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 $35,000 cash and computer equipment worth $35,000 in the company in exchange for common stock.
		2		The company rented furnished office space by paying $2,200 cash for the first month’s (April) rent.
		3		The company purchased $1,200 of office supplies for cash.
		10		The company paid $2,500 cash for the premium on a 12-month insurance policy. Coverage begins on April 11.
		14		The company paid $1,200 cash for two weeks' salaries earned by employees.
		24		The company collected $17,500 cash for commissions earned.
		28		The company paid $1,200 cash for two weeks' salaries earned by employees.
		29		The company paid $450 cash for minor repairs to the company's computer.
		30		The company paid $1,000 cash for this month's telephone bill.
		30		The company paid $2,500 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 $139 has expired this month.
2. At the end of the month, $400 of office supplies are still available.
3. This month’s depreciation on the computer equipment is $300.
4. Employees earned $410 of unpaid and unrecorded salaries as of month-end.
5. The company earned $2,450 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.

Date	General Journal	Debit	Credit
		$	$
Apr1	Cash	35,000
	Computer Equipment	35,000
	Common Stock		70,000
Apr 2	Rent Expense	2,200
	Cash		2,200
Apr 3	Office Supplies	1,200
	Cash		1,200
Apr 10	Prepaid Insurance	2,500
	Cash		2,500
Apr 14	Salaries Expense	1,200
	Cash		1,200
Apr 24	Cash	17,500
	Commissions Earned		17,500
Apr 28	Salaries Expense	1,200
	Cash		1,200
Apr 29	Repairs Expense	450
	Cash		450
Apr 30	Telephone Expense	1,000
	Cash		1,000
Apr 30	Dividends	2,500
	Cash		2,500

3.

Adventure Travel Unadjusted Trial Balance April 30
Account Titles	Debit	Credit
	$	$
Cash	40,250
Accounts Receivable	0
Office Supplies	1,200
Prepaid Insurance	2,500
Computer Equipment	35,000
Accumulated Depreciation : Computer Equipment		0
Salaries Payable		0
Common Stock		70,000
Retained Earnings		0
Dividends	2,500
Commissions Earned		17,500
Depreciation Expense: Computer Equip.
Salaries Expense	2,400
Insurance Expense	0
Rent Expense	2,200
Office Supplies Expense	0
Repairs Expense	450
Telephone Expense	1,000
Totals	$ 87,500	$ 87,500

4.

Date	General Journal	Debit	Credit
		$	$
Apr 30	Insurance Expense	139
	Prepaid Insurance		139
Apr 30	Office Supplies Expense	800
	Office Supplies		800
Apr 30	Depreciation Expense: Computer Equip.	300
	Accumulated Depreciation : Computer Equip.		300
Apr 30	Salaries Expense	410
	Salaries Payable		410
Apr 30	Accounts Receivable	2,450
	Commissions Earned		2,450

Adventure Travel Adjusted Trial Balance April 30
Account Titles	Debit	Credit
	$	$
Cash	40,250
Accounts Receivable	2,450
Office Supplies	400
Prepaid Insurance	2,361
Computer Equipment	35,000
Accumulated Depreciation : Computer Equipment		300
Salaries Payable		410
Common Stock		70,000
Retained Earnings		0
Dividends	2,500
Commissions Earned		19,950
Depreciation Expense: Computer Equip.	300
Salaries Expense	2,810
Insurance Expense	139
Rent Expense	2,200
Office Supplies Expense	800
Repairs Expense	450
Telephone Expense	1,000
Totals	$ 90,660	$ 90,660

5.a.

Adventure Travel Income Statement For the month ended April 30
Commissions Earned		$ 19,950
Expenses
Depreciation Expense: Computer Equip.	$ 300
Salaries Expense	2,810
Insurance Expense	139
Rent Expense	2,200
Office Supplies Expense	800
Repairs Expense	450
Telephone Expense	1,000
Total Expenses		7,699
Net Income		$ 12,251

5. b.

Adventure Travel Statement of Retained Earnings For the month ended April 30
Retained Earings, April 1	$ 0
Add: Net Income	12,251
Less: Dividends	(2,500)
Retained Earnings, April 30	$ 9,751

5.c.

Adventure Travel Balance Sheet April 30
Assets
Cash		$ 40,250
Accounts Receivable		2,450
Office Supplies		400
Prepaid Insurance		2,361
Computer Equipment	$ 35,000
Accumulated Depreciation : Computer Equipment	(300)	34,700
Total Assets		$ 80,161
Liabilities
Salaries Payable		410
Total Liabilities		410
Stockholders Equity
Common Stock	70,000
Retained Earnings	9,751
Total Stockholders Equity		79,751
Total Liabilities and Stockholders Equity		$ 80,161

6.a.

Date	General Journal	Debit	Credit
		$	$
Apr 30	Commissions Earned	19,950
	Income Summary		19,950
	To close revenue account
Apr 30	Income Summary	7,699
	Depreciation Expense: Computer Equip.		300
	Salaries Expense		2,810
	Insurance Expense		139
	Rent Expense		2,200
	Office Supplies Expense		800
	Repairs Expense		450
	Telephone Expense		1,000
	To close expense accounts
Apr 30	Income Summary	12,251
	Retained Earnings		12,251
	To close income summary
Apr 30	Dividends	2,500
	Retained Earnings		2,500
	To close dividends account

7.

Adventure Travel Post Closing Trial Balance April 30
Account Titles	Debit	Credit
	$	$
Cash	40,250
Accounts Receivable	2,450
Office Supplies	400
Prepaid Insurance	2,361
Computer Equipment	35,000
Accumulated Depreciation : Computer Equipment		300
Salaries Payable		410
Common Stock		70,000
Retained Earnings		9,751
Totals	$ 80,461	$ 80,461