Question

COMPREHENSIVE PROBLEM (Completing the Accounting Cycle – Chapters 1-3)

Murfee Delivery Service is a delivery service company that delivers anything to anyone anywhere. The company intends to stand out due to its strict confidentiality policy forbidding any disclosure of its customers’ personal information, for a profit or otherwise. The company also adds, as part of its robust confidentiality policy, it will never poke fun or humiliate its customers for the ridiculous, and sometimes even embarrassing, items they choose to have delivered.   Murfee Delivery Service began operations on December 1, 2019.

The following transactions occurred during the month of December:

Dec 1    Sold $22,000 of common stock to Eddie Murfee, the founder of the company.

Dec 1    Purchased a $9,000 delivery van by signing a note, agreeing to repay principle and interest in 2 years. The van was purchased from Eddie’s cousin’s boyfriend, Christopher Farleigh. The van was in great condition, especially considering that Christopher lived in the van down by the river for a short period of time while he was looking for an apartment.

Dec 1    Paid $600 in advance for a six-month general liability insurance policy from Ned Ryerson            Insurance Group.

Dec 1    Hired 2 delivery drivers, Clark Griswold and Van Wilder. Surprisingly, both drivers passed their    drug tests and background checks, and they were able to begin working immediately.

Dec 4    Purchased $750 of office supplies from Dunder Mifflin Office Supply Store on account.

Dec 12 Delivered a “Get Well” Deluxe Wellness Kit to Ferris Bueller and received $2,200 cash.

Dec 15 Delivered 243 cases of wine for the annual Catalina Wine Mixer in California. Willis Ferrill was    billed $3,300 on account for services rendered.

Dec 18 Paid employee salaries to Clark and Van totaling $2,400.

Dec 20 Received $10,600 payment for services from Owen Wilzen for delivering wedding gifts to all the couples of weddings he has attended (uninvited) since 2005.

Dec 22 Collected $2,200 in advance from Billy Muree to have Punxsutawney Phil delivered from his       home in Calabasas, California, to Punxsutawney, Pennsylvania, in time for a special appearance on February 2^nd.

Dec 25 Collected $3,300 from Willis Ferrill for the December 15^th delivery.

Dec 27 Received a bill for $150 from Frankenstein Electric Company for December utilities, due on         January 10.

Dec 29 Paid office rent, $2,800, to the property manager, Jim Halpert, for December and January Rent.

Dec 30 Paid $150 to Frankenstein Electric Company for the bill received on December 27^th.

Dec 31 Paid cash dividends of $2,500 to stockholders.

Requirements:

1. Record all necessary journal entries for the December transactions. Note: Not all transactions in December require a journal entry. If no entry is required, you may choose to simply omit the transaction, or you may choose to record the date of the transaction and write “NO ENTRY” in the space where the accounts & amounts would normally be written.
2. Post the journal entries to the T-Accounts.
3. Prepare an Unadjusted Trial Balance as of December 31, 2019.
4. Record the adjusting entries as of December 31, 2019. Additional information necessary for adjusting entries is below:
   1. Accrued Salaries for the last two weeks in December, $2,400, will be paid in January.
   2. The prepaid insurance policy began on December 1.
   3. Office Supplies on hand are $450.
   4. The Note Payable on December 1 has an interest rate of 7%. Interest and principle are due in 2 years.
   5. Weekly deliveries made to Liyam Hemmensworth in the month of December totaling $8,000 have not been invoiced.
5. Post the adjusting entries to the T-Accounts. Note: You will be adding to the T-accounts you created in Step 2.
6. Prepare an Adjusted Trial Balance as of December 31, 2019.
7. Prepare the income statement and statement of stockholders’ equity for the month ended December 31, 2019. Prepare the classified balance sheet as of December 31, 2019.
8. Record the closing entries as of December 31, 2019.
9. Post the closing entries to the T-Accounts. Note: You will be adding to the T-accounts you created in Step 2 and updated in Step 5.
10. Prepare a Post-Closing Trial Balance as of December 31, 2019.

Answer 1

Prepare journal entries as follows:

Date	Account Titles	Debit	Credit
Dec. 01	Cash	$22,000
	Common stock		$22,000
Dec. 01	Delivery Van	$9,000
	Notes payable		$9,000
Dec. 01	Prepaid Insurance	$600
	Cash		$600
Dec. 01	No entry
Dec. 04	Office Supplies	$750
	Accounts payable		$750
Dec. 12	Cash	$2,200
	Service Revenue		$2,200
Dec. 15	Accounts Receivable	$3,300
	Service Revenue		$3,300
Dec. 18	Salaries Expense	$2,400
	Cash		$2,400
Dec. 20	Cash	$10,600
	Service Revenue		$10,600
Dec. 22	Cash	$2,200
	Unearned revenue		$2,200
Dec. 25	Cash	$3,300
	Accounts Receivable		$3,300
Dec. 27	Utilities Expense	$150
	Accounts payable		$150
Dec. 29	Prepaid Rent	$1,400
	Rent Expense	$1,400
	Cash		$2,800
Dec. 30	Accounts payable	$150
	Cash		$150
Dec. 31	Dividends	$2,500
	Cash		$2,500

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Prepare T-accounts as follows:

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Prepare Unadjusted trial balance:

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Prepare Adjusting entries as follows:

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Adjusted t-accounts as follows:

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Prepare Adjusted Trial Balance:

Adjusted Trial Balance
	Debit	Credit
Cash	$31,850
Accounts receivable	$8,000
Prepaid Insurance	$500
Prepaid Rent	$1,400
Office Supplies	$450
Delivery Van	$9,000
Accounts payable		$750
Notes payable		$9,000
Unearned Revenue		$2,200
Salaries payable		$2,400
Interest payable		$53
Common Stock		$22,000
Dividends	$2,500
Service revenue		$24,100
Salaries Expense	$4,800
Rent Expense	$1,400
Utilities Expense	$150
Insurance Expense	$100
Office Supplies Expense	$300
Interest Expense	$53
Totals	$60,503	$60,503

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Prepare closing entries as follows:

Date	Account Titles	Debit	Credit
Dec. 31	Service Revenue	$24,100
	Income Summary		$24,100
Dec. 31	Income Summary	$6,803
	Salaries Expense		$4,800
	Rent Expense		$1,400
	Utilities Expense		$150
	Insurance Expense		$100
	Office Supplies Expense		$300
	Interest Expense		$53
Dec. 31	Income Summary	$17,297
	Retained Earnings		$17,297
Dec. 31	Retained Earnings	$2,500
	Dividends		$2,500

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