Question

Your friend has a house cleaning business, Maid Men Inc., and would like to expand the business. He needs to apply for a loan to buy a second vehicle and the bank is requesting the financial statements from the fiscal year end, December 31, 2017, prepared according to GAAP. He knows you are taking Intermediate Accounting and has confidence you would be able to help him. He has only been in business since January 2017 and in March 2018 gives you the following information and asks you to prepare in Excel the general journal including the transactional journal entries followed by the adjusting journal entries and closing entries and the four major financial statements. He says he will treat you to pizza if you say yes!

MMI (Maid Men Inc.) issued common stock for $10,000 to your friend.

MMI borrowed $20,000 from the bank and signed a note in January 2017. The loan is for 3 years at 5% interest rate and interest is paid annually in January with the principal due in January 2020.

Purchased a van for $20,000 with a useful life of 5 years on January 1^st and will depreciate the vehicle using straight line depreciation and does not think it will have any value at the end of those 5 years.

Purchased cleaning supplies for $2000 cash in January.

He hired a part-time helper who began working on June 1^st and pays him monthly $200/mo. He pays him his wages the first Friday of the following month. June through November wages may be recorded in one journal entry.

Gas receipts total $800 for the year. This may be recorded in one journal entry.

Business was slow in the first half of the year but, because of his superior cleaning skills and word-of-mouth referrals, really grew the second half of the year. Over 2017 he has billed his clients $30,000 on account for services rendered and has received cash payments of $25,000 from these customers. This may be recorded in one journal entry.

Purchased an additional $1,000 of supplies on account December 1st and has $800 of supplies on hand at December 31, 2017.

When he purchased the additional supplies in December he realized he needed to rent a small storage unit to store the supplies. He rented a unit for $50/mo. The storage facility required that the first 3 months be paid in advance. He was annoyed but went ahead and paid the $150 on December 1^st to U Store It.

In November he decided to offer his customers a holiday cleaning deal starting in December. The customers could pay for three months of cleaning in advance and receive a 10% discount for doing so. Four customers took advantage of this amazing deal and paid your friend $600 each on December 1st. This deal is in addition to the normal billings of his customers for services rendered.

MMI paid dividends to your friend of $2,000 in December.

Since this is the first year of business your friend is unsure of MMI’s tax rate so he consulted a tax accountant who told him it would be a 20% tax rate.

Answer 1

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Event	Account	Debit	Credit
1	Cash	$       10,000
	Common Stock		$       10,000
2	Cash	$       20,000
	Note Payable		$       20,000
3	Van	$       20,000
	Cash		$       20,000
4	Cleaning supplies	$         2,000
	Cash		$         2,000
5	Wages Expenses	$         1,200		200*6
	Cash		$         1,200
6	Gas Expenses	$             800
	Accounts Paybale		$             800
7	Accounts Receivable	$         5,000
	Cash	$       25,000
	Cleaning Revenue		$       30,000
8	Cleaning supplies	$         1,000
	Accounts Paybale		$         1,000
9	Prepaid Rent	$             150
	Cash		$             150
10	Cash	$         2,400
	Unearned Cleaning Revenue		$         2,400
11	Dividend	$         2,000
	Cash		$         2,000
Adjusting:
Dec 31	Interest Expenses	$         1,000		20000*5%
	Interest Payable		$         1,000
Dec 31	Depreciation Expense	$         4,000		20000/5
	Accumulated Depreciation		$         4,000
Dec 31	Wages Expenses	$             200		For Dec
	Wages Payable		$             200
Dec 31	Cleaning supplies Expenses	$         2,200		2000+1000-800
	Cleaning supplies		$         2,200
Dec 31	Rent Expenses	$               50		For December
	Prepaid Rent		$               50
Dec 31	Unearned Cleaning Revenue	$             800		For December 2400/3
	Cleaning Revenue		$             800
Dec 31	Income Tax Expenses	$         4,270
	Income Tax Payable		$         4,270
Closing Entries:
Dec 31	Cleaning Revenue	$       30,800
	Income Summary		$       30,800
	(to close revenue accounts)
Dec 31	Income Summary	$       13,720
	Cleaning supplies Expenses		$         2,200
	Depreciation Expense		$         4,000
	Gas Expenses		$             800
	Interest Expenses		$         1,000
	Rent Expenses		$               50
	Wages Expenses		$         1,400
	Income Tax Expenses		$         4,270
	(to close expense accounts)
Dec 31	Income Summary	$       17,080
	Retained Earning		$       17,080
	(to close income summary accounts)
Dec 31	Retained Earning	$         2,000
	Dividends		$         2,000
	(to close dividends accounts)

Income Statement
Cleaning Revenue		$       30,800
Less: Expenses
Cleaning supplies Expenses	$       2,200
Depreciation Expense	$       4,000
Gas Expenses	$           800
Rent Expenses	$             50
Wages Expenses	$       1,400
Total Operating Expenses		$         8,450
Net Operating Income		$       22,350
Less: Interest Expenses		$         1,000
Income before tax		$       21,350
Less: Income Tax 20%		$         4,270
Net Income		$       17,080
Statement of Retained Earning
Beginning Balance		$                -
Add: Net Income		$       17,080
Less: Dividends		$         2,000
Ending Balance		$       15,080
Balance Sheets
Assets
Current Assets:
Cash	$     32,050
Accounts Receivable	$       5,000
Prepaid Rent	$           100
Cleaning Supplies	$           800
Total Current Assets		$       37,950
Van	$     20,000
Accumulated Depreciation	$     -4,000
Van, Net		$       16,000
Total Assets		$       53,950
Liabilities and Equity
Current Liabilities:
Accounts Payable	$       1,800
Wages Payable	$           200
Income Tax Payable	$       4,270
Unearned Cleaning Revenue	$       1,600
Interest Payable	$       1,000
Total Current Liabilities		$         8,870
Note Payable		$       20,000
Total Liabilities		$       28,870
Equity
Common Stock		$       10,000
Retained Earning		$       15,080
Total Equity		$       25,080
Total Liabilities and equity		$       53,950
Cash Flow
Cash from Customers		$       27,400
Cash paid to Vendors		$        -2,000
Cash paid to employees		$        -1,200
Cash payment for Rent		$           -150
Net Cash flow from operating activities		$       24,050
Cash flow from Investing activities:
Purchase of Van		$     -20,000
Net Cash from Investing Activities		$     -20,000
Cash flow from financing activities:
Common Stock		$       10,000
Payment of Dividend		$        -2,000
Note Payable		$       20,000
Net Cash from Financing Activities		$       28,000
Net Increase in Cash		$       32,050