Question

• Prepare all required closing entries (omit explanations) for the end of the accounting period, post all closing entries to the general ledger and prepare a Post-Closing Trial Balance as of June 30, 2016.

• Calculate the following ratios: Current Ratio, Quick Ratio, Profit Margin, and Return on Assets.

Transactions:

1/1       The owner of the business contributed $10,000 cash and a truck worth $16,000 to the business in exchange for 26,000 shares of $1par common stock. This is the first ever transaction for the business. Use perpetual inventory.

1/31     Borrowed $50,000 on a note payable from the bank.

1/31     Paid January rent, $500

2/01     Purchased equipment for $10,000 cash.

2/15     Purchased 100 bags of lawn fertilizer for $2.00 per bag on account (this lawn fertilizer will be sold to customers to apply themselves)

2/01     Paid February rent, $500

3/01     Prepaid, March – December rent at $500 per month

3/01     Purchased 100 bags of weed preventive fertilizer for $8 per bag on account (this fertilizer will be sold to customers to apply themselves)

3/01     Paid amount owed on lawn fertilizer from 2/15 transaction8 25

3/15     Sold 20 bags of weed preventive fertilizer for $15 per bag (cash)

3/15     Received $500 cash from customers for spring lawn services performed

3/15     Performed spring lawn service to customers on account $750

4/01     Collected $500 from customers on account from 3/15 transaction

4/14     Collected $250 from customers on account from 3/15 transaction

4/15     Sold 25 bags of weed preventive fertilizer for $15 per bag (cash)

4/15     Sold 15 bags of lawn fertilizer for $6 per bag (cash)

4/15     Paid for advertising campaign, $5,000 cash

5/01     Received payment for summer services in advance from 20 customers

            5 months (May – September) at $1000 each for a total of $100,000

5/31     Received payment for May’s lawn services provided from 5 customers, $5,500

5/31     Performed May lawn service for 5 customers on account to be received by 6/15, $5,500

5/31     Paid fuel expense of $1,000 for May

6/05     Paid wages to employees for May, $8000

6/15     Received payment from May’s credit customers, $5,500

6/15     Sold 20 bags of lawn fertilizer for $6 per bag (cash)

6/30     Received payment for June’s lawn service from 4 customers, $4,400

6/30     Performed June lawn service for 5 customers on account to be received by 7/15, $5,500

6/30     Purchased supplies on account, $1,000

6/30     Paid semi-annual payment on note from bank, $4,000 principal plus $2,000 interest expense for a total payment of $6,000

6/30     Paid fuel expense of $1,000 for May

Information for adjusting entries: (06/30/2016)

1. Depreciation on the truck for the period, (St-Line method, 4 years’ useful life, no salvage value)
2. Depreciation on the equipment for the period, (St-Line method, 3 years’ useful life, $1000 salvage value)
3. Adjust for unearned revenue now earned from customers who prepaid on 5/01.
4. Adjust for prepaid rent expired.
5. Accrue wages for employees who worked in June, but will be paid on July 5^th, $7,500

Answer 1

Lay's Lush Landscape Sales & Service, Inc Current Ratio Current Assets/ Current Liabilities =150,405/ 69,300 2.1703 Current Ratio Quick Ratio (Current Assets less Inv less Prepaid less Supplies)/ Current Liabilities =(140,335+5,500)/ 69,300 2.1044 Quick Ratio Profit Margin Net Income/Total Revenues =31,855/ 63,035 50.5354% Profit Margin Return on Assets Net Income/ Total Assets =31,855/ 173,155 Return on Assets 18.3968%

Closing entries 30-Jun Sales Revenue Service Revenue Income Summary $ 885 $ 62,150 $ 63,035 $ 31,180 30-Jun Income Summary Cost of goods sold Advertising expense Wages expense Fuel expense Rent expense Depreciation expense Interest expense $ $ $ $ $ $ $ 430 5,000 15,500 2,000 3,000 3,250 2,000 $ 31,855 30-Jun Income Summary Retained Earnings $ 31,855

Date Debit Date Credit Accounts Receivable 15-Mar $ 750 1-Apr $ 500 31-May $ 5,500 14-Apr $ 250 30-Jun $ 5,500 15-Jun $ 5,500 Date Debit Date Credit Inventory - Lawn fertilizer 15-Feb $ 200 15-Apr $ 30 15-Jun $ 40 Date Debit Date Credit Inventory - Weed preventive fertilizer 1-Mar $ 800 15-Mar $ 160 15-Apr $ 200 Lay's Lush Landscape Sales & Service, Inc T Accounts Date Debit Date Credit Cash 1-Jan $ 10,000 31-Jan $ 500 31-Jan $ 50,000 1-Feb $ 10,000 15-Mar $ 300 1-Feb $ 500 15-Mar $ 500 1-Mar $ 5,000 1-Apr $ 500 1-Mar $ 200 14-Apr $ 250 15-Apr $ 5,000 15-Apr $ 375 31-May $ 1,000 15-Apr $ 90 5-Jun $ 8,000 1-May $100,000 30-Jun $ 6,000 31-May $ 5,500 30-Jun $1,000 15-Jun $ 5,500 15-Jun $ 120 30-Jun $ 4,400 Bal. $140,335 Supplies 30-Jun $ 1,000 Bal. $ 5,500 Prepaid Rent 1-Mar $ 5,000 30-Jun $ 2,000 Bal. $ 130 Truck 1-Jan $ 16,000 Bal. $ 440 Accumulated Depreciation - Truck 30-Jun $ 2,000 Bal. $ 16,000 Bal. $ 2,000 Bal. $ 1,000 Equipment 1-Feb $ 10,000 Bal. $ 3,000 Accumulated Depreciation - Equipment 30-Jun $ 1,250 Bal. $ 10,000 Accounts Payable 1-Mar $ 200 15-Feb $ 200 1-Mar $ 800 30-Jun $1,000 Bal. $ 1,250 Wages Payable 30-Jun $ 7,500 Unearned Revenue 1-May $100,000 30-Jun $ 40,000 Notes Payable 30-Jun $ 4,000 3 1-Jan $50,000 $ 1,800 $ 60,000 Bal. Common Stock 1-Jan Bal. $ 7,500 Retained Earnings 30-Jun $ 31,855 Bal. Dividends Bal. $ 46,000 Income Summary 30-Jun $ 31,180 30-Jun $63,035 30-Jun $ 31,855 $ 26,000 $ . Bal. $ 26,000 Sales Revenue 15-Mar $ 300 15-Apr $ 375 15-Apr $ 90 15-Jun $ 120 Bal $ 31,855 Service Revenue 15-Mar $ 500 15-Mar $ 750 31-May $ 5,500 31-May $ 5,500 30-Jun $ 4,400 30-Jun $ 5,500 30-Jun $ 62,150 30-Jun $ 40,000 Bal. $ . Cost of goods sold 15-Mar $ 160 15-Apr $ 200 15-Apr $ 30 15-Jun $ 40 Bal. Advertising expense 15-Apr $ 5,000 30-Jun $ 885 30-Jun $ 430 30-Jun $ 5,000 Bal. $ - Wages expense 5-Jun $ 8,000 30-Jun $ 7,500 30-Jun $ 15,500 Bal. $ . Fuel expense 31-May $ 1,000 30-Jun $1,000 30-Jun $ 2,000 Bal. $ Rent expense 31-Jan $ 500 1-Feb $ 500 30-Jun $ 2,000 30-Jun $ Bal. $ . Depreciation expense 30-Jun $ 2,000 30-Jun $ 1,250 30-Jun $ 3,250 3,000 Bal. $ - Bal. Bal. Bal. $ Interest expense 30-Jun $ 2,000 30-Jun $ 2,000 Bal. $

Unadjusted TB Debit Credit 140,335 5,500 130 440 1,000 5,000 16,000 Adjusted TB Debit Credit 140,335 5,500 130 440 1,000 3,000 16,000 2,000 10,000 1,250 1,800 7,500 60,000 46,000 26,000 Lay's Lush Landscape Sales & Service, Inc Account Names Cash Accounts Receivable Inventory - Lawn fertilizer Inventory - Weed preventive fertilizer Supplies Prepaid Rent Truck Accumulated Depreciation - Truck Equipment Accumulated Depreciation - Equipment Accounts Payable Wages Payable Unearned Revenue Notes Payable Common Stock Retained Earnings Sales Revenue Service Revenue Cost of goods sold Advertising expense Wages expense Fuel expense Rent expense Depreciation expense Interest expense Totals Post Closing TB Debit Credit 140,335 5,500 130 440 1,000 3,000 16,000 2,000 10,000 1,250 1,800 7,500 60,000 46,000 26,000 31,855 10,000 1,800 100,000 46,000 26,000 885 22,150 885 62,150 430 5,000 8,000 2,000 1,000 430 5,000 15,500 2,000 3,000 3,250 2,000 207,585 2,000 196,835 196,835 207,585 176,405 176,405

Credit Calculation Lay's Lush Landscape Sales & Service, Inc Journal entries Date Account 1-Jan Cash Truck Common Stock Debit $ 10,000 $ 16,000 $ 26,000 $ 50,000 31-Jan Cash Notes Payable $ 50,000 $ 500 31-Jan Rent expense Cash $ 500 $ 10,000 1-Feb Equipment Cash $ 10,000 $ 200 100 bags of lawn fertilizer for $2.00 per bag 15-Feb Inventory - Lawn fertilizer Accounts Payable $ 200 $ 500 1-Feb Rent expense Cash $ 500 $ 5,000 Prepaid, March-December rent 1-Mar Prepaid Rent Cash $ 5,000 $ 800 100 bags of weed fertilizer for $8 per bag 1-Mar Inventory - Weed preventive fertilizer Accounts Payable $ 800 $ 200 1-Mar Accounts Payable Cash $ 200 $ 300 20 bags of weed fertilizer for $15 per bag 15-Mar Cash Sales Revenue $ 300 $ 160 =20 bags * $8 per bag 15-Mar Cost of goods sold Inventory - Weed preventive fertilizer 160 $ 500 15-Mar Cash Service Revenue $ 500 $ 750 15-Mar Accounts Receivable Service Revenue $ 750 $ 500 1-Apr Cash Accounts Receivable $ 500 $ 250 14-Apr Cash Accounts Receivable $ 250 $ 375 25 bags of weed fertilizer for $15 per bag 15-Apr Cash Sales Revenue $ 375 $ 200 =25 bags * $8 per bag 15-Apr Cost of goods sold Inventory - Weed preventive fertilizer $ 200 $ 90 15 bags of lawn fertilizer for $6 per bag 15-Apr Cash Sales Revenue $ 90 $ 30 =15 bags * $2 per bag 15-Apr Cost of goods sold Inventory - Lawn fertilizer $ 30 $ 5,000 15-Apr Advertising expense Cash $ 5,000 $ 100,000 1-May Cash Unearned Revenue 20 customers for 5 months @ $1,000 each $ 100,000 May-September $ 5,500 31-May Cash Service Revenue $ 5,500 $ 5,500 31-May Accounts Receivable Service Revenue $ 5,500 $ 1,000 31-May Fuel expense Cash $ 1,000 $ 8,000 5-Jun Wages expense Cash $ 8,000 $ 5,500 15-Jun Cash Accounts Receivable $ 5,500 $ 120 20 bags of lawn fertilizer for $6 per bag 15-Jun Cash Sales Revenue $ 120 $ 40 =20 bags * $2 per bag 15-Jun Cost of goods sold Inventory - Lawn fertilizer $ 40 $ 4,400 30-Jun Cash Service Revenue $ 4,400 $ 5,500 30-Jun Accounts Receivable Service Revenue $ 5,500 $ 1,000 30-Jun Supplies Accounts Payable $ 1,000 30-Jun Notes Payable Interest expense Cash $ $ 4,000 2,000 $ 6,000 $ 1,000 30-Jun Fuel expense Cash $ 1,000

Adjusting entries 30-Jun Depreciation expense Accumulated Depreciation - Truck $ 2,000 =16,000/4 yrs*6/12 $ 2,000 $ 1,250 =(10,000-1,000)/3 yrs*5/12 30-Jun Depreciation expense Accumulated Depreciation - Equipment $ 1,250 $ 40,000 =100,000/5 months *2 months 30-Jun Unearned Revenue Service Revenue $ 40,000 $ 2,000 30-Jun Rent expense Prepaid Rent -5,000/10 months *4 months 2,000 March to June - 4 months $ $ 7,500 30-Jun Wages expense Wages Payable $ 7,500