Question

Wilson consulting company was founded on January 2, 2016. Transactions for the first year operation are presented below:

▪ January 2: Issued 600,000 shares of common stock for $ 10,000,000 (par value common stock).

▪ January 10: Acquired equipment in exchange for $ 2,000,000 cash and a $ 6,000,000 note payable. The note is due in 10 years.

▪ February 10: Paid $ 24,000 for an insurance policy covering the two-year period starting on February 1.

▪ February 22: Purchased $ 900,000 of supplies on account.

▪ March 1: Paid wages of $ 185,600. ▪ March 23: Billed $ 2,730,000 for services rendered on account.

▪ April 1: Paid $ 100,000 of the amount due on the supplies purchased on February 22.

▪ April 17: Collected $ 210,000 of the outstanding accounts receivable.

▪ May 1 Paid wages of $ 200,400.

▪ May 08: Received bill and paid $ 98,200 for utilities.

▪ May 24: Paid $ 42,500 for sales commissions.

▪ June 01: Made the first payment on the note issued on January 10. The payment consisted of $ 60,000 of interest and $ 200,000 to be applied against the principal of the note.

▪ June 16: Billed customers for $ 560,000 of services rendered.

▪ June 30: Collected $ 300,000 on accounts receivable.

▪ July 10: Purchased $ 155,000 of supplies on account.

▪ August 25: Paid $ 160,000 for administrative expenses.

▪ September 23: Paid $ 30,000 for warehouse repairs.

▪ October 1: Paid wages of $ 90,000.

▪ November 20: Purchased supplies for $ 60,000 with cash

▪ December 15: Collected $ 125,600 in advance for services to be provided in December and January of the following year.

▪ December 30: Declared and paid a $ 50,000 dividend to shareholders.

Questions:

1) Journalize the transactions for the year.

2) Post the transactions to T-accounts.

3) Prepare an unadjusted trial balance as of December 31.

4) Journalize and post adjusting entries to T-accounts based on the following additional information.

▪ Eleven months of the insurance policy expired by the end of the year.

▪ Depreciation for the equipment is $ 400,000.

▪ The company provided a portion of the services related to the advance collection of December 15. The company recognized $ 70,000 as service revenue earned.

▪There are $ 500,000 of supplies on hand at the end of the year.

▪ An additional $ 170,000 of interest has accrued on the note by the end of the year.

▪ Wilson accrued wages in the amount of $ 200,000.

5) Prepare an adjusted trial balance as of December 31.

6) Prepare a single-step income statement and statement of stockholders’ equity for the current year and a classified balance sheet as of the end of the year.

7) Journalize and post-closing entries.

8) Prepare a post-closing trial balance as of December 31.

Answer 1

Wilson consulting company Journal Enteries Particulars Debit in $ Credit in $ Date Cash a/c 10000000 2.1.2016 Dr. 10000000 To Common Stock (Common Stock issued for cash) 10.1.2016 Equipment a/c Dr. 8000000 2000000 To Cash To Note Payable 6000000 |(Equipment purchased) 10.2.2016 Prepaid Insurance a/c Dr. 24000 То Cash 24000 (2 years insurance paid in advance) 22.2.2016 Supplies a/c 900000 Dr. To Accounts Payable 900000 (Purchased supplies on account) Wages Expense a/c 1.3.2016 Dr. 185600 To Cash 185600 (Wages paid in cash) Accounts Receivable a/c Dr. 2730000 23.4.2016 To Service Revenue 2730000 (Provided services on account) Accounts Payable a/c Dr. 1,4.2016 100000 То Cash 100000 (Creditors paid) 17.4.2016 Cash a/c Dr. 210000 To Accounts Receivable 210000 (Cash collected from debtors) Wages Expense a/c То Cash 1.5.2016 Dr. 200400 200400 (Wages paid in cash) Utilities Expense a/c 8.5.2016 Dr. 98200 To Cash 98200 (Utilities paid in cash)

Particulars Debit in $ Credit in $ Date Sales Commissions a/c 24,5.2016 42500 Dr. To Cash 42500 (Paid sales commissions) Note Payable a/c Interest Expense a/c 200000 1.6.2016 Dr. 60000 Dr. To Cash 260000 |(Note payable installment) Accounts Receivable a/c Dr. 560000 16.6.2016 To Service Revenue 560000 (Provided services on account) 30.6.2016 Cash a/c Dr. 300000 To Accounts Receivable 300000 (Cash collected from debtors) 10.7.2016 Supplies a/c 155000 Dr. To Accounts Payable 155000 (Purchased supplies account) on 25.8.2016 Administrative Expense a/c Dr. 160000 To Cash 160000 (Administrative expense paid) 23.9.2016 Repairs and Maint. Expense a/c Dr. 30000 To Cash 30000 (Warehouse repairs paid) 1.10.2016 Wages Expense a/c 90000 Dr. To Cash 90000 (Wages paid in cash) 20.11.2016 Supplies a/c Dr. 60000 To Cash 60000 (Purchased supplies in cash) 15.12.2016 Cash a/c Dr. 125600 To Unearned Revenue 125600 (Advance received from client) 30.12.2016 Dividend a/c 50000 Dr. To Cash 50000 (Dividend paid in cash)

Adjusting Enteries Debit in $ Credit in $ Particulars Date 31.12.2016 Insurance Expense a/c 11000 Dr To Prepaid Insurance 11000 (Insurance expensed) 31.12.2016 Depreciation Expense a/c 400000 Dr. To Accum. Depre Equip 400000 (To record deprecaition) 31.12.2016 Unearned Revenue a/c 70000 Dr. 70000 To Service Revenue |(Recognized services earned) 31.12.2016 Supplies Expense a/c To Supplies 615000 Dr. 615000 (Supplies Expensed) 31.12.2016 Interest Expense a/c To Interest Payable 170000 Dr 170000 (Interest accrued) 31.12.2016 Wages Expense a/c 200000 Dr. To Wages Payable (Wages accrued) 200000 Closing Enteries Debit in $ Credit in $ Particulars Date 31.12.2016 Income Summary a/c 2262700 Dr. To Wages Expense 676000 To Utilities Expense 98200 To Sales Commissions 42500 To Interest Expense 230000 To Administrative Expense 160000 To Repairs and Maint. Expense 30000 To Insurance Expense 11000 To Depreciation Expense 400000 To Supplies Expense 615000 (Expense accounts closed) 31.12.2016 Service Revenue a/c Dr. 3360000 To Income Summary 3360000 (Revenue accounts closed) 31.12.2016 Income Summary a/c To Retained Earnings 1097300 Dr. 1097300 (Profits transferred to Retained Earnings) 31.12.2016 Retained Earnings a/c 50000 Dr. To Dividend 50000 (Dividend charged to retained earnings)

Worksheet For the period ending 31.12.2016 Post Closing Unadjusted Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ Adjustment Adjusted Particulars Cash 7334900 7334900 7334900 2780000 2780000 Accounts Receivable 2780000 Prepaid Insurance 24000 11000 13000 13000 Supplies 1115000 615000 500000 500000 8000000 8000000 Equipment 8000000 Accum. Depre- Equip 400000 400000 400000 Accounts Payable 955000 955000 955000 st Payable Inte 70000 170000 170000 Wages Payable 200000 200000 200000 Unearned Revenue 70000 125600 55600 55600 Note Payable 5800000 5800000 5800000 10000000 10000000 Common Stock 10000000 Retained Earnings 1047300 Dividend 50000 50000 70000 Service Revenue 3290000 3360000 Wages Expense Utilities Expense 476000 200000 676000 98200 98200 Sales Comn ions 42500 2500 Interest Expense 60000 170000 230000 Administrative Expense 160000 160000 Repairs and Maint. Expense 30000 30000 Insurance Expense 11000 11000 Depreciation Expense 400000 400000 Supplies Expense 615000 615000 Totals 20170600 20170600 1466000 1466000 20940600 20940600 18627900 18627900

Statement of Income For the period ending 31.12.2016 Service Revenue 3360000 Less: Wages Expense 676000 Utilities Expense 98200 Sales Commissions 42500 Interest Expense 230000 Administrative Expense 160000 Repairs and Maint. Expense 30000 Insurance Expense 11000 400000 Depreciation Expense Supplies Expense 615000 2262700 Net Income 1097300 Statement of Retained Earnings For the period ending 31.12.2016 Net Income 1097300 Dividend -50000 1047300

Balance sheet As at 31.12.2016 Amounts in $ Amounts in $ Liabilities Amounts in $ Amounts in $ Assets Current Liabilities Current Assets Accounts Payable Cash 7334900 955000 Interest Payable 2780000 Accounts Receivable 170000 Prepaid Insurance Wages Payable 13000 200000 Supplies 10627900 Unearned Revenue 55600 500000 1380600 Non Current Liabilities Non Current Assets Note Payable Equipment Accum. Depre Equip 8000000 5800000 -400000 7600000 Shareholders Equity Common Stock 10000000 Retained Earnings 1047300 11047300 18227900 Total Liabilities & Equity Total Assets 18227900