Chapter 2, Problem 1CONP

The transactions completed by PS Music during June 20Y5 were described at the end of Chapter 1. The following transactions were completed during July, the second month of the business’s operations:

July 1. Peyton Smith made an additional investment in PS Music in exchange for common stock by depositing $5,000 in PS Music’s checking account.

1. Instead of continuing to share office space with a local real estate agency, Peyton decided to rent office space near a local music store. Paid rent for July, $1,750.

1. Paid a premium of $2,700 for a comprehensive insurance policy covering liability, theft, and fire. The policy covers a one-year period.

2. Received $1,000 on account.

3. On behalf of PS Music, Peyton signed a contract with a local radio station, KXMD, to provide guest spots for the next three months. The contract requires PS Music to provide a guest disc jockey for 80 hours per month for a monthly fee of $3,600. Any additional hours beyond 80 will be billed to KXMD at $40 per hour. In accordance with the contract, Peyton received $7,200 from KXMD as an advance payment for the first two months.

3. Paid $250 on account.

4. Paid an attorney $900 for reviewing the July 3 contract with KXMD. (Record as Miscellaneous Expense.)

5. Purchased office equipment on account from Office Mart, $7,500.

8. Paid for a newspaper advertisement, $200.

11. Received $1,000 for serving as a disc jockey for a party.

13. Paid $700 to a local audio electronics store for rental of digital recording equipment.

14. Paid wages of $1,200 to receptionist and part-time assistant.

Enter the following transactions on Page 2 of the two-column journal:

16. Received $2,000 for serving as a disc jockey for a wedding reception.

18. Purchased supplies on account, $850.

21. Paid $620 to Upload Music for use of its current music demos in making various music sets.

22. Paid $800 to a local radio station to advertise the services of PS Music twice daily for the remainder of July.

23. Served as disc jockey for a party for $2,500. Received $750, with the remainder due August 4, 20Y5.

27. Paid electric bill, $915.

28. Paid wages of $1,200 to receptionist and part-time assistant.

29. Paid miscellaneous expenses, $540.

30. Served as a disc jockey for a charity ball for $1,500. Received $500, with the remainder due on August 9, 20Y5.

31. Received $3,000 for serving as a disc jockey for a party.

31. Paid $1,400 royalties (music expense) to National Music Clearing for use of various artists’ music during July.

31. Paid dividends, $1,250.

PS Music’s chart of accounts and the balance of accounts as of July 1, 20Y5 (all normal balances), are as follows:

Instructions

1. Enter the July 1, 20Y5, account balances in the appropriate balance column of a four-column account. Write Balance in the Item column, and place a check mark (✓) in the Posting Reference column. (Hint: Verify the equality of the debit and credit balances in the ledger before proceeding with the next instruction.)

2. Analyze and journalize each transaction in a two-column journal beginning on Page 1, omitting journal entry explanations.

3. Post the journal to the ledger, extending the account balance to the appropriate balance column after each posting.

4. Prepare an unadjusted trial balance as of July 31, 20Y5.

To determine

Journalize the transactions of July in a two column journal beginning on page 18.

Explanation of Solution

Journal:

Journal is the book of original entry. Journal consists of the day today financial transactions in a chronological order. The journal has two aspects; they are debit aspect and the credit aspect.

Rules of debit and credit:

“An increase in an asset account, an increase in an expense account, a decrease in liability account, and a decrease in a revenue account should be debited.

Similarly, an increase in liability account, an increase in a revenue account and a decrease in an asset account, a decrease in an expenses account should be credited”.

Journalize the transactions of July in a two column journal beginning on page 1.

Journal                                           Page 1
Date		Description	Post. Ref	Debit ($)	Credit ($)
20Y5		Cash	11	5,000
July	1	Common stock	31		5,000
		(To record the common stock)
	1	Office rent expense	51	1,750
		Cash	11		1,750
		(To record the payment of rent for the month of July)
	1	Prepaid insurance	15	2,700
		Cash	11		2,700
		(To record the payment of insurance premium)
	2	Cash	11	1,000
		Accounts receivable	12		1,000
		(To record the receipt of cash from customers)
	3	Cash	11	7,200
		Unearned revenue	23		7,200
		(To record the cash received for the service yet to be provide)
	3	Accounts payable	21	250
		Cash	11		250
		(To record the payment made to creditors on account)
	4	Miscellaneous expense	59	900
		Cash	11		900
		(To record the payment made for Miscellaneous expense)
	5	Office equipment	17	7,500
		Accounts payable	21		7,500
		(To record the purchase of equipment on account)
	8	Advertising expense	55	200
		Cash	11		200
		(To record the payment of advertising expense)
	11	Cash	11	1,000
		Fees earned	41		1,000
		(To record the receipt of cash)
	13	Equipment rent expense	52	700
		Cash	11		700
		(To record the payment made to equipment)
	14	Wages expense	50	1,200
		Cash	11		1,200
		(To record the payment of wages)

Table (1)

Journal                                           Page 2
Date		Description	Post. Ref	Debit ($)	Credit ($)
20Y5	16	Cash	11	2,000
July		Fees earned	41		2,000
		(To record the receipt of cash)
	18	Supplies	14	850
		Accounts payable	21		850
		(To record the purchase of supplies)
	21	Music expense	54	620
		Cash	11		620
		(To record the payment incurred for music)
	22	Advertising expense	55	800
		Cash	11		800
		(To record the payment of advertising expense)
	23	Cash	11	750
		Accounts receivable	12	1,750
		Fees earned	41		2,500
		(To record the receipt of cash for the service performed party for cash and party on account)
	27	Utilities expense	53	915
		Cash	11		915
		(To record the payment of electricity)
	28	Wages expense	50	1,200
		Cash	11		1,200
		(To record the payment made for salary and commission expense)
	29	Miscellaneous expense	59	540
		Cash	11		540
		(To record the revenue earned and billed)
	30	Cash	11	500
		Accounts receivable	12	1,000
		Fees earned	41		1,500
		(To record the purchase of land party for cash and party on signing a note)
	31	Cash	11	3,000
		Fees earned	41		3,000
		(To record the receipt of cash)
	31	Music expense	54	1,400
		Cash	11		620
		(To record the payment incurred for music)
	31	Dividends	32	1,250
		Cash	11		1,250
		(To record the withdrawal of cash for personal use)

Table (2)

To determine

Record the balance of each account in the appropriate balance column of a four-column account and post them to the ledger.

Explanation of Solution

General ledger: General ledger is a record of all accounts of assets, liabilities, and stockholders’ equity, necessary to prepare financial statements.

Record the balance of each account in the appropriate balance column:

Account:         Cash                                                              Account no. 11
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	1	Balance	✓			3,920
	1		1	5,000		8,920
	1		1		1,750	7,170
	1		1		2,700	4,470
	2		1	1,000		5,470
	3		1	7,200		12,670
	3		1		250	12,420
	4		1		900	11,520
	8		1		200	11,320
	11		1	1,000		12,320
	13		1		700	11,620
	14		1		1,200	10,420
	16		2	2,000		12,420
	21		2		620	11,800
	22		2		800	11,000
	23		2	750		11,750
	27		2		915	10,835
	28		2		1,200	9,635
	29		2		540	9,095
	30		2	500		9,595
	31		2	3,000		12,595
	31		2		1,400	11,195
	31		2		1,250	9,945

Table (3)

Account:    Accounts Receivable                                             Account no. 12
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	1	Balance	✓			1,000
	2		1		1,000	–	–
	23		2	1,750		1,750
	30		2	1,000		2,750

Table (4)

Account:          Supplies                                                         Account no. 14
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	1	Balance	✓			170
	18		2	850		1,020

Table (5)

Account:    Prepaid Insurance                                             Account no. 15
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	1		1	2,700		2,700

Table (6)

Account:    Office equipment                                                Account no. 17
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	5		1	7,500		7,500

Table (7)

Account:     Accounts Payable                                                   Account no. 21
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	1	Balance	✓				250
	3		1	250		–	–
	5		1		7,500		7,500
	18		2		850		8,350

Table (8)

Account:          Unearned Revenue                                           Account no. 23
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	3		1		7,200		7,200

Table (9)

Account:       Common stock                                                    Account no. 31
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	1	Balance	✓				4000
	1		1		5,000		9,000

Table (10)

Account:          Dividends                                                              Account no. 33
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	1	Balance	✓			500
	31		2	1,250		1,750

Table (11)

Account:          Fees earned                                                         Account no. 41
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	1	Balance	✓				6,200
	11		1		1,000		7,200
	16		2		2,000		9,200
	23		2		2,500		11,700
	30		2		1,500		13,200
	31		2		3,000		16,200

Table (12)

Account:   Wages expense                                                       Account no. 50
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	1	Balance	✓			400
	14		1	1,200		1,600
	28		2	1,200		2,800

Table (13)

Account:   Office rent expense                                                 Account no. 51
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	1	Balance	✓			800
	1		1	1,750		2,550

Table (14)

Account:   Equipment rent expense                                            Account no. 52
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	1	Balance	✓			675
	13		1	700		1,375

Table (15)

Account:   Utility expense                                                            Account no. 53
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	1	Balance	✓			300
	27		2	915		1,215

Table (16)

Account:      Music expense                                                      Account no. 54
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	1	Balance	✓			1,590
	21		2	620		2,210
	31		2	1,400		3,610

Table (17)

Account:   Advertising expense                                                Account no. 55
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	1	Balance	✓			500
	8		1	200		700
	22		2	800		1,500

Table (18)

Account:   Supplies expense                                                     Account no. 56
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	1	Balance	✓			180

Table (19)

Account:   Miscellaneous expense                                                   Account no. 59
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y5
July	1	Balance	✓			415
	4		1	900		1,315
	29		2	540		1,855

Table (20)

To determine

Prepare an unadjusted trial balance of Company PS Music at July 31, 20Y5.

Explanation of Solution

Unadjusted trial balance:

The unadjusted trial balance is the summary of all the ledger accounts that appears on the ledger accounts before making adjusting journal entries.

Prepare an unadjusted trial balance of Company PSM at July 31, 20Y5 as follows:

Company PSM Unadjusted Trial Balance July 31, 20Y5
Particulars	Account No.	Debit $	Credit $
Cash	11	9,945
Accounts receivable	12	2,750
Supplies	14	1,020
Prepaid insurance	15	2,700
Office Equipment	17	7,500
Accounts payable	21		8,350
Unearned revenue	23		7,200
Common Stock	31		9,000
Dividends	33	1,750
Fees earned	41		16,200
Wages expense	50	2,800
Office Rent expense	51	2,550
Equipment Rent expense	52	1,375
Utilities expense	53	1,215
Music expense	54	3,610
Advertising expense	55	1,500
Supplies expense	56	180
Miscellaneous expense	59	1,855
Total		40,750	40,750

Table (21)

The debit column and credit column of the unadjusted trial balance are agreed, both having balance of $40,750.