Question

[The following information applies to the questions displayed below) On January 1, 2021, Red Flash Photography had the following balances: Cash, $32,000; Supplies, $10,000; Land, $80,000, Deferred Revenue, $7,000: Common Stock $70,000; and Retained Earnings, $45,000. During 2021, the company had the following transactions: 22 1. February 15 Issue additional shares of common stock, $40,000. 2. May 20 Provide services to customers for cash, $55,000, and on account, $50,000. 3. August 31 Pay salaries to employees for work in 2021, 543,000. 4. October 1 Purchase rental space for one year, $32,000. 5. November 17 Purchase supplies on account, $42,000. 6. December 30 Pay dividends, $4,000. The following information is available on December 31, 2021 1. Employees are owed an additional $6,000 in salaries 2. Three months of the rental space has expired. 3. Supplies of $7,000 remain on hand. 4. All of the services associated with the beginning deferred revenue have been performed

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Answer 1

Solution:

Journal Entries Accounts Title Date Debit Credit 2021 $40,000 Feb-15 Cash Common Stock (Record issuance of common shares) $40,000 $55,000 $50,000 May-20 Cash Accounts Receivable Service Revenue (Record service provided for cash & on account) $1,05,000 $43,000 Aug-31 Salaries Expense Cash (Record payment of salaries to workers) $43,000 $32,000 Oct-01 Prepaid Rent Cash (Record rent paid in advance for 1 year) $32,000 $42,000 Nov-17 Supplies Accounts Payable (Record purchase of supplies on account) $42,000 $4,000 Dec-20 Dividends Cash (Record payment of dividend for cash) $4,000

Adjusting Journal Entries Accounts Title Date Debit Credit $6,000 2021 Dec-31 Salaries Expense Salaries Payable (Record salaries due but not yet paid) $6,000 $8,000 Dec-31 Rent Expense Prepaid Rent (Record rent expense for 3 months expired) $8,000 $45,000 Dec-31 Supplies Expense Supplies (Record supplies consumed during the year) $45,000 Dec-31 Deferred Revenue Service Revenue (Record service provided for unearned service) $7,000 $7,000

RED FLASH PHOTOGRAPHY Adjusted Trial Balance December 31, 2021 Accounts Credit Debit $48,000 $50,000 $7,000 $24,000 $80,000 Cash Accounts Receivable Supplies Prepaid Rent Land Accounts Payable Salaries Payable Common Stock Retained Earnings Dividends Service Revenue Salaries Expense Rent Expense Supplies Expense $42,000 $6,000 $1,10,000 $45,000 $4,000 $1,12,000 $49,000 $8,000 $45,000 $3,15,000 Total $3,15,000

RED FLASH PHOTOGRAPHY Income Statement For the Year Ended December 31, 2021 Revenues: Service Revenue $1,12,000 Expenses: Salaries Expense Rent Expense Supplies Expense Total Expense $49,000 $8,000 $45,000 $1,02,000 Net Income $10,000 RED FLASH PHOTOGRAPHY Statement of Shareholders' Equity For the Year Ended December 31, 2021 Common Stock Retained Earnings $45,000 $70,000 $40,000 Beginning Balance Issue of Common Stock Net Income Dividends Total Total Stockholders Equity $1,15,000 $40,000 $10,000 $4,000 $1,61,000 $10,000 $4,000 $51,000 $1,10,000

RED FLASH PHOTOGRAPHY Balance Sheet December 31, 2021 Assets Cash Accounts Receivable Supplies Prepaid Rent Land $48,000 $50,000 $7,000 $24,000 $80,000 Total Assets $2,09,000 Liabilities and Stockholders' Equity Liabilities: Accounts Payable Salaries Payable $42,000 $6,000 $48,000 Stockholders' Equity: Common Stock Retained Earnings $1,10,000 $51,000 $1,61,000 Total Liabilities and Stockholders' Equity $2,09,000

Debit Credit Closing Journal Entries Date Accounts Title 2021 Dec-31 Service Revenue Income Summary (Record the entry to close the revenue accounts) $1,12,000 $1,12,000 $1,02,000 Dec-31 Income Summary Salaries Expense Rent Expense Supplies Expense (Record the entry to close the expense accounts) $49,000 $8,000 $45,000 $10,000 Dec-31 Income Summary Retained Earnings (Record the entry to close the income summary) $10,000 $4,000 Dec-31 Retained Earnings Dividends (Record the entry to close the dividends account) $4,000

RED FLASH PHOTOGRAPHY Post-Closing Trial Balance December 31, 2021 Accounts Credit Cash Accounts Receivable Supplies Prepaid Rent Land Accounts Payable Salaries Payable Common Stock Retained Earnings Debit $48,000 $50,000 $7,000 $24,000 $80,000 $42,000 $6,000 $1,10,000 $51,000 $2,09,000 Total $2,09,000