Question

Laura Eddy opened Eddy's Carpet Cleaners on March 1, 2021. In March, the following transactions were completed:

Complete all steps in accounting cycle.

Mar.   1		Laura invested $10,000 cash in the business.
1		Purchased a used truck for $6,500, paying $1,500 cash and signing a note payable for the balance.
3		Purchased supplies for $1,200 on account.
5		Paid $1,200 on a one-year insurance policy, effective March 1.
12		Billed customers $4,800 for cleaning services.
18		Paid $500 of amount owed on supplies.
20		Paid $1,800 for employee salaries.
21		Collected $1,400 from customers billed on March 12.
25		Billed customers $2,500 for cleaning services.
31		Paid $375 for repairs on the truck.
31		Withdrew $900 cash for personal use.

Instructions

a. Journalize and post the March transactions.

b. Prepare a trial balance at March 31.

c. Journalize and post the following adjustments:

1. The truck has an estimated useful life of five years.

2. One twelfth of the insurance expired.

3. An inventory count shows $400 of supplies on hand at March 31.

4. Accrued but unpaid employee salaries were $500.

5. The note payable has a 4.5% annual interest rate.

6. Unbilled cleaning services at March 31 were $500.

d. Prepare an adjusted trial balance.

e. Prepare the income statement and statement of owner's equity for March, and a classified balance sheet at March 31, 2021. Of the note payable, $2,000 must be paid by March 1, 2022.

f. Journalize and post the closing entries.

g. Prepare a post-closing trial balance at March 31.

Taking It Further  Do companies need to make adjusting and closing entries at the end of every month?

Answer 1

Answer to Requirement a:

Requirement a Journal Entries Date Account Debit Credit 01-Mar Cash $ 10,000 Laura, Capital $ 10,000 (To record investment of cash in the business) $ 6,500 01-Mar Truck Cash Note Payable (To record purchase of truck) $1,500 $ 5,000 (6500 - 1500) 03-Mar Supplies $ 1,200 Accounts Payable $ 1,200 (To record for purchase of supplies on account) 05-Mar Prepaid Insurance $ 1,200 Cash (To record insurance paid for next 1 year) $ 1,200 12-Mar Accounts Receivable $4,800 Service Revenue (To record billing of customers) $ 4,800 500 18-Mar Accounts Payable $ Cash (To record part payment to creditors) $ 500

Answer to Requirement a:

Credit Requirement a Journal Entries Date Account Debit 20-Mar Salaries expense $ 1,800 Cash (To record salaries expense payment) $ 1,800 21-Mar Cash $ 1,400 Accounts Receivable $ 1,400 (To record cash received from customers billed) 25-Mar Accounts Receivable $ 2,500 Service Revenue (To record billing of customers done) $ 2,500 31-Mar Repair expenses $ 375 Cash (To record repair expenses paid for truck) $ 375 900 31-Mar Laura, Drawings $ Cash (To record drawings for personal use) $ 900

Answer to Requirement c:

Requirement c - Adjusting Journal Entries Debit Credit Entry 1 31-Mar Depreciation expense $ 108 Accumulated depreciation - Trucks $ 108 (To record depreciation expense for the current month on truck) Depreciation = (Cost - Salvage Value)/Useful life Depreciation = (6500 - 0/5 Depreciation for the year = $ 1300 Depreciation for the month = $ 1300/12 months Depreciation for the month = $ 108 Entry 2 31-Mar Insurance expense $ 100 Prepaid Insurance $ 100 (To record part of prepaid insurance expired) Insurance Expense = (Total Insurance Amount/Insurance Period) X Time Expired Insurance Expense = ($1,200/12 months) X 1 Month Insurance Expense = $100

Answer to Requirement c:

Requirement c - Adjusting Journal Entries Debit Credit Entry 3 31-Mar Supplies expense $ 800 Supplies $ 800 (To record supplies expense for the month) Supplies Expense = Balance of Supplies Account - Physical count of Supplies Supplies Expense = $1,200 - $400 Supplies Expense = $800 Entry 4 31-Mar Salaries expense $ 500 Salaries payable (To record salaries accrued but not paid) $ 500 $ 19 Entry 5 31-Mar Interest expense $ 19 Interest payable $ (To record interest accrued on Note payable) Interest - Principal X Rate X Time Interest = $5,000 X 4.5% X 1/12 Interest = $19 500 Entry 6 31-Mar Accounts Receivable $ Service Revenue (To record earned unbilled revenue) $ $ 500

Answer to Requirement a and c:

Part a &c Posting of Journal Entries and Adjustments: The adjustments have been marked in bold. Cash 01-Mar Laura, Capital $10,000 01-Mar Truck Accounts Prepaid 21-Mar Receivable $ 1,400 05-Mar Insurance $ 1,500 $ 1,200 $ 500 $ 1,800 Accounts 18-Mar Payable Salaries 20-Mar expense Repair 31-Mar expenses Laura, 31-Mar Drawings $ 375 $ 900 Unadj. 31-Mar Balance 31-Mar Adj. Balance $ 5,125 $ 5,125 $ 10,000 Laura Capital Account 01-Mar Cash Unadj. 31-Mar Balance 31-Mar Adj. Balance $10,000 $ 10,000

Answer to Requirement a and c:

Truck $ 1,500 $ 5,000 01-Mar Cash 01-Mar Note Payable Unadj. 31-Mar Balance 31-Mar Adj. Balance $ 6,500 $ 6,500 $ 5,000 Notes Payable $ 5,000 02-Jan Truck Unadj. 31-Mar Balance 31-Mar Adj. Balance $ 5,000 $ 5,000 Supplies $ 1,200 Accounts 03-Mar Payable Unadj. 31-Mar Balance 31-Mar Adj. Balance Supplies 31-Mar expense $ 800 $ 1,200 $ 400 18-Mar Cash $ 1,200 Accounts Payable $ 500 03-Mar Supplies Unadj. 31-Mar Balance. 31-Mar Adj. Balance $ $ 700 700 $

Answer to Requirement a and c:

05-Mar Cash Unadj. 31-Mar Balance 31-Mar Adj. Balance Prepaid Insurance $ 1,200 Insurance $ 1,200 31-Mar expense $ 1,100 $ 100 5 Accounts Receivable $ 4,800 21-Mar Cash $ 1,400 5 $ 2,500 Service 12-Mar Revenue Service 25-Mar Revenue Unadj. 31-Mar Balance Service 31-Mar Revenue 31-Mar Adj. Balance $ 5,900 3 $ 500 $ 6,400 $ 4,800 $ 2,500 Service Revenue Accounts 12-Mar Receivable Accounts 25-Mar Receivable Unadj. 31-Mar Balance Accounts 31-Mar Receivable 31-Mar Adj. Balance $ 7,300 $ 500 $ 7,800

Answer to Requirement a and c:

Salaries expense $ 1,800 $ 1,800 20-Mar Cash Unadj. 31-Mar Balance Salaries 31-Mar payable 31-Mar Adj. Balance $ 500 $ 2,300 Repair expenses $ 375 31-Mar Cash Unadj. 31-Mar Balance 31-Mar Adj. Balance $ $ 375 375 Laura, Drawings $ 900 31-Mar Cash Unadj. 31-Mar Balance 31-Mar Adj. Balance $ $ $ $ 900 900 Depreciation expense Accumulated depreciation - 31-Mar Trucks 31-Mar Adj. Balance 108 $ $ 108

Answer to Requirement a and c:

Accumulated Depreciation - Truck Depreciation 31-Mar expense 31-Mar Adj. Balance 108 $ $ 108 Insurance expense Prepaid 31-Mar Insurance 31-Mar Adj. Balance 100 $ $ 100 31-Mar Supplies 31-Mar Adj. Balance Supplies expense $ 800 $ 800 Salary payable Salaries 31-Mar expense 31-Mar Adj. Balance 500 $ $ 500 Interest expense Interest 31-Mar payable 31-Mar Adj. Balance $ $ 19 19 Interest Payable Interest 31-Mar expense 31-Mar Adj. Balance 19 $ $ 19

Answer to Requirement b:

Requirement b Eddy Carpet Cleaners Unadjusted Trial Balance March 31, 20XX Debit Credit $ $ Cash $ 5,125 Supplies $ 1,200 Truck $ 6,500 Prepaid Insurance $ 1,200 Accounts Receivable $ 5,900 Accounts Payable $ 700 Notes Payable $ 5,000 Laura, Capital $ 10,000 Laura, Drawings 900 Service Revenue $ 7,300 Salary expense $ 1,800 Repair expense $ 375 Totals $ 23,000 $ 23,000 $

Answer to Requirement d:

Requirement d Eddy Carpet Cleaners Adjusted Trial Balance March 31, 20xx Debit Credit $ $ Cash $ 5,125 Accounts Receivable $ 6,400 Supplies $ 400 Prepaid Insurance $ 1,100 Truck $ 6,500 Accumulated Depreciation - Truck $ 108 Accounts Payable $ 700 Salary payable $ 500 Interest payable $ 19 Notes Payable $ 5,000 Laura, Capital $ 10,000 Laura, Drawings $ 900 Service Revenue $ 7,800 Salary expense $ 2,300 Repair expense $ 375 Depreciation expense $ 108 Insurance expense $ 100 Supplies expense $ 800 Interest expense $ 19 Totals $ 24,127 $ 24,127 lulu $