Question

Colton Enterprises experienced the following events for Year 1, the first year of operation:

1. Acquired $53,000 cash from the issue of common stock.

2. Paid $13,800 cash in advance for rent. The payment was for the period April 1, Year 1, to March 31, Year 2.

3. Performed services for customers on account for $108,000.

4. Incurred operating expenses on account of $44,000.

5. Collected $82,500 cash from accounts receivable.

6. Paid $39,000 cash for salary expense.

7. Paid $35,200 cash as a partial payment on accounts payable.

Adjusting Entries

8. Made the adjusting entry for the expired rent. (See Event 2.)

9. Recorded $6,000 of accrued salaries at the end of Year 1.

Events for Year 2

1. Paid $6,000 cash for the salaries accrued at the end of the prior accounting period.

2. Performed services for cash of $57,000.

3. Purchased $4,600 of supplies on account.

4. Paid $15,900 cash in advance for rent. The payment was for one year beginning April 1, Year 2.

5. Performed services for customers on account for $124,000.

6. Incurred operating expenses on account of $59,500.

7. Collected $107,000 cash from accounts receivable.

8. Paid $57,000 cash as a partial payment on accounts payable.

9. Paid $33,300 cash for salary expense.

10. Paid a $15,000 cash dividend to stockholders.

Adjusting Entries

11. Made the adjusting entry for the expired rent. (Hint: Part of the rent was paid in Year 1.)

12. Recorded supplies expense. A physical count showed that $800 of supplies were still on hand.

Record the events and adjusting entries for Year 1 in general journal form.

Post the Year 1 events to T-accounts.

Prepare a trial balance for Year 1.

Prepare an income statement for Year 1.

Prepare a statement of changes in stockholders’ equity for Year 1.

Prepare a balance sheet for Year 1.

Prepare a statement of cash flows for Year 1

Prepare a post-closing trial balance for December 31, Year 1.

Answer 1

Prepare year 1 entries as follows:

Date	Account Titles	Debit	Credit
Year 1
1)	Cash	$53,000
	Common stock		$53,000
2)	Prepaid Rent	$13,800
	Cash		$13,800
3)	Accounts receivable	$108,000
	Service revenue		$108,000
4)	Operating expense	$44,000
	Accounts payable		$44,000
5)	Cash	$82,500
	Accounts receivable		$82,500
6)	Salary expense	$39,000
	Cash		$39,000
7)	Accounts payable	$35,200
	Cash		$35,200
Adjusting entry
8)	Rent Expense	$10,350
	Prepaid rent		$10,350
	[$13800/12] * 9 months
9)	Salaries expense	$6,000
	Salaries payable		$6,000

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Prepare T-Accounts as follows:

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Prepare Unadjusted Trial Balance Year 1

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Prepare adjusted T-accounts as follows:

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Prepare Adjusted Trial Balance:

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Prepare financial statement for Year 1

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Balance Sheet
Assets
Cash	$47,500
Accounts receivable	$25,500
Prepaid rent	$3,450
Total Assets		$76,450
Liabilities:
Accounts payable		$8,800
Salaries payable		$6,000
Stockholders' equity:
Common stock	$53,000
Retained earnings	$8,650	$61,650
Total Liabilities and Stockholders' equity		$76,450

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Prepare closing entries as follows:

Date	Account Titles	Debit	Credit
Year 1	Service revenue	$108,000
	Income summary		$108,000
	Income summary	$99,350
	Salary expense		$45,000
	Operating expense		$44,000
	Rent expense		$10,350
	Income summary [$108000 - $99350]	$8,650
	Retained earnings		$8,650

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Post-closing Trial Balance [year 1]
	Debit	Credit
Cash	$47,500
Accounts receivable	$25,500
Prepaid rent	$3,450
Accounts payable		$8,800
Salaries payable		$6,000
Common stock		$53,000
Retained Earnings		$8,650
Total	$76,450	$76,450