Chapter 3, Problem 3.1E

Transactions using accrual accounting Terry Mason organized The Fifth Season at the beginning of February 20Y4. During February, The Fifth Season entered into the following transactions:
a. Terry Mason invested $15000 in The Fifth Season in exchange for common stock.
h. Paid $2,700 on February 1 for an insurance premium on a 1-year policy.
c. Purchased supplies on account. $900.
d. Received fees of $28500 during February.
e. Paid expenses as follows: wages. $10,800; rent, $3,200; utilities, $1,400; and miscellaneous, $1,600.
f. Paid dividends of $4,000.
Record the preceding transactions using the integrated financial statement framework. Alt er each transaction, you should enter a balance for each item.

To determine

Concept Introduction:

Accrual Basis accounting:

Under the accrual basis, the revenue and expenses are recorded accreting to their accrual for the given period and cash receipts and payments are not considered to decide their accrual. The net income is calculated using the accrued revenue and accrued expenses belonging to the particular period.

To Indicate:

The Journal entries and balance of accounts using the accrual method

Answer to Problem 3.1E

The Journal entries and balance of accounts using the accrual method are as follows:

Terry Mason
Journal entries					Account	Balance
#	Account Title	Debit	Credit
a	Cash	$ 15,000			Cash	$ 15,000
	Common Stock		$ 15,000		Common Stock	$ 15,000
b.	Prepaid Insurance	$ 2,700			Prepaid Insurance	$ 2,700
	Cash		$ 2,700		Cash	$ 12,300
c.	Supplies	$ 900			Supplies	$ 900
	Accounts Payable		$ 900		Accounts Payable	$ 900
d.	Cash	$ 28,500			Cash	$ 40,800
	Fees earned		$ 28,500		Fees earned	$ 28,500
e.	Wages Expense	$ 10,800			Wages Expense	$ 10,800
	Rent Expense	$ 3,200			Rent Expense	$ 3,200
	Utilities Expense	$ 1,400			Utilities Expense	$ 1,400
	Misc. Expense	$ 1,600			Misc. Expense	$ 1,600
	Cash		$ 17,000		Cash	$ 23,800
f.	Dividends	$ 4,000			Dividends	$ 4,000
	Cash		$ 4,000		Cash	$ 19,800

Explanation of Solution

Under the accrual basis, the revenue and expenses are recorded accreting to their accrual for the given period and cash receipts and payments are not considered to decide their accrual. The net income is calculated using the accrued revenue and accrued expenses belonging to the particular period.

The Journal entries and balance of accounts using the accrual method are explained as follows:

Terry Mason
Journal entries					Account	Balance
#	Account Title	Debit	Credit
a	Cash	$ 15,000			Cash	$ 15,000
	Common Stock		$ 15,000		Common Stock	$ 15,000
	(Being amount invested in the business)
b.	Prepaid Insurance	$ 2,700			Prepaid Insurance	$ 2,700
	Cash		$ 2,700		Cash	$ 12,300
	(Being amount paid for insurance in advance)					(15000-2700)
c.	Supplies	$ 900			Supplies	$ 900
	Accounts Payable		$ 900		Accounts Payable	$ 900
	(Being Supplied purchased on account)
d.	Cash	$ 28,500			Cash	$ 40,800
	Fees earned		$ 28,500			(12300+28500)
	(Being fees received)				Fees earned	$ 28,500
e.	Wages Expense	$ 10,800			Wages Expense	$ 10,800
	Rent Expense	$ 3,200			Rent Expense	$ 3,200
	Utilities Expense	$ 1,400			Utilities Expense	$ 1,400
	Misc. Expense	$ 1,600			Misc. Expense	$ 1,600
	Cash		$ 17,000		Cash	$ 23,800
	(Being expenses paid in cash)					(40800-17000)
f.	Dividends	$ 4,000			Dividends	$ 4,000
	Cash		$ 4,000		Cash	$ 19,800
	(Being dividend paid in cash)					(23800-4000)