Chapter 3, Problem 2AP

a & b

To determine

Prepare the necessary journal entries and post to the ledger accounts.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Prepare the journal entries in the books of W Catering Service.

Date	Account titles and Explanation	Debit ($)	Credit ($)
July 1	Cash (A+)	18,000
	Common stock (E+)		18,000
	(To record the issuance of common stock)
July 2	Delivery van (A+)	3,780
	Equipment (A+)	3,240
	Supplies (A+)	1,700
	Cash(A-)		8,720
	(To record  the purchase of asset)
July 3	Prepaid insurance (A+)	2,160
	Cash (A-)		2,160
	(To record the payment of insurance premium)
July 4	Cash (A+)	6,000
	Unearned catering fees revenue (L+) $\left(\$750\times 8\right)$		6,000
	(To record the receipt of cash in advance for unearned catering  fees revenue)
July 5	Prepaid rent (A+)	2,340
	Cash (A-)		2,340
	(To record the prepaid rent)
July 6	Wages expense (E-)	1,700
	Cash (A-)		1,700
	(To record the wages expense)
July 7	Accounts receivable (A+)	5,000
	Catering fees revenue (E+)		5,000
	(To record the revenue on account)
July 8	Supplies (A+)	3,400
	Accounts payable ((L+)		3,400
	(To record the purchase of supplies on account)
July 9	Wages expense(E+)	1,800
	Cash (A-)		1,800
	(To record the payment of wages)
July 10	Delivery van expense(E+)	850
	Cash (A-)		850
	(To record the payment of delivery van expense)
July 11	Cash (A+)	3,700
	Accounts receivable (A-)		3,700
	(To record the collection of cash from customers)
July 12	Accounts receivable (A+)	4,800
	Catering Fees Revenue (E+)		4,800
	(To record the revenues on account)
July 13	Dividends (E-)	2,000
	Cash(A-)		2,000
	(To record the payment of cash dividends)

Table (1)

T-account:

T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.

The components of the T-account are as follows:

a) The title of the account

b) The left or debit side

c) The right or credit side

Prepare the T-accounts:

c.

To determine

Prepare an unadjusted trial balance as of 31^st July.

Explanation of Solution

Unadjusted trial balance:

Unadjusted trial balance is that statement which contains complete list of accounts with their unadjusted balances. This statement is prepared at the end of every financial period.

Prepare the unadjusted trial balance as of 31^st July.

W Catering Services
Unadjusted Trial Balance
For the year ended 31st July
Accounts	Debit ($)	Credit ($)
Cash	8,130
Supplies	5,100
Accounts receivable	6,100
Prepaid insurance	2,160
Prepaid rent	2,340
Equipment	3,240
Delivery Van	3,780
Accounts Payable		3,400
Common Stock		18,000
Dividends	2,000
Catering Fees Revenue		9,800
Unearned Catering Fees Revenue		6,000
Wages Expense	3,500
Delivery Van Expenses	850
Total	37,200	37,200

Table (2)

Conclusion

The debit column and credit column of the unadjusted trial balance are agreed, both having balance of $37,200.

d.

To determine

Prepare the adjusting entries and post to the ledger accounts.

Explanation of Solution

Adjusting entries: Adjusting entries are the journal entries which are recorded at the end of the accounting period to correct or adjust the revenue and expense accounts, to concede with the accrual principle of accounting.

Prepare the adjusting entries in the books of W Catering Service.

Date	Account titles and Explanation	Debit ($)	Credit ($)
July 31	Office Supplies Expense (E+) (1)	3,500
	Office Supplies (A–)		3,500
	(To record the adjusting entry for office supplies expense)
July 31	Wages Expense (E+)	525
	Wages Payable (L+)		525
	(To record the adjusting entry for wages expense
July 31	Depreciation Expense- Equipment (E+) (2)	45
	Accumulated Depreciation -  Equipment (A–)		45
	(To record the amount of depreciation for July)
July 31	Depreciation Expense- Delivery van (E+) (3)	105
	Accumulated Depreciation -  Delivery van (A–)		105
	(To record the amount of depreciation for July)
July 31	Rent Expense (E+) (4)	780
	Prepaid Rent(A–)		780
	(To record the adjusting entry for rent expense)
July 31	Insurance Expense (E+) (5)	180
	Prepaid Insurance(A–)		180
	(To record the adjusting entry for insurance expense)
July 31	Unearned Catering Fees (L–)	750
	Catering Fees Revenue (E+)		750
	(To record the adjusting entry for unearned catering fees)

Table (3)

Working note:

Calculate the amount of office supplies used during the year:

$\begin{array}{c}\text{Office}\text{Supplies used}=\text{Balance}\text{in}\text{the}\text{trial}\text{balance}-\text{Balance}\text{in}\text{hand}\\ =\text{\$5,100}-\text{\$1,600}\\ =\text{\$3,500}\end{array}$ (1)

Calculate the amount of depreciation on equipment for the month July:

$\begin{array}{c}\text{Depreciation Expense = }\frac{\text{Cost of the Asset}}{\text{Useful Life of the Asset }}\times \frac{1}{12}\\ =\frac{\$3,240}{6}\times \frac{1}{12}\\ =\$45\end{array}$ (2)

Calculate the amount of depreciation on delivery van for the month July:

$\begin{array}{c}\text{Depreciation Expense = }\frac{\text{Cost of the Asset}}{\text{Useful Life of the Asset }}\times \frac{1}{12}\\ =\frac{\$3,780}{3}\times \frac{1}{12}\\ =\$105\end{array}$ (3)

Calculate the rent expense for the month of July:

$\begin{array}{c}\text{Prepaid Rent For 3 Months = \$2,340}\\ \text{Prepaid Rent for 1 Month = }\frac{\$2,340}{3}\\ =\$780\end{array}$ (4)

Calculate the insurance expense for the month of July:

$\begin{array}{c}\text{Prepaid Insurance For 12 Months = \$2,160}\\ \text{Prepaid Rent for 1 Month = }\frac{\$2,160}{12}\\ =\$180\end{array}$ (5)

T-account:

T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.

The components of the T-account are as follows:

a) The title of the account

b) The left or debit side

c) The right or credit side

Prepare the T-accounts: