Question

Romero started his own consulting firm, Romero Company, on July 1, 2018. The trial balance at July 31 is shown below.

ROMERO COMPANY
Trial Balance
July 31, 2018
		Debit		Credit
Cash		23,150
Accounts receivable		5,000
Supplies		4,000
Prepaid insurance		3,000
Equipment		13,000
Notes payable				15,000
Accounts payable				7,500
Unearned service revenue				4,000
Owner’s capital				18,750
Service revenue				12,900
Salaries and wages expense		7,000
Rent expense		3,000
		$ 58,150		$ 58,150

Other data:

1. Supplies on hand at July 31 are $750.

2. A utility bill for $350 has not been recorded and will not be paid until next month.

3. The insurance policy is for a year.

4. $1,200 of unearned service revenue remain unearned.

5. Romero company pays its employees total salaries of $7,250 every Monday for the preceding 5-day week (Monday through Friday). On Monday July 30, employees were paid for the week ending July 27. All employees worked the last 2 days of the month of July 2018.

6. The equipment is being depreciated over a 5-year life with no salvage value.

7. Invoices representing $3,200 of services performed during the month have not been recorded as of July 31.

8. Romero company borrowed $15,000 by signing a 7.3%, two-year note on July 11^th, 2018.

Instructions

a. Prepare the adjusting entries for the month of July.

b. Prepare the Classified Balance sheet at Dec. 31, 2018.

Answer 1

a.

Adjusting entries

Date	Accounts and explanation	Debit	Credit
July 31, 2018	Supplies expense	$3250
	Supplies		$3250
	(To record supplies expenses)
July 31, 2018	Utility expense	$350
	Utility expense payable		$350
	(To record utility expenses)
July 31, 2018	Insurance expense	$250
	Prepaid insurance		$250
	(To record insurance expenses)
July 31, 2018	Unearned Service revenue	$2800
	Service revenue		$2800
	(To record services revenue earned)
July 31, 2018	Wages and salaries expense	$2900
	Wages and salaries payable		$2900
	(To record wages and salaries expenses)
July 31, 2018	Depreciation expense	$217
	Accumulated depreciation - equipment		$217
	(To record depreciation expenses)
July 31, 2018	Accounts receivable	$3200
	Service revenue		$3200
	(To record service revenue earned)
July 31, 2018	Interest expense	$63
	Note payable		$63
	(To record interest expense)

Note:

1. Supplies expense = $4000-$750 = $3250

2. Insurance expense = $3000/12 = $250

3.  Service revenue = $4000-$1200 = $2800

4. Wages and salaries expense for last two days of the month = ($7250/5)*2 = $2900

5.Depreciation expense = ($13000/5)/12 = $217

6. Interest expense = ($15000*7.3%)/365*21 -= ($1095/)365*21 = $63

Interest expense has been calculated for 21 days in july month from 11th july to 31st july.

b.

Balance sheet

Assets
Current assets:
Prepaid insurance ($3000-$250)	$2750
Supplies	$750
Accounts receivable ($5000+$3200)	$8200
Cash	$23150
		$34850
Non current assets:
Equipment	$13000
Accumulated depreciation	($217)
		$12783.
Total assets		$47633
Liabilities and Equity
Liabilities
Current liabilities:
Unearned service revenue	$1200
Accounts payable	$7500
Utility expense payable	$350
Salaries and wages payable	$2900
		$11950
Non current liabilities:
Notes payable ($15000+$63)	$15063
		$15063
Total liabilities		$27013
Equity
Owners capital:	$18750
Retained earnings	$1870
Total equity		$20620
Total Liabilities and Equity		$47633

Note:

Statement of profit or loss:

	Calculation	Amount
Sales (a)	$12900+$2800+$3200	$18900
Less: Expenses
Salaries and wages	$7000+$2900	$9900
Rent expense		$3000
Supplies expense		$3250
Utility expense		$350
Insurance expense		$250
Depreciation expense		$217
Interest expense		$63
Total expense (b)		$17030
Profit [a-b]		$1870

The same profit will be taken as retained earnings as no opening balance of retained earnings.