Question

Tree Company

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

        $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.

Tree Company 2

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