Question

On August 1, 2017, the following were the account balances of B&B Repair Services.

		Debit				Credit
Cash		$ 6,040		Accumulated Depreciation—Equipment		$   600
Accounts Receivable		2,910		Accounts Payable		2,300
Notes Receivable		4,000		Unearned Service Revenue		1,260
Supplies		1,030		Salaries and Wages Payable		1,420
Equipment		10,000		Common Stock		12,000
				Retained Earnings		6,400
		$23,980				$23,980

During August, the following summary transactions were completed.

Aug.		1		Paid $400 cash for advertising in local newspapers. Advertising flyers will be included with newspapers delivered during August and September.
		3		Paid August rent $380.
		5		Received $1,200 cash from customers in payment of account.
		10		Paid $3,120 for salaries due employees, of which $1,700 is for August and $1,420 is for July salaries payable.
		12		Received $2,800 cash for services performed in August.
		15		Purchased store equipment on account $2,000.
		20		Paid creditors $2,000 of accounts payable due.
		22		Purchased supplies on account $800.
		25		Paid $2,900 cash for employees' salaries.
		27		Billed customers $3,760 for services performed.
		29		Received $780 from customers for services to be performed in the future.

Adjustment data:

1. A count shows supplies on hand of $960.
2. Accrued but unpaid employees' salaries are $1,540.
3. Depreciation on equipment for the month is $320.
4. Services were performed to satisfy $800 of unearned service revenue.
5. One month's worth of advertising services has been received.
6. One month of interest revenue related to the $4,000 note receivable has accrued. The 4-month note has a 6% annual interest rate. (Hint: Use the formula from Illustration 4-18 to compute interest.)

Instructions

(a) Enter the August 1 balances in the ledger accounts. (Use T-accounts.)

(b) Journalize the August transactions.

(c) Post to the ledger accounts. B&B's chart of accounts includes Prepaid Advertising, Interest Receivable, Service Revenue, Interest Revenue, Advertising Expense, Depreciation Expense, Supplies Expense, Salaries and Wages Expense, and Rent Expense.

(d) Prepare a trial balance at August 31.

(e) Journalize and post adjusting entries.

(f) Prepare an adjusted trial balance.

(h) Journalize and post closing entries and complete the closing process.(g) Prepare an income statement and a retained earnings statement for August and a classified balance sheet at August 31.

(i) Prepare a post-closing trial balance at August 31.

Answer 1

B&B Repair Services
Journal entries
Date	Account	Debit	Credit	Calculation
1-Aug	Prepaid Advertising	$           400
	Cash		$           400
3-Aug	Rent expense	$           380
	Cash		$           380
5-Aug	Cash	$        1,200
	Accounts Receivable		$        1,200
10-Aug	Salaries & wages Payable	$        1,420
	Salaries & wages expense	$        1,700
	Cash		$        3,120
12-Aug	Cash	$        2,800
	Service Revenue		$        2,800
15-Aug	Equipment	$        2,000
	Accounts Payable		$        2,000
20-Aug	Accounts Payable	$        2,000
	Cash		$        2,000
22-Aug	Supplies	$           800
	Accounts Payable		$           800
25-Aug	Salaries & wages expense	$        2,900
	Cash		$        2,900
27-Aug	Accounts Receivable	$        3,760
	Service Revenue		$        3,760
29-Aug	Cash	$           780
	Unearned Service Revenue		$           780
Adjusting entries
31-Aug	Supplies expense	$           870		=1,030+800-960
	Supplies		$           870
31-Aug	Salaries & wages expense	$        1,540
	Salaries & wages Payable		$        1,540
31-Aug	Depreciation expense	$           320
	Accumulated Depreciation-Equipment		$           320
31-Aug	Unearned Service Revenue	$           800
	Service Revenue		$           800
31-Aug	Advertising expense	$           200		=400/2
	Prepaid Advertising		$           200
31-Aug	Interest Receivable	$              20		=4,000*6%*1/12
	Interest revenue		$              20
Closing entries
31-Aug	Service Revenue	$        7,360
	Interest revenue	$              20
	Income Summary		$        7,380
31-Aug	Income Summary	$        7,910
	Salaries & wages expense		$        6,140
	Rent expense		$           380
	Advertising expense		$           200
	Supplies expense		$           870
	Depreciation expense		$           320
31-Aug	Retained Earnings	$           530
	Income Summary		$           530

B&B Repair Services		Unadjusted TB			Adjusted TB			Post Closing TB
Account Names		Debit	Credit		Debit	Credit		Debit	Credit
Cash		2,020			2,020			2,020
Accounts Receivable		5,470			5,470			5,470
Notes Receivable		4,000			4,000			4,000
Interest Receivable		-			20			20
Supplies		1,830			960			960
Prepaid Advertising		400			200			200
Equipment		12,000			12,000			12,000
Accumulated Depreciation-Equipment			600			920			920
Accounts Payable			3,100			3,100			3,100
Unearned Service Revenue			2,040			1,240			1,240
Salaries & wages Payable			-			1,540			1,540
Common Stock			12,000			12,000			12,000
Retained Earnings			6,400			6,400			5,870
Service Revenue			6,560			7,360
Salaries & wages expense		4,600			6,140
Rent expense		380			380
Advertising expense		-			200
Supplies expense		-			870
Depreciation expense		-			320
Interest revenue			-			20
Totals		30,700	30,700		32,580	32,580		24,670	24,670