Question

On November 1, 2018, Kris Lehman established an interior decorating business, Modern Designs. During the month, Kris completed the following transactions related to the business: Nov. 1 Kris transferred cash from a personal bank account to an account to be used for the business in exchange for common stock, $36,000. 1 Paid rent for period of November 1 to end of month, $4,000. 6 Purchased office equipment on account, $16,000. 8 Purchased a truck for $43,000 paying $4,300 cash and giving a note payable for the remainder. 10 Purchased supplies for cash, $1,860. 12 Received cash for job completed, $8,000. 15 Paid annual premiums on property and casualty insurance, $2,400. 23 Recorded jobs completed on account and sent invoices to customers, $15,500. 24 Received an invoice for truck expenses, to be paid in November, $1,250. Enter the following transactions on Page 2 of the two-column journal: Nov. 29 Paid utilities expense, $3,660. 29 Paid miscellaneous expenses, $1,700. 30 Received cash from customers on account, $10,500. 30 Paid wages of employees, $4,750. 30 Paid creditor a portion of the amount owed for equipment purchased on November 6, $4,000. 30 Paid dividends, $1,600. Required: 1. Journalize each transaction in a two-column journal beginning on Page 1, referring to the chart of accounts in selecting the accounts to be debited and credited. (Do not insert the post reference numbers until you have posted the entry to the general ledger in part 2.) Refer to the Chart of Accounts for exact wording of account titles. 2. Post (in chronological order) the journal to a ledger of four-column accounts, inserting appropriate posting references in both the journal and the ledger as each item is posted. Extend the balances to the appropriate balance columns after each transaction is posted. 3. Prepare an unadjusted trial balance for Modern Designs as of November 30, 2018. 4. Determine the excess of revenues over expenses for November. 5. Can you think of any reason why the amount determined in (4) might not be the net income for November?

Answer 1

1. In the books of Modrn Designs :

Date	General Journal	Debit	Credit
2018		$	$
Nov 1	Cash	36,000
	Common Stock		36,000
Nov 1	Rent Expense	4,000
	Cash		4,000
Nov 6	Equipment	16,000
	Accounts Payable		16,000
Nov 8	Truck	43,000
	Cash		4,300
	Notes Payable		38,700
Nov 10	Supplies	1,860
	Cash		1,860
Nov 12	Cash	8,000
	Fees Earned		8,000
Nov 15	Prepaid Insurance	2,400
	Cash		2,400
Nov 23	Accounts Receivable	15,500
	Fees Earned		15,500
Nov 24	Truck Expenses	1,250
	Accounts Payable		1,250
Nov 29	Utilities Expense	3,660
	Cash		3,660
Nov 29	Miscellaneous Expense	1,700
	Cash		1,700
Nov 30	Cash	10,500
	Accounts Receivable		10,500
Nov 30	Wages Expense	4,750
	Cash		4,750
Nov 30	Accounts Payable	4,000
	Cash		4,000
Nov 30	Dividends	1,600
	Cash		1,600

2.

Cash
Beg. bal.	0	11/1	4,000
11/1	36,000	11/8	4,300
11/12	8,000	11/10	1,860
11/30	10,500	11/15	2,400
		11/29	3,660
		11/29	1,700
		11/30	4,750
		11/30	4,000
		11/30	1,600
End. bal.	26,230
Accounts Receivable
Beg. bal.	0	11/30	10,500
11/23	15,500
End bal.	5,000
Supplies
Beg. bal.	0
11/10	1,860
End. bal.	1,860
Equipment
Beg. bal.	0
11/06	16,000
End. bal.	16,000
Truck
Beg. bal.	0
11/08	43,000
End. bal.	43,000
Accounts Payable
11/30	4,000	Beg. bal.	0
		11/06	16,000
		11/24	1,250
		End. bal.	13,250
Notes Payable
		Beg. bal.	0
		11/06	38,700
		End. bal.	38,700
Common Stock
		Beg. bal.	0
		11/01	36,000
		End. bal.	36,000
Dividends
Beg. bal.	0
11/30	1,600
End. bal.	1,600
Fees Earned
		Beg. bal.	0
		11/12	8,000
		11/23	15,500
		End. bal.	23,500
Rent Expense
Beg. bal.	0
11/01	4,000
End. bal.	4,000
Wages Expense
Beg. bal.	0
11/30	4,750
End. bal.	4,750
Utilities Expense
Beg. bal.	0
11/29	3,660
End. bal.	3,660
Miscellaneous Expenses
Beg. bal.	0
11/29	1,700
End. bal.	1,700
Truck Expense
Beg. bal.	0
11/24	1,250
End. bal.	1,250

3.

Modern Designs Unadjusted Trial Balance November 30, 2018
Account Titles	Debit	Credit
	$	$
Cash	26,230
Accounts Receivable	5,000
Supplies	1,860
Prepaid Insurance	2,400
Equipment	16,000
Truck	43,000
Accounts Payable		13,250
Notes Payable		38,700
Common Stock		36,000
Dividends	1,600
Fees Earned		23,500
Rent Expense	4,000
Wages Expense	4,750
Utilities Expense	3,660
Truck Expense	1,250
Miscellaneous Expense	1,700
Totals	$ 111,450	$ 111,450

4. Excess of revenues over expenses for November 2018 : $ 8,140

5. Because adjusting entries are yet to be recorded, for example, for depreciation expense, supplies expense, insurance expense and interest expense.