Question

Perfect Pizza had the following account balances at December 31, 2015:

Cash	$ 33,000	Vehicles	80,000
Accounts Receivable	15,000	Accumulated Depreciation, Vehicles	36,000
Inventory	10,000	Accounts Payable	7,000
Prepaid Expenses(include prepaid rent)	3,000	Wages Payable	2,000
Equipment	60,000	Common Shares	110,000
Accumulated Depreciation, Equipment	30,000	Retained Earnings	16,000

During 2016, the following transactions occurred:

1.Purchases of ingredients and supplies (inventory) were $230,000, all on account.

2.Sales of pizzas for cash were $510,000, and sales of pizzas on account were $40,000.

3.The company paid $105,000 for wages and $25,000 for utilities expenses.

4.Payments for ingredients and supplies purchased on account totalled $220,000.

5.Collections from customers for sales on account totalled $50,000.

6.Ingredients and supplies valued at $225,000 were used in making pizzas.

7.A dividend of $15,000 was declared and paid at the end of the year.

Information for adjusting entries:

8.At the end of 2016, the amount of rent paid in advance was $1,500.

9.Wages owed to employees at the end of 2016 were $2,500.

10.The equipment had an estimated useful life of eight years, with no residual value.

11.The delivery vehicles had an estimated useful life of six years with a residual value of $8,000.

Required

a.  

Prepare journal entries for transactions 1 through 7. Create new accounts as necessary.

b.  

Prepare adjusting journal entries for adjustments 8 to 11.

c.  

Set up T accounts, enter the beginning balances from 2015, post the 2016 entries, and calculate the balance in each account.

d.

Prepare a statement of income for 2016.

e.  

Prepare the closing entries

Answer 1

Perfect Pizza
Journal Entries
Description	Debit	Credit
Inventory	$       230,000.00
To Accounts Payable		$                                230,000.00
(Being amount of Purchases of ingredients and supplies on account)
Cash	$       510,000.00
Accounts Receivable	$         40,000.00
To Sales		$                                550,000.00
(Being amount of sales cash sale of Pizza for $510000 and $40000 on account)
Wages	$       105,000.00
Utilities Expenses	$         25,000.00
To Cash		$                                130,000.00
(Being amount of Wages and Utilites expenses paid in cash)
Accounts Payable	$       220,000.00
To Cash		$                                220,000.00
(Being amount paid for ingredients and supplies purchased on account earlier)
Cash	$         50,000.00
To Accounts Receivable		$                                500,000.00
(Being amount received from customers)
Cost of Ingredients & Supplies used	$       225,000.00
To Ingredients & Supplies Inventory		$                                225,000.00
(Being amount of inventory used for making pizza)
Dividend	$         15,000.00
To Cash		$                                   15,000.00
(Being amount of dividend declared and paid)
Journal Entries
Adjusting Entries
Particular	Amount (DR)	Amount(Cr)
Rent	$            1,500.00
To Prepaid Rent		$                                     1,500.00
Being amount of Rent)
Wages	$            2,500.00
To Wages Payble		$                                     2,500.00
(Being amount of wages owed to employees)
Depreciation-Equipment=($60000/8)	$            7,500.00
To Accumulated depreciation-Equipment		$                                     7,500.00
(Being amount of Depreciation)
Depreciation-Vehicle=($80000-$8000)/6	$         12,000.00
To Accumulated Depreciation-Vehicle		$                                   12,000.00
(Being amount of Depreciation)
Inventory-Ingrients & Supplies
Particular	Amount (Dr)	Particular	Amount (Cr)
To Balance B/d	$         10,000.00	By Supplies Expenses	225000
To Accounts Payable	$       230,000.00	By Balance c/d	15000
Total	$       240,000.00	Total	240000
Ingrients &Supplies Expenses A/c
Particular	Amount (Dr)	Particular	Amount (Cr)
To Ingrients & Supplies	$       225,000.00	By Balance c/d	225000
Total	$       225,000.00	Total	225000
Depreciation Expenses-Equipment
Particular	Amount (Dr)	Particular	Amount (Cr)
To Accumulated Depreciation	$            7,500.00	By Balance c/d	7500
Total	$            7,500.00	Total	7500
Accumulated Depreciation-Equipment
Particular	Amount (Dr)	Particular	Amount (Cr)
To Balance C/d	$         37,500.00	By Balance B/d	$   30,000.00
		By Depreciation Expenses-Equipment	$      7,500.00
Total	$         37,500.00	Total	$   37,500.00
Depreciation Expenses-Vehicle
Particular	Amount (Dr)	Particular	Amount (Cr)
To Accumulated Depreciation	$         12,000.00	By Balance c/d	12000
Total	$         12,000.00	Total	12000
Accumulated Depreciation-Vehicle
Particular	Amount (Dr)	Particular	Amount (Cr)
To Balance C/d	$         48,000.00	By Balance B/d	$   36,000.00
		By Depreciation Expenses-Vehicle	$   12,000.00
Total	$         48,000.00	Total	$   48,000.00
Account Payable
Particular	Amount (Dr)	Particular	Amount (Cr)
To Cash	$       220,000.00	By Balance B/d	$      7,000.00
To Balance C/d	$         17,000.00	By Ingrients & Supplies	$ 230,000.00
Total	$       237,000.00	Total	$ 237,000.00
Accounts Receivable
Particular	Amount (Dr)	Particular	Amount (Cr)
To Balance B/d	$         15,000.00	By Cash	$   50,000.00
To Sales	$         40,000.00	By Balance C/d	$      5,000.00
Total	$         55,000.00	Total	$   55,000.00
Prepaid Expenses(Prepaid Rent)
Particular	Amount (Dr)	Particular	Amount (Cr)
To Balance B/d	$            3,000.00	By Rent	$      1,500.00
		By Balance C/d	$      1,500.00
Total	$            3,000.00	Total	$      1,500.00
Wages Expenses
Particular	Amount (Dr)	Particular	Amount (Cr)
To Cash	$       105,000.00	By Balance C/d	$ 107,500.00
To Wages Payable	$            2,500.00
Total	$       107,500.00	Total	$ 107,500.00
Wages Payable
Particular	Amount (Dr)	Particular	Amount (Cr)
To Cash	$            2,000.00	By Balance B/d	$      2,000.00
To Balance C/d	$            2,500.00	By Wages Payable	$      2,500.00
Total	$            4,500.00	Total	$      4,500.00
Rent   Expenses
Particular	Amount (Dr)	Particular	Amount (Cr)
To Prepaid Rent	$            1,500.00	By Balance C/d	$      1,500.00
Total	$            1,500.00	Total	$      1,500.00
Utilities Expenses
Particular	Amount (Dr)	Particular	Amount (Cr)
To Cash	$         25,000.00	By Balance C/d	$   25,000.00
Total	$         25,000.00	Total	$   25,000.00
Dividend
Particular	Amount (Dr)	Particular	Amount (Cr)
To Cash	$         15,000.00	By Balance c/d	$   15,000.00
Total	$         15,000.00	Total	$   15,000.00
Cash A/c
Particular	Amount (Dr)	Particular	Amount (Cr)
To Balance B/d	$         33,000.00	By Wages Expenses	$ 105,000.00
To Sales	$       510,000.00	By Utilties Expenses	$   25,000.00
To Accounts Receivable	$         50,000.00	By Accounts Payable	$ 220,000.00
		By Dividend	$   15,000.00
		By Wages Payable	$      2,000.00
		By Balance C/d	$ 226,000.00
Total	$       593,000.00	Total	$ 593,000.00
Perfect Pizza
Adjusted Trial Balance
Explaination	Debit	Credit
Cash	$       226,000.00
Accounts Receivable	$            5,000.00
Inventory	$         15,000.00
Prepaid Expenses(Prepaid Rent)	$            1,500.00
Equipment	$         60,000.00
Vehicle	$         80,000.00
Accounts Payable		$                                   17,000.00
Wages Payable		$                                     2,500.00
Accumulated Depreciation-Equipment		$                                   37,500.00
Accumulated Depreciation-Vehicle		$                                   48,000.00
Common Stock		$                                110,000.00
Retained Earnings=($16000+$156500)		$                                172,500.00
	$       387,500.00	$                                387,500.00
Perfect Pizza
Statement of Income
Revenue		$                                550,000.00
Sales
Expenses
Cost of supplies used	$       225,000.00
Wages Expenses	$       107,500.00
Rent Expenses	$            1,500.00
Utilities expenses	$         25,000.00
Depreciation-Equipment	$            7,500.00
Depreciation-Vehicle	$         12,000.00	$                                378,500.00
Net Income		$                                171,500.00
Less: Dividend Paid		$                                   15,000.00
Retained Earnings		$                                156,500.00