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 $49,000 cash and computer equipment worth $35,000 in the company in exchange for common stock.
		2		The company rented furnished office space by paying $2,100 cash for the first month’s (April) rent.
		3		The company purchased $1,400 of office supplies for cash.
		10		The company paid $2,900 cash for the premium on a 12-month insurance policy. Coverage begins on April 11.
		14		The company paid $1,500 cash for two weeks' salaries earned by employees.
		24		The company collected $16,500 cash for commissions earned.
		28		The company paid $1,500 cash for two weeks' salaries earned by employees.
		29		The company paid $350 cash for minor repairs to the company's computer.
		30		The company paid $750 cash for this month's telephone bill.
		30		The company paid $2,000 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 $161 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 $500.
4. Employees earned $370 of unpaid and unrecorded salaries as of month-end.
5. The company earned $1,750 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	Cedit
		$	$
Apr1	Cash	49,000
	Computer Equipment	35,000
	Common Stock		84,000
Apr 2	Rent Expense	2,100
	Cash		2,100
Apr 3	Office Supplies	1,400
	Cash		1,400
Apr 10	Pepaid Insurance	2,900
	Cash		2,900
Apr 14	Salaries Expense	1,500
	Cash		1,500
Apr 24	Cash	16,500
	Commissions Earned		16,500
Apr 28	Salaries Expense	1,500
	Cash		1,500
Apr 29	Repairs Expense	350
	Cash		350
Apr 30	Telephone Expense	750
	Cash		750
Apr 30	Dividends	2,000
	Cash		2,000

3.

Adventure Travel Unadjusted Trial Balance Apil 30
Account Titles	Debit	Credit
	$	$
Cash	53,000
Accounts Receivable	0
Office Supplies	1,400
Prepaid Insurance	2,900
Computer Equipment	35,000
Accumulated Depreciation : Computer Equipment		0
Salaries Payable		0
Common Stock		84,000
Retained Earnings		0
Dividends	2,000
Commissions Earned		16,500
Depreciation Expense: Computer Equip.
Salaries Expense	3,000
Insurance Expense	0
Rent Expense	2,100
Office Supplies Expense	0
Repairs Expense	350
Telephone Expense	750
Totals	$ 100,500	$ 100,500

4.

Date	General Journal	Debit	Credit
		$	$
Apr 30	Insurance Expense	161
	Prepaid Insurance		161
Apr 30	Office Supplies Expense	800
	Office Supplies		800
Apr 30	Depreciation Expense: Computer Equip.	500
	Accumulated Depreciation : Computer Equip.		500
Apr 30	Salaries Expense	370
	Salaries Payable		370
Apr 30	Accounts Receivable	1,750
	Commissions Earned		1,750

Adventure Travel Adjusted Trial Balance April 30
Account Titles	Debit	Cedit
	$	$
Cash	53,000
Accounts Receivable	1,750
Office Supplies	600
Prepaid Insurance	2,739
Computer Equipment	35,000
Accumulated Depreciation : Computer Equipment		500
Salaries Payable		370
Common Stock		84,000
Retained Earnings		0
Dividends	2,000
Commissions Earned		18,250
Depreciation Expense: Computer Equip.	500
Salaries Expense	3,370
Insurance Expense	161
Rent Expense	2,100
Office Supplies Expense	800
Repairs Expense	350
Telephone Expense	750
Totals	$ 103,120	$ 103,120

5. a.

Adventure Travel Income Statement For the month ended April 30
Commissions Earned		$ 18,250
Operating Expenses
Depreciation Expense: Computer Equip.	500
Salaries Expense	3,370
Insurance Expense	161
Rent Expense	2,100
Office Supplies Expense	800
Repairs Expense	350
Telephone Expense	750
Total Operating Expenses		8,031
Net Income		$ 10,219

5.b.

Adventure Travel Statement of Retained Earnings For the month ended April 30
Balance, April 1	$ 0
Add: Net Income	10,219
Less: Dividends	(2,000)
Balance, April 30	$ 8,219

5.c.

Adventure Travel Balance Sheet April 30
Assets
Cash		$ 53,000
Accounts Receivable		1,750
Office Supplies		600
Prepaid Insurance		2,739
Computer Equipment	$ 35,000
Acumulated Depreciation : Computer Equip.	(500)	34,500
Total Assets		$ 92,589
Liabilities
Salaries Payable		370
Total Liabilities		370
Stockholders Equity
Common Stock	84,000
Retained Earnings	8,219
Total Stockholders Equity		92,219
Total Liabilities and Stockholders Equity		$ 92,589

6.a.

Date	General Journal	Debit	Credit
		$	$
Apr 30	Commissions Earned	18,250
	Income Summary		18,250
	To close revenue account
Apr 30	Income Summary	8,031
	Depreciation Expense: Computer Equip.		500
	Salaries Expense		3,370
	Insurance Expense		161
	Rent Expense		2,100
	Office Supplies Expense		800
	Repairs Expense		350
	Telephone Expense		750
	To close expense accounts
Apr 30	Income Summary	10,219
	Retained Earnings		10,210
	To close income summary
Apr 30	Dividends	2,000
	Retained Earnings		2,000
	To close dividends account

6.b.

Cash
Beg. bal.	0	Apr 2	2,100
Apr. 1	49,000	Apr 3	1,400
Apr 24	16,500	Apr 10	2,900
		Apr 14	1,500
		Apr 28	1,500
		Apr 29	350
		Apr 30	750
		Apr 30	2,000
End. bal.	53,000
Accounts Receivable
Beg. bal.	0
Apr. 30	1,750
End. bal.	1,750
Office Supplies
Beg. bal.	0	Apr. 30	800
Apr. 3	1,400
End. bal.	600
Prepaid Insurance
Beg. bal.	0	Apr 30	161
Apr 10	2,900
End. bal.	2,739
Computer Equipment
Beg. bal.	0
Apr 1	35,000
End. bal.	35,000
Accumulated Depreciation : Computer Equip.
		Beg. bal.	0
		Apr. 30	500
		End. bal.	500
Salaries Payable
		Beg. bal.	0
		Apr. 30	370
		End. bal.	370
Common Stock
		Beg. bal	0
		Apr 1	84,000
		End bal	84,000
Retained Earnings
Apr 30	2,000	Beg. bal.	0
		Apr 30	10,219
		End bal.	8,219
Dividends
Apr 30	2,000
Commissions Earned
		Apr. 24	16,500
		Apr. 30	1,750
			18,250
Depreciation Expense: Computer Equip.
Apr. 30	500
Salaries Expense
Apr 14	1,500
Apr 28	1,500
Apr 30	1,500
Insurance Expense
Apr 30	161
Rent Expense
Apr 2	2,100
Office Supplies Expense
Apr 30	800
Repairs Expense
Apr 29	350
Telephone Expense
Apr 30	750
Income Summary
Apr 30	8,031	Apr 30	18,250
		Retained Earning	10,219

7.

Adventure Travel Post Closing Trial Balance April 30
Account Titles	Debit	Credit
	$	$
Cash	53,000
Accounts Receivable	1,750
Office Supplies	600
Prepaid Insurance	2,739
Computer Equipment	35,000
Accumulated Depreciation : Computer Equipment		500
Salaries Payable		370
Common Stock		84,000
Retained Earnings		8,219
Totals	$ 93,089	$ 93,089