Question

Case:

The following information relates to Charter’s Advertising Services for the accounting period ending December 31, 2018. The company is a leader within your local advertising industry but their accountant resigned just days before the final year end and only the information now presented was made available. The owners have decided to test your groups’ knowledge in accounting having been made aware that you are currently pursuing a course in accounting at the university level. In this regard your group has been approached to use the information presented alongside your knowledge to advise and present the company financial statements for the period.

                                        Charter’s Advertising Service

                                                       Trial Balance

                                                    December 18, 2018

Account Name Dr Cr

Cash 25,500 (Dr)

Accounts receivable 3,100 (Dr)

Supplies    2,300 (Dr)

Equipment 2,600 (Dr)

Accumulated depreciation - Equipment

Furniture 6,000 (Dr)

Accumulated depreciation - Furniture

Accounts payable 4,000 (Cr)

Salary Payable

Unearned service revenue

Charter's, Capital 40,000 (Cr)

Charter's, Withdrawal

Service revenue 4,200 (Dr)

Rent expense 3,600 (Dr)

Utilities expense 1,700 (Dr)

Salary expense 3,400 (Dr)

Depreciation expense - Equipment

Depreciation expense - Furniture

Supplies Expense

Total 48,200 48,200

(SOME FIGURES IN THE TRIAL BALANCE WERE INTENTIONALLY LEFT BLANK BECAUSE IT IS MY RESPONSIBILITY TO PUT THEM IN BASED ON THE BELOW SCENARIOS)

Later in December, the business completed these transactions, as follows:

Dec. 21 Received $2,500 in advance for advertising service expected to be performed in January 2019.

Dec 21 Paid secretary $500 for the week December 17 to 21.

Dec. 26 Paid $1,000 on account.

Dec 28 Collected $1,200 on account.

Dec 30 Charter withdrew cash of $2,000 for personal use.

Requirements

1. Journalize the transactions of December 21 – 30 and post to the respective T-accounts and key all items by date. Write a brief narration for each journal entry.
2. At December 31, the business gathers the following information for the adjusting journal entries:

1. Accrued service revenue, $600
2. Earned $700 of the service revenue collected in advance on December 21 because of a change in the agreement between client and the company to split the advertising campaign to December 2018 and the remaining balance of $1,800 for January 2019.
3. Supplies on hand, $1,300.
4. Depreciation expense – equipment $260: furniture $600.
5. Accrued $500 expense for secretary’s salary December 24 to 28.

3. After journalizing the transactions in requirement 2, post them to their respective T-accounts. Write a brief narration for each journal entry.
4. Prepare the income statement and the statement of owner’s equity of Charter Advertising Services for the month ended December 31, 2018 and prepare the balance sheet at that date.

Answer 1

dec 21 serice revenue a/c ..............dr 2500

to Customer a/c 2500

( being cash recived for advertisement in advance)

dec 21 secretary a/c..................dr 500

to cash a/c 500

(being cash paid to secretary)

dec 26 accounts payable a/c...........dr 1000

to cash a/c 1000

(being cash paid on account)

dec 28 Cash A/c .....................dr 1200

to Accounts receivable 1200

(being cash received on account)

dec 30 Drawings a/c ....................dr 2000

to cash a/c 2000

(being cash withdrawn for personal use)

a, Accounts Receivable a/c .................dr 600

to Servce revence a/c 600

(being accounts recivable recived)

b. customer a/c ............................dr 700

to service revenue 700

(being revenue earned from advance recieved)

c. supplies A/c .....................dr 1300

to cash 1300

(being supplies on hand)

d. Depreciation a/c............................dr 860

to cash 860

(being depreciation charged for equipments and furniture)

e. salary a/c....................................dr 500

to accounts payable 500

(being salary payable accrued)

Charter’s Advertising Service

Income and Expenditure statement as on 31.12.2018

Expenditure Amount Income Amount

rent    3600 service revenue 4900

utiities expense 1700

supplies   3600 excess of expenditure

salary 3900    over income        8760

depreciation 860

total 13660 total 13660

Charter’s Advertising Service

  Balance sheet As At 31.12.2018

Liablities amount Asset Amount

capital 40000    furniture (6000-6000) 5400

less: excess of equipment(2600-260)    2340

expendiure 8760 accounts receivable    3100   

less: drawings 2000 29240 less: received 1200 1900

accounts payable   4000 service revenue receivable 600   

less paid: 1000 3000 cash 22500

Salary Accrued 500 .

32740 32740