179,100 179,100

110,000 Company Income Statement For year ended Dec 31, Year 1 Service Revenue Operating expenses Operating Expenses Salaries Expenses Rent Expenses Total Operating expenses Net Income 44,500 46,200 10,425 101,125 8,875 Statement of Changes in Stockholders Equity For year ended Dec 31, Year 1 Beginning common Stock Issue of common stock Ending common Stock 54,000 54,000 8,875 Beginning Retained Earnings Net Income Ending Retained Earnings Total Stockholders Equity 8,875 62,875

Company Balance Sheet As of Dec 31, Year 1 Assets Cash Accounts Receivable Prepaid Rent Total Assets 48,500 26,000 3,475 77,975 Liabilties and Stockholders Equity Liabilties Accounts Payable Salaries Payable Total Liabilities 8,900 6,200 15,100 Stockholders Equity Common Stock Retained Earnings Total Stockholders Equity Total Liabilities & Stockholders Equity 54,000 8,875 62,875 77,975

Company Calculation Statement of cashflows For year ended Dec 31, Year 1 Cashflows from operating activities Received from customers Paid for expenses Net Cashflows from operating activities 84,000 (89,500) 13900+40000+35600 (5,500) Cashflows from investing activities 54,000 Cashflows from financing activities Proceeds from issue of common shares Net Cashflows from financing activities Net change in cash Beginning cash balance Ending cash balance 54,000 48,500 48,500

Post-Closing TB Year 1 Debit Credit 48,500 26,000 3,475 Company Trial Balance Cash Accounts Receivable Prepaid Rent Supplies Accounts Payable Salaries Payable Common Stock Retained Earnings Dividends Service Revenue Operating Expenses Salaries Expenses Rent Expenses Supplies Expenses Totals 8,900 6,200 54,000 8,875 77,975 77,975

YEAR 2

Credit Calculation Year 2 Date Account 1 Salaries Payable Cash Debit $ 6,200 $ 6,200 2 $ 59,000 Cash Service Revenue $ 59,000 3 $ 4,700 Supplies Accounts Payable $ 4,700 4. $ 16,200 Prepaid Rent Cash $ 16,200 5 $ 126,000 Accounts Receivable Service Revenue $ 126,000 6 $ 60,500 Operating Expenses Accounts Payable $ 60,500 7 $ 108,000 Cash Accounts Receivable $ 108,000 8 $ 58,000 Accounts Payable Cash $ 58,000 9 $ 33,400 Salaries Expenses Cash $ 33,400 $ 10,000 $ 10,000 10 Dividends Cash Adjusting entries 11 Rent Expenses Prepaid Rent $ 15,625 =(13,900/12*3)+(16,200/12*9) $ 15,625 $ 4,300 -4,700-400 $ 4,300 12 Supplies Expenses Supplies Closing entries 13 Service Revenue Retained Earnings $ 185,000 $ 185,000 14 $ 113,825 Retained Earnings Operating Expenses Salaries Expenses Rent Expenses Supplies Expenses $ 60,500 $ 33,400 $ 15,625 $ 4,300 15 $ 10,000 Retained Earnings Dividends $ 10,000

Credit Date Date Credit Date Credit Colton Enterprises T Accounts Date Debit Date Cash Year 1 1 $ 54,000 5 $ 84,000 Debit Date Credit Accounts Receivable Debit Date Prepaid Rent Debit Date Supplies Year 1 Year 1 3 Year 1 2 $110,000 5 $ 84,000 $ 13,900 8 $ 10,425 2 6 7 $ 13,900 $ 40,000 $ 35,600 $ 48,500 $ 26,000 $ 3,475 $ Bal. Year 2 Bal. Year 2 Bal. Year 2 Bal. Year 2 5 $126,000 | 7 $ 108,000 4 $ 16,200 3 $ 4,700 2 $ 59,000 7 $ 108,000 1 $ 6,200 4 $ 16,200 8 $ 58,000 9 $ 33,400 10 $ 10,000 11 $ 15,625 12 $ 4,300 Bal. Bal. Bal. $ 44,000 Salaries Payable $ 4,050 Common Stock $ 400 Retained Earnings Bal. $ 91,700 Accounts Payable Year 1 7 $ 35,600 4 Year 1 Year 1 Year 1 11 $ 44,500 9 $ 6,200 1 $ 54,000 $101,125 10 $110,000 Bal. $ 8,900 Bal. $ 6,200 $ 54,000 Bal. $ 8,875 Year 2 Year 2 Year 2 1 8 $ 58,000 $ 6,200 Year 2 14 15 13 3 $ 4,700 6 $ 60,500 $185,000 $113,825 $ 10,000 $ 16,100 $ - Bal. $ 54,000 Bal. $ 70,050 Bal. Dividends Bal. Serivce Revenue Year 1 Year 1 3 $110,000 10 $ 110,000 $ Bal. $ Bal. Year 2 Year 2 10 $ 10,000 2 $ 59,000 5 $ 126,000 15 $ 10,000 13 $185,000 Bal. $ Operating Expenses Bal. Salaries Expenses Rent Expenses Supplies Expenses Year 1 Year 1 4 Year 1 6 9 Year 1 8 $ 44,500 $ 10,425 $ 40,000 $ 6,200 11 $ 44,500 11 $ 46,200 11 $ 10,425 Bal. $ - $ - Bal. Year 2 Bal. $ Year 2 11 $ 15,625 Bal. Year 2 Year 2 6 $ 60,500 9 $ 33,400 12 $ 4,300 14 $ 60,500 14 $ 33,400 14 $ 15,625 14 $ 4,300 Bal. Bal. Bal. $ -

Adjusted TB Year 2 Debit Credit 91,700 44,000 4,050 400 16,100 Company Trial Balance Cash Accounts Receivable Prepaid Rent Supplies Accounts Payable Salaries Payable Common Stock Retained Earnings Dividends Service Revenue Operating Expenses Salaries Expenses Rent Expenses Supplies Expenses Totals 54,000 8,875 10,000 185,000 60,500 33,400 15,625 4,300 263,975 263,975

185,000 Company Income Statement For year ended Dec 31, Year 2 Service Revenue Operating expenses Operating Expenses Salaries Expenses Rent Expenses Supplies Expenses Total Operating expenses Net Income 60,500 33,400 15,625 4,300 113,825 71,175 Statement of Changes in Stockholders Equity For year ended Dec 31, Year 2 Beginning common Stock Issue of common stock Ending common Stock 54,000 54,000 Beginning Retained Earnings Net Income Less: Dividends Ending Retained Earnings Total Stockholders Equity 8,875 71,175 (10,000) 70,050 124,050

Company Balance Sheet As of Dec 31, Year 2 Assets Cash Accounts Receivable Prepaid Rent Supplies Total Assets 91,700 44,000 4,050 400 140,150 Liabilties and Stockholders Equity Liabilties Accounts Payable Salaries Payable Total Liabilities 16,100 16,100 Stockholders Equity Common Stock Retained Earnings Total Stockholders Equity Total Liabilities & Stockholders Equity 54,000 70,050 124,050 140,150

Company Statement of cashflows For year ended Dec 31, Year 2 Cashflows from operating activities Received from customers Paid for expenses Net Cashflows from operating activities 167,000 (113,800) Calculation 59000+108000 6200+16200+58000+33400 53,200 Cashflows from investing activities (10,000) Cashflows from financing activities Dividends paid Net Cashflows from financing activities Net change in cash Beginning cash balance Ending cash balance (10,000) 43,200 48,500 91,700

Post-Closing TB Year 2 Debit Credit 91,700 44,000 4,050 400 16,100 Company Trial Balance Cash Accounts Receivable Prepaid Rent Supplies Accounts Payable Salaries Payable Common Stock Retained Earnings Dividends Service Revenue Operating Expenses Salaries Expenses Rent Expenses Supplies Expenses Totals 54,000 70,050 140,150 140,150