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 $34,000 cash and computer equipment worth $30,000 in the company in exchange for common stock.
		2		The company rented furnished office space by paying $2,700 cash for the first month’s (April) rent.
		3		The company purchased $1,100 of office supplies for cash.
		10		The company paid $3,000 cash for the premium on a 12-month insurance policy. Coverage begins on April 11.
		14		The company paid $1,700 cash for two weeks' salaries earned by employees.
		24		The company collected $15,000 cash for commissions earned.
		28		The company paid $1,700 cash for two weeks' salaries earned by employees.
		29		The company paid $500 cash for minor repairs to the company's computer.
		30		The company paid $1,100 cash for this month's telephone bill.
		30		The company paid $1,700 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 $167 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 $600.
4. Employees earned $500 of unpaid and unrecorded salaries as of month-end.
5. The company earned $2,000 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. Journal entries

Date Particulars Apr-01 Cash Computer equipment Common Stock (For cash and equipment invested) L.F |Amount (S) Amount (S) 34.000 30.000 64,000 2.700 Apr-02 Rent Expense cash (for rent paid for april) 2.700 1.100 Apr-03 Office Supplies cash (For office supplies purchased) Apr-10 Prepaid Insurance 1.000 Cash 3,000 (For insurance premium for 12 months paid in advance) Apr-14 Salaries expense cash 1,700 (for 2 weeks salaries paid) 15.000 Apr-24 Cash Commissions earned (For cash received for commissions earned) 15,000 Apr-28 Salaries expense cash (for 2 weeks salaries paid) 1,700 20 Apr-29 Repairs Expense cash (for cash paid for computer repair) 500 Apr-30 Telephone expense 1.1001 cash (For cash paid for telephone expense) 1,700 Apr-30 Dividends cash (For cash paid for dividends)

2. Ledger accounts

Cash Date Debit Credit Balance Apr-01 34.000 34,000 Apr-02 | 2.700 31,300 Apr-03 1.100 30,2001 Apr-101 3,000 27,200 Apr-14 1,700 25,500 Apr-24 15,000 40,500 Apr-28 1,700 38,8001 Apr-29 500 38,300 Apr-30 1100 37.2001 Apr-30 1,700 35,500 Computer Equipment Date Debit Credit Balance Apr-01 30,000 30,000 Common Stock Date Debit Credit Balance Apr-01 64,000 64,000 Rent Expense Date Debit Credit Balance Apr-02 2,700 2.700 Apr-30 2,700 Office Supplies Date Debit Credit Balance Apr-03 1,100 1,100 Apr-30 500 600 Prepaid Insurance Date Debit Credit Balance Apr-10 3,000 3,000 Apr-30 167 2,833 Salaries exp Date Debit Credit Balance Apr-14 1,700 1.700 Apr-28 1,700 3,400 Apr-30 500 Apr-301 3.900 Commissions earned Date Debit Credit Balance Apr-24 15,000 15,000 Apr-30 2.000 17,000 Apr-30 17,000 Repairs Expense Date Debit Credit Balance 3,900 Apr-29 500 500 Apr-301 5000 Telephone Expense Date Debit Credit Balance Apr-30 1.100 1.100 Apr-30 1.100 Dividends Date Debit Credit Balance Apr-30 1,700 1,700 Apr-30 1,700 0 Insurance Expense Date Debit Credit Balance Apr-30 167 167 Apr-30 167 Depreciation expense Date Debit Credit Balance Apr-30 600 600 Apr-301 Accumulated dep Date Debit Credit Balance Apr-30 600 600 500 Supplies exp Date Debit Credit Balance Apr-30 500 Apr-301 5001 0 Salaries payable Date Debit Credit Balance Apr-30 500 500 Account Receivable Date Debit Credit Balance Apr-30 2,000 2.000 Income summary Date Debit Credit Balance Apr-30 17,000 17,000 Apr-30 3,900 13,100 Apr-30 2,700 10.400 Apr-30 167 10,233 Apr-301 500 9,733 Apr-30 1.100 8,633 Apr-30 500 8,133 Apr-301 600 7,533 Apr-30 7.5331 Retained earnings Date Debit Credit Balance Apr-30 1,700 -1,700 Apr-30 7 ,533 5.833

3. Unadjusted Trial Balance

Credit Cash Adventure Travel Unadjusted Trial Balance April 30, 20XX Debit 35,500 Office Supplies 1.100 Prepaid insurance 3,000 Computer equipment 30,000 Common Stock Dividends 1700 Commissions earned Rent Expense 2700 Salaries exp 3400 Repairs Expense 500 Telephone Expense 1100 79,000 64,000 15,000 Total 79,000

4. Adjusting entries and Trial Balance

Adjusting Entries: Apr-30 Insurance expense Prepaid Insurance (For Insurance for 30 days expired) Apr-30 Supplies Expense Office Supplies (for office supplies expensed) Apr-30 Depreciation exp-Computer Equipment Accumulated dep-Computer Equipment For equipment depreciated) Apr-30 Salaries expense Salaries payable (For salaries earned) 300 Apr-30 Account Receivable Commission Earned (for commission earned but not billed) 2.000

5a. Income Statement

Adventure Travel Income Statement For Month Ended April 30, 20XX Particulars Amount ($) Amount (5) Revenues: Commission Earned 17.000 600 3.900 161 Expenses: Depreciation Equipment Salary Expense Insurance expense Rent Expense Office Supplies expense Repair expense Telephone expense 2.700 500 500 1.100 Total Operating Expenses Net income 7.533

5b. Retained Earnings

Adventure Travel Statement of Retained Earnings For Month Ended April 30, 20XX Particulars Amount ($) Amount ($) Opening balance Add: Net Profit Less: Drawings Closing Balance 1,700 5.833

5c. Balance Sheet

Adventure Travel Balance Sheet As at April 30, 20XX Particulars Amount ($) Amount (3) ASSETS Current Assets: Cash 35,500 Account Receivable 2,000 Office Supplies 600 Prepaid Insurance 2,833 Total Current Assets 40,9331 Computer Equipment 30,000 Lessin Accumulated dep-computer Equipment 29.4001 Total Assets 70.333 LIABILITIES AND STOCKHOLDERS EQUITY Liabilities : Current Liabilities Salaries payable Total Current Liabilities 500 Total Stockholders' Equity Common Stock Retained Earnings 5,833 69,833 Total liabilities and stockholders equity 70.333 600 500 64.000

6a. Closing entries

Closing Entries Date Particulars Debit Credit 17.0001 Apr-30 Commission earned Income summary (For income closing balances recorded) 17,000 9.467 3,900 2,700 1677 Apr-30 Income summary Salary Expense Rent Expense Insurance expense Supplies expense Telephone expense Repair expense Depreciation Equipment (For expenses closing balances recorded) 500 1.100 500 Apr-30 Income summary Retained Eamings (For income summary close to retained earnings account) 7,533 700 Apr-30 Retained earnings Dividends (For dividends transferred to retained earnings account) 1,700

7. Post Closing Trial Balance

Adventure Travel Post Closing Trial Balance April 30, 20XX Debit Credit Cash 35,500 Account Receivable 2.000 Office Supplies 600 Prepaid insurance 2.833 Computer equipment 30.000 Accumulated dep-Computer 600 Salaries payable 500 Common Stock 64,000 Retained Earnings 5,833 Total 93,756 93,756