Chapter 2, Problem 62APSA

Problem 2-62B Comprehensive Problem

Mulberry Services sells electronic data processing services to firms too Email to own their own computing equipment. Mulberry had the following amounts and amount balances as of January 1, 2019:

During 2019, the following transactions occurred (the events described below are aggregations of many individual events):

1. During 2019, Mulberry sold $690,000 of computing services, all on credit.
2. Mulberry collected $570,000 from the credit sales in Transaction a and an additional $129,000 from the accounts receivable outstanding at the beginning of the year.
3. Mulberry paid the interest payable of $8,000.
4. A Wages of $379,000 were paid in cash.
5. Repairs and maintenance of $9,000 were incurred and paid.
6. The prepaid rent at the beginning of the year was used in 2019. In addition, $28,000 of computer rental costs were incurred and paid. There is no prepaid rent or rent payable at year-end.
7. Mulberry purchased computer paper for $13,000 cash in late December. None of the paper was used by year-end.
8. Advertising expense of $26,000 was incurred and paid.
9. Income tax of $10,300 was incurred and paid in 2019.
10. Interest of $5,000 was paid on the long-term loan.

(Continued)

Required:

1. Establish a T-account for the accounts listed above and enter the beginning balances. Use a chart of accounts to order the T-accounts.
2. Analyze each transaction; Journalize as appropriate. (Note: Ignore the date because these events are aggregations of individual events.)
3. Post your journal entries to the T-accounts. Add additional T-accounts when needed.
4. Use the ending balances in the T-accounts to prepare a trial balance.

To determine

T-Accounts:

T-accounts as its name derived from shape of the account, is representation of business transaction in their respective account. It helps in organizing and analyzing the transaction according to their similar nature of account.

Requirement 1

Prepare:

Prepare ledger accounts and enter the beginning balances.

Answer to Problem 62APSA

Cash

Bal. $16,300

Accounts Receivable

Bal. $384,000

Accounts Payable

	Bal. $11,900

Interest Payable

	Bal. $11,200

Rent Payable

	Bal. $10,000

Insurance Payable

	Bal. $1,000

Notes Payable

	Bal. $100,000

Common Stock

	Bal. $165,000

Retained Earnings

	Bal. $101,200

Explanation of Solution

Nature	Accounts Name	Normal Balance	Debit	Credit
Asset	Cash	Debit	Increase	Decrease
	Accounts Receivable	Debit	Increase	Decrease
Liabilities	Accounts Payable	Credit	Decrease	Increase
	Interest Payable	Credit	Decrease	Increase
	Rent Payable	Credit	Decrease	Increase
	Insurance Payable	Credit	Decrease	Increase
	Notes Payable	Credit	Decrease	Increase
Equity	Common Stock	Credit	Decrease	Increase
	Retained Earnings	Credit	Decrease	Increase

To determine

Journal Entries:

Journal entries are medium of recording business transactions. A business enterprise must record all the business transaction to evaluate net income or loss and analyze the financial performance of a company during a specified accounting period.

Requirement 2

To Prepare:

Prepare journal entries for the transaction during 2019.

Answer to Problem 62APSA

Events	Accounts and Explanation	Debit	Credit
a.	Accounts Receivable	$994,000
	Service Revenue		$994,000
b.	Cash	384,000
	Accounts Receivable		384,000
c.	Cash	983,000
	Accounts Receivable		983,000
d.	Rent Payable	10,000
	Rent Expense	48,000
	Cash		58,000
e.	Insurance Payable	1,000
	Insurance Expense	4,000
	Cash		5,000
f.	Utilities Expense	56,000
	Cash		56,000
g.	Salaries Expense	702,000
	Cash		702,000
h.	Interest Payable	11,200
	Interest Expense	11,000
	Cash		22,200
i.	Income Tax Expense	19,700
	Cash		19,700

Explanation of Solution

Accounting Equation
Asset = Liabilities +Stockholders’ Equity
a.	Increase (Accounts Receivable)		Increase (Service revenue)
b.	Increase (Cash)
	Decrease (Accounts Receivable)
c.	Increase (Cash)
	Decrease (Accounts Receivable)
d.	Decrease (Cash)	Decrease (Rent Payable)	Decrease (Rent Expense)
e.	Decrease (Cash)	Decrease (Insurance Payable)	Decrease (Insurance Expense)
f.	Decrease (Cash)		Decrease (Utilities Expense)
g.	Decrease (Cash)		Decrease (Salaries Expense)
h.	Decrease (Cash)	Decrease (Interest Payable)	Decrease (Interest Expense)
i.	Decrease (Cash)		Decrease (Income Tax Expense)

To determine

Introduction:

T-accounts as its name derived from shape of the account, is representation of business transaction in their respective account. It helps in organizing and analyzing the transaction according to their similar nature of account.

Requirement 3

Prepare:

Posting the journal entries to T-accounts.

Answer to Problem 62APSA

Accounts	Balance
Cash	$520,400
Accounts Receivable	11,000
Accounts Payable	11,900
Interest Payable	0
Rent Payable	0
Insurance Payable	0
Notes Payable	100,000
Common Stock	165,000
Retained Earnings	101,200
Service Revenue	994,000
Rent Expense	48,000
Insurance Expense	4,000
Utilities Expense	56,000
Salaries Expense	702,000
Interest Expense	11,000
Income Tax Expense	19,700

Explanation of Solution

Cash

Bal. $16,300 (b) 384,000 (c) 983,000	(d) $58,000 (e) 5,000 (f) 56,000 (g) 702,000 (h) 22,200 (i) 19,700
Bal. 520,400

Accounts Receivable

Bal. $384,000 (a) 994,000	(b) $384,000 (c) 983,000
Bal. 11,000

Accounts Payable

	Bal. $11,900
	Bal. 11,900

Interest Payable

(h) 11,200	Bal. $11,200
	Bal. 0

Rent Payable

(d) 10,000	Bal. $10,000
	Bal. 0

Insurance Payable

(e)1,000	Bal. $1,000
	Bal. 0

Notes Payable

	Bal. $100,000
	Bal. 100,000

Common Stock

	Bal. $165,000
	Bal. 165,000

Retained Earnings

	Bal. $101,200
	Bal. 101,200

Service Revenue

	Bal. $0 (a) 994,000
	Bal. 994,000

Rent Expense

Bal. $0 (d) 48,000
Bal. 48,000

Insurance Expense

Bal. $0 (e)4,000
Bal. 4,000

Utilities Expense

Bal. $0 (f) 56,000
Bal. 56,000

Salaries Expense

Bal. $0 (g) 702,000
Bal. 702,000

Interest Expense

Bal. $0 (h)11,000
Bal. 11,000

Income Taxes Expense

Bal. $0 (i) 19,700
Bal. 19,700

To determine

Trial Balance:

A financial statement which integrates all the balance of ledger accounts is termed as a trial balance. The total balance of debit and credit in trial balance should be equal at end of an accounting period.

Requirement 4

Prepare:

Prepare the trial balance as of December 31, 2019.

Answer to Problem 62APSA

The total balance of the trial balance for the year ending December 31, 2019 is $1,372,100.

Explanation of Solution

Western Sound StudiosTrial Balance December 31, 2019
Accounts	Debit	Credit
Cash	$520,400
Accounts Receivable	11,000
Accounts Payable		$11,900
Notes Payable		100,000
Common Stock		165,000
Retained Earnings		101,200
Service Revenue		994,000
Rent Expense	48,000
Insurance Expense	4,000
Utilities Expense	56,000
Salaries Expense	702,000
Interest Expense	11,000
Income Tax Expense	19,700
Total	$1,372,100	$1,372,100