Question

On April 1, 2017, Jiro Nozomi created a new travel agency, Adventure Travel. The following transactions occurred during the company’s first month.

April		1		Nozomi invested $31,000 cash and computer equipment worth $40,000 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 $1,900 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 $18,500 cash on commissions from airlines on tickets obtained for customers.
		28		The company paid $1,200 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 $1,500 cash for this month's telephone bill.
		30		The company paid $2,100 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. Two-thirds (or $139) of one month’s insurance coverage has expired.
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 $510 of unpaid and unrecorded salaries as of month-end.
5. The company earned $1,550 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 and post the adjusting entries for the month and prepare the adjusted trial balance.
5a. Prepare the income statement for the month of April 30, 2017.
5b. Prepare the statement of retained earnings for the month of April 30, 2017.
5c. Prepare the balance sheet at April 30, 2017.
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

65 Solution of 1st Part 66 67 Credit 68 Date Account Title & Explanation 01-Apr Cash Computer Equipment Common Stock Debit 31,000 40,000 69 70 71,000 71 72 02-Apr Rent expense Cash 2,200 73 2,200 74 75 1,900 03-Apr Office Supplies Cash 76 1,900 77 78 2,500 10-Apr Prepaid Insurance Cash 79 2,500 80 81 14-Apr Salaries expense Cash 1,200 82 1,200 83 84 18,500 24-Apr Cash Commission earned 85 18,500

Commissions earned Debit Credit 235 236 Date 237 24-Apr 238 April 30 Adj. 239 April 30 Close 240 Credit 18,500 1,550 Balance 600 Balance 18,500 20,050 0 Depreciation expense - Computer Equipment Date Debit April 30 Adj. 600 April 30 Close 600 0 20,050 241 Salaries expense Insurance expense Debit Debit Credit Credit Balance 139 Date April 30 Adj. April 30 Close 139 Balance 1,200 2,400 2,910 1,200 1,200 510 28-Apr 139 0 2,910 0 Rent expense Debit Credit Credit 242 Date 243 14-Apr 244 245 April 30 Adj. 246 April 30 Close 247 248 Date 249 02-Apr 250 April 30 Close 251 252 253 254 Date 255 29-Apr 256 April 30 Close Office Supplies expense Date Debit April 30 Adj. April 30 Close 2,200 Balance 2,200 0 1,300 Balance 1,300 0 2,200 1,300 Repairs expense Debit Telephone expense Debit Credit Date Credit Balance 500 Balance 1,500 500 30-Apr 1,500 500 April 30 Close 1,500

258 259 Income Summary Debit Credit 20,050 260 Date 261 April 30 Close 262 April 30 Close 263 April 30 Close 264 Balance 20,050 10,901 0 9,149 10,901

Credit 600 Adventure Travel Adjusted Trial Balance For the month ended April 30 Particulars Debit Cash 36,400 Accounts Receivable 1,550 Office Supplies 600 Prepaid Insurance 2,361 Computer Equipment 40,000 Accumulated Depreciation - Computer Equipment Salaries Payable Common Stock Retained Earnings Dividends 2,100 Commissions earned Depreciation Expense - Computer Equipment 600 Salaries Expense 2,910 Insurance Expense 139 Rent Expense 2,200 Office Supplies Expense 1,300 Repairs Expense 500 Telephone Expense 1,500 Total 92160 510 71,000 20,050 92160

Solution of Part 5a 20,050 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 Adventure Travel Income Statement For the month ended April 30 Revenues Commissions earned Less Expenses Depreciation Expense - Computer Equipment Salaries Expense Insurance Expense Rent Expense Office Supplies Expense Repairs Expense Telephone Expense Total Expenses Net Income 600 2,910 139 2,200 1,300 500 1,500 9,149 10,901

Solution of Part 5c 147 148 149 150 151 152 153 154 155 156 157 158 Adventure Travel Balance Sheet April 30 Assets Cash Accounts Receivable Office Supplies Prepaid Insurance Computer Equipment Accumulated Depreciation - Computer Equipment Total Assets 36,400 1,550 600 2,361 40,000 600 39400 80311 159 Liabilities & Equity Salaries Payable Total Liabilities 510 510 160 161 162 163 164 165 166 167 168 Equity 71,000 8,801 Common Stock Retained Earnings Total Equity Total Liabilities & Equity 79,801 80,311

170 Solution of Part 6a 171 172 Closing Entries 173 174 Date Particulars Debit Credit 175 176 20,050 30-Apr Comission Earned Income Summary 177 20,050 178 179 9,149 180 181 182 30-Apr Income Summary Depreciation expense Salaries expense Insurance expense Rent expense Office Supplies expense Repairs expense Telephone expense 183 600 2,910 139 2,200 1,300 500 1,500 184 185 186 187 188 30-Apr Income Summary Retained Earnings 10,901 189 10,901

191 30-Apr Retained Earnings Dividends 2,100 192 2,100 193

265 Solution of Part 7 266 267 268 269 270 Credit 271 272 Adventure Travel Post Closing Trial Balance For the month ended April 30 Particulars Cash Accounts Receivable Office Supplies Prepaid Insurance Computer Equipment Accumulated Depreciation - Computer Equipment Salaries Payable Common Stock Retained Earnings Total Debit 36,400 1,550 600 2,361 40,000 273 274 275 276 277 278 279 600 510 71,000 8,801 80,911 280 80,911 281