Chapter 4, Problem 5PB

For the past several years, Jeff Horton has operated a part-time consulting business from his home. As of April 1, 2016, Jeff decided to move to rented quarters and to operate the business, which was to be known as Rosebud Consulting, on a full-time basis. Rosebud Consulting entered into the following transactions during April:

Instructions

1.    Journalize each transaction in a two-column journal starting on Page 1, referring to the following chart of accounts in selecting the accounts to be debited and credited. (Do not insert the account numbers in the journal at this time.)

2.    Post the journal to a ledger of four-column accounts.

3.    Prepare an unadjusted trial balance.

4.    At the end of April, the following adjustment data were assembled. Analyze and use these data to complete parts (5) and (6).

1. a. Insurance expired during April is $350.
2. b. Supplies on hand on April 30 are $1,225.
3. c. Depreciation of office equipment for April is $400.
4. d. Accrued receptionist salary on April 30 is $275.
5. e. Rent expired during April is $2,000.
6. f. Unearned fees on April 30 are $2,350.

5.    (Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet.

6.    Journalize and post the adjusting entries. Record the adjusting entries on Page 3 of the journal.

7.    Prepare an adjusted trial balance.

8.    Prepare an income statement, a statement of owner’s equity, and a balance sheet.

9.    Prepare and post the closing entries. Record the closing entries on Page 4 of the journal. (Income Summary is account #33 in the chart of accounts.) Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry.

10.    Prepare a post-closing trial balance.

To determine

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

Explanation of Solution

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

T-Accounts: T-accounts are referred as T-account because its format represents the letter “T”. The T-accounts consists of the following:

• The title of accounts.
• The debit side (Dr) and,
• The credit side (Cr).

Adjusted 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.

Adjusting entries: An adjusting entry is prepared when the trial balance is not up-to-date, and complete, and they are usually prepared at the end of the accounting period. This adjusting entry is essential for preparing the financial statements of the business.

Spreadsheet: A spreadsheet is a worksheet. It is used while preparing a financial statement. It is a type of form having multiple columns and it is used in the adjustment process. The use of a worksheet is optional for any organization. A worksheet can neither be considered as a journal nor a part of the general ledger.

Statement of owners’ equity: This statement reports the beginning owner’s equity and all the changes, which led to ending owners’ equity. Additional capital, net income from income statement is added to and drawing is deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.

Income statement: An income statement is one of the financial statements which shows the revenues, and expenses of the company. The income statement is prepared to ascertain the net income/loss of the company, by deducting the expenses from the revenues.

$\boxed{\text{Net}\text{income = Total revenues – Total expenses}}$

Balance sheet: A balance sheet is a financial statement consists of the assets, liabilities, and the stockholder’s equity of the company. The balance of the assets account must be equal to that of the liabilities and the stockholder’s equity account.

Closing entries: Closing entries are recorded in order to close the temporary accounts such as incomes and expenses by transferring them to the permanent accounts. It is passed at the end of the accounting period, to transfer the final balance.

Post-Closing Trial Balance:  After passing all the journal entries and the closing entries of the permanent accounts and then further posting them to each of the respective accounts, a post-closing trial balance is prepared which consists of a list of all the permanent accounts. A post-closing trial balance serves as an evidence to prove that the balance of the permanent accounts is equal.

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

Journal                                           Page 1
Date		Description	Post. Ref	Debit ($)	Credit ($)
2016		Cash	11	20,000
April	1	Accounts receivable	12	14,700
		Supplies	14	3,300
		Office equipment	18	12,000
		J’s Capital	31		50,000
		(To record the receipt of assets)
	1	Prepaid Rent	15	6,000
		Cash	11		6,000
		(To record the payment of rent)
	2	Prepaid insurance	16	4,200
		Cash	11		4,200
		(To record the payment of insurance premium)
	4	Cash	11	9,400
		Unearned fees	23		9,400
		(To record the cash received for the service yet to be provide)
	5	Office equipment	18	8,000
		Accounts payable	21		8,000
		(To record the purchase of supplies of account)
	6	Cash	11	11,700
		Accounts receivable	12		11,700
		(To record the cash received from clients)
	10	Miscellaneous expense	59	350
		Cash	11		350
		(To record the payment made for Miscellaneous expense)
	12	Accounts payable	21	6,400
		Office supplies	11		6,400
		(To record the payment made to creditors on account)
	12	Accounts receivable	12	21,900
		Fees earned	41		21,900
		(To record the revenue earned and billed)
	14	Salary Expense	51	1,650
		Cash	11		1,650
		(To record the payment made for salary)

Table (1)

Journal                                           Page 2
Date		Description	Post. Ref	Debit ($)	Credit ($)
2016		Cash	11	6,600
April	17	Fees earned	41		6,600
		(To record the receipt of cash)
	18	Supplies	14	725
		Cash	11		725
		(To record the payment made for automobile expense)
	20	Accounts receivable	12	16,800
		Fees earned	41		16,800
		(To record the payment of advertising expense)
	24	Cash	11	4,450
		Fees earned	41		4,450
		(To record the cash received from client for fees earned)
	26	Cash	11	26,500
		Accounts receivable	12		26,500
		(To record the cash received from clients)
	27	Salary expense	51	1,650
		Cash	11		1,650
		(To record the payment of salary)
	29	Miscellaneous Expense	59	540
		Cash	11		540
		(To record the payment of telephone charges)
	31	Miscellaneous Expense	59	760
		Cash	11		760
		(To record the payment of electricity charges)
	30	Cash	11	5,160
		Fees earned	41		5,160
		(To record the cash received from client for fees earned)
	30	Accounts receivable	12	2,590
		Fees earned	41		2,590
		(To record the revenue earned and billed)
	30	J’s Drawing	32	18,000
		Cash	11		18,000
		(To record the drawing made for personal use)

Table (2)

To determine

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

Explanation of Solution

Account:         Cash                                                              Account no. 11
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1		1	20,000		20,000
	1		1		6,000	14,000
	2		1		4,200	9,800
	4		1	9,400		19,200
	6		1	11,700		30,900
	10		1		350	30,500
	12		1		6,400	24,150
	14		1		1,650	22,500
	17		2	6,600		29,100
	18		2		725	28,375
	24		2	4,450		32,825
	26		2	26,500		59,325
	27		2		1,650	57,675
	29		2		540	57,135
	30		2		760	56,375
	30		2	5,160		61,535
	30		2		18,000	43,535

Table (3)

Account:    Accounts Receivable                                             Account no. 12
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1		1	14,700		14,700
	6		1		11,700	3,000
	12		1	21,900		24,900
	20		2	16,800		41,700
	26		2		26,500	15,200
	30		2	2,590		17,790

Table (4)

Account:   Supplies                                                            Account no. 14
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1		1	3,300		3,300
	18		2	725		4,025
	30	Adjusting	3		2,800	1,225

Table (5)

Account:    Prepaid Rent                                             Account no. 15
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1		1	6,000		6,000
	30	Adjusting	3		2,000	4,000

Table (6)

Account:    Prepaid Insurance                                             Account no. 16
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	2		1	4,200		4,200
	30	Adjusting	3		350	3,850

Table (7)

Account:    Office equipment                                             Account no. 18
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1		1	12,000		12,000
	5		1	8,000		20,000

Table (8)

Account:  Accumulated Depreciation-Office equipment        Account no. 19
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	31	Adjusting	3		400		400

Table (9)

Account:     Accounts Payable                                                      Account no. 21
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	5		1		8,000		8,000
	12		1	6,400			1,600

Table (10)

Account:     Salaries Payable                                                        Account no. 22
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	30	Adjusting	3		275		275

Table (11)

Account:   Unearned Fees                                                       Account no. 23
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	4		1		9,400		9,400
	30	Adjusting	3	7,050			2,350

Table (12)

Account:          J’s Capital                                                         Account no. 31
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	1		1		50,000		50,000
	30	Closing	4		53,775		103,775
	30	Closing	4	18,000			85,775

Table (13)

Account:         J’s Drawing                                                              Account no. 32
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	30		2	18,000		18,000
	30	Closing	4		18,000

Table (14)

Account:          Fees earned                                                         Account no. 41
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	12		1		21,900		21,900
	17		2		6,600		28,500
	20		2		16,800		45,300
	24		2		4,450		49,750
	30		2		5,160		54,910
	30		2		2,590		57,500
	30	Adjusting	3		7,050		64,550
	30	Closing	4	64,550

Table (15)

Account:   Salary expense                                                        Account no. 51
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	14		1	1,650		1,650
	27		2	1,650		3,300
	30	Adjusting	3	275		3,575
	30	Closing	4		3,575

Table (16)

Account:   Rent expense                                                              Account no. 52
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	30	Adjusting	3	2,800		2,800
	30	Closing	4		2,800

Table (17)

Account:   Supplies expense                                                     Account no. 53
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	30	Adjusting	3	2,000		2,000
	30	Closing	4		2,000

Table (18)

Account:   Depreciation expense                                                     Account no. 54
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	30	Adjusting	3	400		400
	30	Closing	4		400

Table (19)

Account:   Insurance expense                                                     Account no. 54
Date		Item	Post. Ref		Debit  ($)	Credit ($)	Balance
							Debit ($)	Credit ($)
2016
April	30	Adjusting		3	350		350
	30	Closing		4		350

Table (20)

Account:   Miscellaneous expense                                                   Account no. 59
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	10		1	350		350
	29		2	540		890
	31		2	760		1,650
	31	Closing	4		1,650

Table (21)

To determine

Prepare the unadjusted trial balance of Consulting R at April, 31.

Explanation of Solution

Prepare an unadjusted trial balance of Consulting R for the month ended April, 31 as follows:

R Consulting Unadjusted Trial Balance April 31, 2016
Particulars	Account No.	Debit $	Credit $
Cash	11	43,535
Accounts receivable	12	17,790
Supplies	14	4,025
Prepaid rent	15	6,000
Prepaid insurance	16	4,200
Office Equipment	18	20,000
Accumulated depreciation-Office equipment	19		0
Accounts payable	21		1,600
Salaries payable	22		0
Unearned fees	23		9,400
J’s Capital	31		50,000
J’s Drawing	32	18,000
Fees earned	41		57,500
Salary expense	51	3,300
Supplies expense	52	0
Rent expense	53	0
Depreciation expense	54	0
Insurance expense	55	0
Miscellaneous expense	59	0
Total		$118,500	$118,500

Table (22)

Conclusion

The debit column and credit column of the unadjusted trial balance are agreed, both having balance of $118,800.

To determine

Enter the unadjusted trial balance on an end-of-period spreadsheet.

Explanation of Solution

The unadjusted trial balance on an end-of-period spreadsheet is prepared as follows:

Table (23)

Conclusion

Hence, the unadjusted trial balance on an end-of-period spreadsheet is prepared and completed.

To determine

Journalize the adjusting entries of Consulting R for April 30.

Explanation of Solution

The adjusting entries of Consulting R for April 30, 2016 are as follows:

Date		Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
2016		Insurance expense	55	350
April	30	Prepaid insurance	16		350
		(To record the insurance expense for April)
	31	Supplies expense	52	2,800
		Supplies	14		2,800
		(To record the supplies expense)
	31	Depreciation expense	54	400
		Accumulated Depreciation	19		400
		(To record the depreciation and the accumulated depreciation)
	31	Salaries expense	51	275
		Salaries payable	22		275
		(To record the accrued salaries payable)
	31	Rent expense	53	2,000
		Prepaid rent	15		2,000
		(To record the rent expense for April)
	31	Unearned fees	23	7,050
		Fees earned	41		7,050
		(To record the receipt of unearned fees)

Table (24)

Working notes:

$\begin{array}{c}\text{Supplies expense=}\left[\begin{array}{l}\text{The amount of supplies at }\\ \text{the beginning of the year }\end{array}\right]-\left[\begin{array}{l}\text{The amount of supplies }\\ \text{at the end of the year }\end{array}\right]\\ \text{=\$4,025}-\text{\$1,225}\\ \text{=\$2,800}\end{array}$

$\begin{array}{c}\text{Unearned fees =}\left[\begin{array}{l}\text{The amount of unearned fees }\\ \text{at the beginning of the year }\end{array}\right]-\left[\begin{array}{l}\text{The amount of unearned }\\ \text{fees at the end of the year }\end{array}\right]\\ \text{=}\left[\text{\$9,400}\right]-\text{\$2,350}\\ \text{=\$7,050}\end{array}$

To determine

Prepare an adjusted trial balance of Consulting R for April 30, 2016.

Explanation of Solution

An adjusted trial balance of Consulting R for April 30, 2016 is prepared as follows:

R Consulting Adjusted Trial Balance April 30, 2016
Particulars	Account No.	Debit $	Credit $
Cash	11	43,535
Accounts receivable	12	17,790
Supplies	14	1,225
Prepaid rent	15	4,000
Prepaid insurance	16	3,850
Office Equipment	18	20,000
Accumulated Depreciation-Office equipment	19		400
Accounts payable	21		1,600
Salaries payable	22		275
Unearned fees	23		2,350
J’s Capital	31		50,000
J’s Drawing	32	18,000
Fees earned	41		64,550
Salary expense	51	3,575
Supplies Expense	52	2,800
Rent Expense	53	2,000
Depreciation expense	54	400
Insurance expense	55	350
Miscellaneous expense	59	1,650
Total		$119,175	$119,175

Table (25)

Conclusion

The debit column and credit column of the adjusted trial balance are agreed, both having balance of $119,175.

To determine

Prepare an income statement for the year ended April 31, 2016.

Explanation of Solution

An income statement for the year ended April 30, 2016 is as follows:

R Consulting
Income Statement
For the year ended April 30, 2016
Particulars	Amount ($)	Amount ($)
Revenues:
Fees Earned		$64,550
Expenses:
Salaries Expense	$3,575
Supplies Expense	2,800
Rent Expense	2,000
Depreciation Expense- Building	400
Insurance Expense	350
Miscellaneous Expense	1,650
Total Expenses		10,775
Net Income		$53,775

Table (26)

Conclusion

Hence, the net income of R Consulting for the year ended April 30, 2016 is $53,775.

To determine

Prepare statement of owners’ equity for the year ended April 30, 2016.

Explanation of Solution

The statement of owners’ equity for the year ended April 30, 2016 is as follows:

R Consulting
Statement of Owner’s Equity
For the Month Ended April 30, 2016
Particulars	Amount ($)	Amount ($)
JH Capital, April 1, 2016
Investments during the month	$50,000
Add: Net income	53,775
Less: Drawings	(18,000)
Increase in owner’s equity		85,775
JH Capital, April 31, 2016		$85,775

Table (27)

Conclusion

Hence, owners’ equity for the month ended April 30, 2016 is $85,775.

To determine

Prepare balance sheet of R Consulting at April 30, 2016.

Explanation of Solution

R Consulting
Balance Sheet
At April 30, 2016
Assets
Current Assets:		$	$
Cash		43,535
Accounts Receivable		17,790
Supplies		1,225
Prepaid Rent		4,000
Prepaid Insurance		3,850
Total Current Assets			70,400
Property, plant and equipment:
Office Equipment		20,000
Less: Accumulated Depreciation		400
Total Plant Assets			19,600
Total Assets			90,000
Liabilities
Current Liabilities:
Accounts Payable		1,600
Salaries Payable		275
Unearned rent		2,350
Total Liabilities			4,225
Owners’ Equity
JH’s capital			85,775
Total Liabilities and Owners’ Equity			90,000

Table (28)

Conclusion

Therefore, the total assets and total liabilities plus owners’ equity of Consulting R at April 31, 2016 is $90,000.

To determine

Journalize closing entries for R Consulting.

Answer to Problem 5PB

Closing entry for revenue and expense accounts:

Date	Accounts title and Explanation	Post Ref.	Debit ($)	Credit ($)
April 30, 2016	Fees Earned	41	64,550
	Income Summary	33		64,550
	(To record the closure of revenues account )
April 30, 2016	Income Summary	33	10,775
	Salary Expense	51		3,575
	Rent Expense	52		2,800
	Supplies Expense	53		2,000
	Depreciation Expense- Building	54		400
	Insurance Expense	55		350
	Miscellaneous Expense	59		1,650
	(To close the expenses account. Then  the balance amount are  transferred to income summary account)
April 30, 2016	Income Summary	33	53,775
	JH Capital	31		53,775
	(To close balance of income summary are  transferred to owners’ capital account)
April 30, 2016	JH’s Capital	31	18,000
	JH’ Drawing	32		18,000
	(To Close the capital and drawings account)

Table (29)

Explanation of Solution

• A Service fee earned is revenue account. Since the amount of revenue is closed and transferred to JH’s capital account. Here, G Consulting earned an income of $64,550, and $18,000. Therefore, it is debited.
• Salaries Expense, Rent Expense, Insurance Expense, Utilities Expense, Supplies Expense, Depreciation Expense, Advertising Expense, JH Capital, and Miscellaneous Expense are expense accounts. Since the amount of expenses are closed to Income Summary account. Therefore, it is credited.
• Owner’s capital is a component of owner’s equity. Thus, owners ‘equity is debited since the capital is decreased on owners’ drawings.
• Owner’s drawings are a component of owner’s equity. It is credited because the balance of owners’ drawing account is transferred to owners ‘capital account.

To determine

Journalize closing entries for R Consulting.

Explanation of Solution

Prepare a post–closing trial balance of R Consulting for the month ended April 30, 2016 as follows:

Consulting R Post-closing Trial Balance April 30, 2016
Particulars	Account Number	Debit $	Credit $
Cash	11	43,535
Accounts receivable	12	17,790
Supplies	14	1,225
Prepaid rent	15	4,000
Prepaid insurance	16	3,850
Office Equipment	18	20,000
Accumulated depreciation  –Office Equipment	19		400
Accounts payable	21		1,600
Salaries payable	22		275
Unearned rent	23		2,350
JH’s Capital	31		85,775
Total		$90,400	$90,400

Table (5)

Conclusion

The debit column and credit column of the post–closing trial balance are agreed, both having balance of $90,400.