Question

The following transactions occurred during the month of October, 2019 at the Tree Company. The balance sheet for the Tree Company at September 30, 2019 was as follows: Balance Sheet Assets ---------------------------------------Liabilities Cash $ 4,500 ---------------- Accounts payable $ 16,000 Accounts receivable 24,000 -------- Notes payable 30,000 Supplies on hand 8,000 ---------------- Wages & salaries payable 5,000 Equipment 51,000 ----------------Invested capital 50,000 Truck 20,000 --------------------- Retained earnings 6,500 TOTAL $107,500 ----------- $107,500 According to the Chart of Accounts at Tree Company, the following accounts besides those listed in the balance sheet above are available: Advertising expense Bonus expense Bonus payable Decline in value of equipment (expense) Decline in value of truck (expense) Insurance expense Interest expense Prepaid insurance Rent expense Service revenue Supplies expense Utilities expense Wage and salaries expense Record the opening balances in the appropriate T-accounts, and then make the entries required to record the following: a) Mr. Tree, the owner, invested an additional $20,000 in the business. b) Rent in the amount of $7000 was paid in cash for the month of October. c) Supplies were purchase on credit at a cost of $3000. d) Credit customers were sent invoices totaling $23,000 for services rendered during the month. e) Cash customers paid $10,000 for services rendered to them during October (Note: Total of credit and cash sales was $33,000). f) Cash in the amount of $17,000 was received from customers for services rendered in previous months. g) A six-month insurance policy, with coverage beginning on October 1, 2001, was purchased for $3000 in cash. h) The invoice from the utility company in the amount of $3800 was received and paid. i) The accountant for Tree estimated that the truck declined in value by $1000 and that the equipment declined in value by $2500 during October. j) Additional equipment to be used in the service activity was purchased on credit at a price of $7500. k) Wages and salaries earned by employees for the month totaled $13,000. l) Total cash payment of wages and salaries during the month was $12,000, including $5000 that was payable at the beginning of the month. m) Invoices from suppliers for supplies and equipment received in previous months were paid in the amount of $14,500. n) A count and valuation of supplies on hand at the end of the month revealed an end of month balance of $6500. o) Tree Company paid $5500 to the bank from which the company was borrowing: $5000 in principal repayment and $500 interest. p) Advertising for the month totaled $1750, paid in cash. q) In return for extra services that the general manager rendered to the company during October, Mr. Tree agreed that the company would pay a bonus to the general manager equal to 10 percent of Octobers’ sales; this bonus is to be paid on November 10. Prepare an income statement for the month of October and a balance sheet as of October 31, 2019.

Answer 1

JOURNAL ENTRIES FOR THE MONTH OF OCTOBER, 2019:

Account Titles and Explanation	Debit ($)	Credit ($)
Cash	20,000
Invested Capital		20,000
(To record infusion of additional capital)
Rent Expense	700
Cash		700
(To record rent for the month of October)
Supplies	3,000
Accounts Payable		3,000
(To record purchase of supplies on credit)
Accounts Receivable	23,000
Service Renenue		23,000
(To record credit sales)
Cash	10,000
Service Renenue		10,000
(To record cash sales)
Cash	17,000
Accounts Receivable		17,000
(To record payment received from customers)
Prepaid Insurance	3,000
Cash		3,000
(To record premium for Insurance paid in advance)
Utility Expense	3,800
Cash		3,800
(To record payment of utility expense)
Decline in Value of Truck (expense)	1,000
Truck		1,000
(To record decline in value of truck)
Decline in Value of Equipment (expense)	2,500
Equipment		2,500
(To record decline in value of equipment)
Equipment	7,500
Cash		7,500
(To record purchase of equipment)
Wages and Salaries expense	13,000
Wages and Salaries payable		13,000
(To record wages and salaries expense accrued for the month of october)
Wages and Salaries Payable	12,000
Cash		12,000
(To record payment of outstanding wages and salaries)
Accounts Payable	14,500
Cash		14,500
(To record payment made for purchase of supplies)
Supplies Expense	4,500
Supplies		4,500
(To record supplies consumed in rendering services)
Notes Payable	5,000
Interest Expense	500
Cash		5,500
(To record repayment of notes)
Advertising Expense	1,750
Cash		1,750
(To record payment of advertising expense)
Bonus Expense	3,300
Wages and Salaries Payable		3,300
(To record accrual of Bonus for General Manager, 10% of October Sales that is 10% of $33,000)
Insurance Expense	500
Prepaid Insurance		500
(To record Insurance Expense for the month of October)

INCOME STATEMENT FOR THE MONTH OF OCTOBER, 2019:

Income Statement
for the month of October, 2019
Service Revenue		$         33,000
Less: Expenses
Supplies Expense	4,500
Rent Expense	700
Utilities Expense	3,800
Wages and Salaries Expense	13,000
Interest Expense	500
Advertising Expense	1,750
Bonus Expense	3,300
Insurance Expense	500
Decline in Value of Truck	1,000
Decline in Value of Equipment	2,500	31,550
Net Income		1,450

BALANCE SHEET AS AT OCTOBER, 2019:

Balance Sheet
As at October, 2019
ASSETS
Cash	2,750
Accounts Receivable	30,000
Prepaid Insurance	2,500
Supplies on Hand	6,500
Equipment	56,000
Truck	19,000
Total Assets	116,750
LIABILITIES
Accounts Payable	4,500
Notes Payable	25,000
Wages and Salaries Payable	9,300
Invested Capital	70,000
Retained Earnings	7,950
Total Liabilities	116,750

T-ACCOUNTS FOR THE MONTH OF OCTOBER, 2019 WITH OPENING BALANCES:

Cash Account
Opening Balance	4,500	Rent Expense	700
Invested Capital	20,000	Prepaid Insurance	3,000
Service Revenue	10,000	Utility Expense	3,800
Accounts Receivable	17,000	Equipment	7,500
		Wages and Salaries Payable	12,000
		Accounts Payable	14,500
		Notes Payable	5,000
		Interest Expense	500
		Advertising Expense	1,750
		Closing Balance	2,750
	51,500		51,500

Accounts Receivable Account
Opening Balance	24,000	Cash	17,000
Service Revenue	23,000
		Closing Balance	30,000
	47,000		47,000

Supplies on Hand Account
Opening Balance	8,000	Supplies Expense	4,500
Accounts Payable	3,000
		Closing Balance	6,500
	11,000		11,000

Equipment Account
Opening Balance	51,000	Decline in Value of Equipment	2,500
Cash	7,500
		Closing Balance	56,000
	58,500		58,500

Truck Account
Opening Balance	20,000	Decline in Value of Truck	1,000
		Closing Balance	19,000
	20,000		20,000
Prepaid Insurance Account
Opening Balance	-	Insurance Expense	500
Cash	3,000
		Closing Balance	2,500
	3,000		3,000
Accounts Payable Account
Cash	14,500	Opening Balance	16,000
		Supplies	3,000
Closing Balance	4,500
	19,000		19,000
Notes Payable Account
Cash	5,000	Opening Balance	30,000
Closing Balance	25,000
	30,000		30,000
Wages and Salaries Payable Account
Cash	12,000	Opening Balance	5,000
		Wages and Salaries Expense	13,000
		Bonus Expense	3,300
Closing Balance	9,300
	21,300		21,300
Invested Capital Account
		Opening Balance	50,000
		Cash	20,000
Closing Balance	70,000
	70,000		70,000
Retained Earnings Account
		Opening Balance	6,500
		Income Summary	1,450
Closing Balance	7,950
	7,950		7,950