Chapter 4, Problem 5PB

Complete accounting cycle

For the past several years, Jeff Horton has operated a part-time consulting business from his home. As of April 1, 20Y6, 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 entered into the following transactions during April:

Record the following transactions on Page 2 of the journal:

Instructions

1. 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.)

1. 2. Post the journal to a ledger of four-column accounts.
2. 3. Prepare an unadjusted trial balance.
3. 4. At the end of April, the following adjustment data were assembled. Analyze and use these data to complete parts (5) and (6).
4. (a) Insurance expired during April is $350.
5. (b) Supplies on hand on April 30 are $1,225.
6. (c) Depreciation of office equipment for April is $400.
7. (d) Accrued receptionist salary on April 30 is $275.
8. (e) Rent expired during April is $2,000.
9. (f) Unearned fees on April 30 are $2,350.
10. 5. (Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet.
11. 6. Journalize and post the adjusting entries. Record the adjusting entries on Page 3 of the journal.
12. 7. Prepare an adjusted trial balance.
13. 8. Prepare an income statement, a statement of stockholders’ equity, and a balance sheet.
14. 9. Prepare and post the closing entries. Record the closing entries on Page 4 of the journal. Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry.
15. 10. Prepare a post-closing trial balance.

To determine

Journalize the transactions of April in a two column journal beginning on page 1 and the following in page 2.

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.

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

Journal                                           Page 1
Date		Description	Post. Ref	Debit ($)	Credit ($)
20Y6		Cash	11	20,000
April	1	Accounts receivable	12	14,700
		Supplies	14	3,300
		Office equipment	18	12,000
		Common stock	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 ($)	Credit ($)
20Y6		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)
	31	Cash	11	5,160
		Fees earned	41		5,160
		(To record the cash received from client for fees earned)
	31	Accounts receivable	12	2,590
		Fees earned	41		2,590
		(To record the revenue earned and billed)
	31	Dividends	33	18,000
		Cash	11		18,000
		(To record the dividends made 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

T-account: The condensed form of a ledger is referred to as T-account. The left-hand side of this account is known as debit, and the right hand side is known as credit.

Account: Cash                                                                              Account no. 11
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
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	30,550
	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
	31		2		760	56,375
	31		2	5,160		61,535
	31		2		18,000	43,535

Table (3)

Account: Accounts Receivable                                                    Account no. 12
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
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
	31		2	2,590		17,790

Table (4)

Account: Supplies                                                                         Account no. 14
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
April	1		1	3,300		3,300
	18		2	725		4,025
	31	Adjusting	3		2,800	1,225

Table (5)    

Account: Prepaid Rent                                                                Account no. 15
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
April	1		1	6,000		6,000
	31	Adjusting	3		2,000	4,000

Table (6)

Account: Prepaid Insurance                                                       Account no. 16
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
April	2		1	4,200		4,200
	31	Adjusting	3		350	3,850

Table (7)

Account: Office equipment                                                         Account no. 18
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
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 ($)	Credit ($)
20Y6
April	31	Adjusting	3		400		400

Table (9)

Account: Accounts Payable                                                               Account no. 21
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
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 ($)	Credit ($)
20Y6
April	31	Adjusting	3		275		275

Table (11)

Account: Unearned Fees                                                                    Account no. 23
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
April	4		1		9,400		9,400
	31	Adjusting	3	7,050			2,350

Table (12)

Account: Common Stock                                                                    Account no. 31
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
April	1		1		50,000		50,000

Table (13)

Account: Retained earnings                                                                Account no. 32
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
April	1						0
	31	Closing	4		53,775		53,775
	31	Closing	4	18,000			35,775

Table (14)

Account:  Dividends                                                                            Account no. 33
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
April	31		2	18,000		18,000
	31	Closing	4		18,000

Table (15)

Account: Fees earned                                                                          Account no. 41
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
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
	31		2		5,160		54,910
	31		2		2,590		57,500
	31	Adjusting	3		7,050		64,500
	31	Closing	4	64,500

Table (16)

Account: Salary expense                                                                     Account no. 51
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
April	14		1	1,650		1,650
	27		2	1,650		3,300
	31	Adjusting	3	275		3,575
	31	Closing	4		3,575

Table (17)

Account: Rent expense                                                                        Account no. 52
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
April	31	Adjusting	3	2,000		2,000
	31	Closing	4		2,000

Table (18)

Account: Supplies expense                                                                 Account no. 53
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
April	31	Adjusting	3	2,800		2,800
	31	Closing	4		2,800

Table (19)

Account: Depreciation expense                                                          Account no. 54
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
April	31	Adjusting	3	400		400
	31	Closing	4		400

Table (20)

Account: Insurance expense                                                               Account no. 54
Date		Item	Post. Ref		Debit  ($)	Credit ($)	Balance
							Debit ($)	Credit ($)
20Y6
April	31	Adjusting		3	350		350
	31	Closing		4		350

Table (21)

Account: Miscellaneous expense                                                        Account no. 59
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y6
April	10		1	350		350
	29		2	540		890
	31		2	760		1,650
	31	Closing	4		1,650

Table (22)

To determine

Prepare an unadjusted trial balance for Company.

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 an unadjusted trial balance for Company.

Company RC
Unadjusted Trial Balance
As of April 31, 20Y6
Account titles	Account No.	Debit balances	Credit balances
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	19		0
Accounts Payable	21		1,600
Salaries Payable	22		0
Unearned Fees	23		9,400
Common Stock	31		50,000
Retained Earnings	32		0
Dividends	33	18,000
Fees Earned	41		57,500
Salary Expense	51	3,300
Rent Expense	52	0
Supplies Expense	53	0
Depreciation Expense	54	0
Insurance Expense	55	0
Miscellaneous Expense	59	1,650
Totals		$118,500	$118,500

Table (23)

To determine

Enter the unadjusted trial balance on an end of period spreadsheet and complete the spread sheet.

Explanation of Solution

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.

Prepare the end of period spreadsheet and enter the unadjusted trial balance:

Table (24)

To determine

Journalize the adjusting entries of Company RC for April 31.

Explanation of Solution

Adjusting entries:

Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle.  All adjusting entries affect at least one income statement account (revenue or expense), and one balance sheet account (asset or liability).

Prepare the adjusting entries:

Date		Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
20Y6		Insurance expense	55	350
April	31	Prepaid insurance	16		350
		(To record the insurance expense for April)
	31	Supplies expense $\left(\$4,025-\$1,225\right)$	53	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	52	2,000
		Prepaid rent	15		2,000
		(To record the rent expense for April)
	31	Unearned fees $\left(\$9,400-\$2,350\right)$	23	7,050
		Fees earned	41		7,050
		(To record the receipt of unearned fees)

Table (25)

To determine

Prepare an adjusted trial balance of Company RC for April 31, 20Y6.

Explanation of Solution

Adjusted trial balance:

Adjusted trial balance is a summary of all the ledger accounts, and it contains the balances of all the accounts after the adjustment entries are journalized, and posted.

Prepare the adjusted trial balance:

Company RC
Adjusted Trial Balance
As of April 31, 20Y6
Account title	Account	Debit balances ($)	Credit balances ($)
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	19		400
Accounts Payable	21		1,600
Salaries Payable	22		275
Unearned Fees	23		2,350
Common Stock	31		50,000
Retained Earnings	32		0
Dividends	33	18,000
Fees Earned	41		64,550
Salary Expense	51	3,575
Rent Expense	52	2,800
Supplies Expense	53	2,000
Depreciation Expense	54	400
Insurance Expense	55	350
Miscellaneous Expense	59	1,650
Totals		$119,715	$119,175

Table (26)

To determine

Prepare an income statement for the year ended April 31, 20Y6.

Explanation of Solution

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Company RC
Income Statement
For the year ended April 31, 20Y6
Particulars	Amount ($)	Amount ($)
Revenues:
Fees Earned		64,550
Expenses:
Salaries Expense	3,575
Rent Expense	2,800
Supplies Expense	2,000
Depreciation Expense- Building	400
Insurance Expense	350
Miscellaneous Expense	1,650
Total Expenses		(10,775)
Net Income		53,775

Table (27)

Statement of stockholders’ equity: The statement which reports the changes in stock, paid-in capital, retained earnings, and treasury stock, during the year is referred to as statement of stockholders’ equity.

Prepare the statement of stockholders equity for the year ended April 31, 20Y6.

Company RC
Statement of Stockholders’ Equity
For the Month Ended April 31, 20Y6
Particulars	Common stock	Retained earnings	Total
Beginning balances, April 1, 20Y6	$0	$0	$0
Issued common stock	$50,000		$50,000
Net income	$0	$53,775	$53,775
Dividends	$0	($18,000)	($18,000)
Ending balances, April 31, 20Y6	$50,000	$35,775	$85,775

Table (28)

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

Prepare the balance sheet as of April 31, 20Y6:

Company RC
Balance Sheet
As of April 31, 20Y6
Particulars	Amount ($)	Amount ($)
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
Accumulated depreciation	(400)
Total property, plant, and equipment		19,600
Total assets		$90,000
Liabilities
Current liabilities:
Accounts payable	1,600
Salaries payable	275
Unearned fees	2,350
Total liabilities		4,225
Stockholders’ Equity
Common stock	50,000
Retained earnings	35,775
Total stockholders’ equity		85,775
Total liabilities and stockholders’ equity		$90,000

Table (29)

To determine

Journalize the closing entries for Company RC.

Explanation of Solution

Closing entry for revenue and expense accounts:

Date		Account title and explanation	Post. Ref.	Debit ($)	Credit ($)
20Y6
April	31	Fees Earned	41	64,550
		Salary Expense	51		3,575
		Rent Expense	52		2,800
		Supplies Expense	53		2,000
		Depreciation Expense	54		400
		Insurance Expense	55		350
		Miscellaneous Expense	59		1,650
		Retained Earnings (1)	32		53,775
		(To record the closing entry for revenue and expense account to retained earnings account)
20Y6	31	Retained Earnings	32	18,000
April		Dividends	33		18,000
		(To record the closing entry for dividends account)

Table (30)

Working note (1):

Calculate the amount of retained earnings account:

$\begin{array}{c}\text{Retained earnings}=\left(\text{Total revenues}-\text{Total expenses}\right)\\ =\left(\$64,550-\$10,775\right)\\ =\$53,775\end{array}$

To determine

Prepare a post–closing trial balance of D Consulting for the month ended April 31, 20Y6.

Explanation of Solution

Post-closing trial balance:

The post-closing trial balance is a summary of all ledger accounts, and it shows the debit and the credit balances after the closing entries are journalized and posted.  The post-closing trial balance contains only permanent (balance sheet) accounts, and the debit and the credit balances of permanent accounts should agree.

Prepare a post–closing trial balance for the year ended April 31, 20Y6:

Company RC
Post-Closing Trial Balance
As of April 31, 20Y6
Account title	Account No.	Debit Balances	Credit Balances
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	19		400
Accounts Payable	21		1,600
Salaries Payable	22		275
Unearned Fees	23		2,350
Common Stock	31		50,000
Retained Earnings	32		35,775
Totals		$90,400	$90,400

Table (31)