Question

Unadjusted Trial Balance
December 31, 2019
	Debit	Credit
Cash	165,200
Office Supplies/Lures	8,500
Prepaid Insurance	2,900
Equipment - Boat	17,000
Accounts Payable		4,500
Unearned Service Revenue		21,000
Notes Payable		15,000
Common Stock		14,000
Additional Paid in Capital - CS		134,000
Service Revenue		32,000
Unearned Revenue- Gain on Sale		400
Interest Expense	300
Salaries Expense	11,000
Utilities Expense	3,000
Boat Gas Expense	13,000
Total	220,900	220,900

Prepare Adjusting Journal Entries

1. The 3/1/19 Notes Payable principle from First Hawaiian Bank is due in 5 years at an annual interest rate of 4%. Interest must be paid every 6-months.  

  2. The boat purchased on 3/1/19 is depreciated using the straight-line method over a useful life of 9 years. Salvage is zero.

3. ​​​​​​​Due to the use of office supplies, the Office Supplies and lures only added up to $100 at the end of the 2019 year.

​​​​​​​ 4. Insurance expense was recorded. The 18 month policy was purchased on 5/1/19 for $2900 and paid in full.

​​​​​​​ 5. On 12/30/19, 50% of the services were provided early from the customers that paid cash on 9/1/19.

Don’t worry about updating the General Ledger or the unadjusted trail balance.

Post to the Worksheet

Prepare Financial Statements:

1. Income Statement (Single-step)
2. Statement of Retained Earnings
3. Balance Sheet

Prepare Closing Journal Entries

1. Record all temporary accounts in Closing Journal Entries
2. $800 dividend was declared and paid at the end of the year 12/31/19.

           ** Ignore Tax

Answer 1

Requirement 1: Prepare the following adjusting entries

Item	Account Title and Explanation	Debits	Credits
1	Interest expense ($15,000 × 4% × 4 ÷ 12)	$200
	Interest payable		$200
	To record accrued interest expense
2	Depreciation expense ($17,000 ÷ 9 × 10 ÷ 12)	$1,574
	Accumulated depreciation - Equipment		$1,574
	To record depreciation expense
3	Supplies expense (8,500 − $100)	$8,400
	Office suppliers/Lures		$8,400
	To record supplies expense
4	Insurance expense ($2,900 × 8 ÷ 18)	$1,289
	Prepaid insurance		$1,289
	To record insurance expense
5	Unearned service revenue	$10,500
	Service revenue		$10,500
	To record service revenue earned
6	Dividends	$800
	Cash		$800
	To record dividends paid

Requirement 2: Prepare income statement, retained earnings statement and balance sheet as follows

XYZ Inc
Income statement
For the Year Ended December 31, 2019
Service Revenue	$42,500
Unearned Revenue- Gain on Sale	$400
Total Revenue		$42,900
Less: Expenses:
Salaries Expense	$11,000
Utilities Expense	$3,000
Boat Gas Expense	$13,000
Depreciation Expense	$1,574
Supplies Expense	$8,400
Insurance Expense	$1,289
Interest Expense	$500
Total Expenses		$38,763
Net income		$4,137
XYZ Inc
Statement of Retained Earnings
For the Year Ended December 31, 2019
Retained earnings - Beginning balance		$0
Net income	$4,137
Less: Cash dividends paid	$800
Increase in retained earnings		$3,337
Retained earnings - Ending balance		$3,337
XYZ Inc
Balance Sheet
December 31, 2019
Assets
Current assets
Cash	$164,400
Office Supplies/Lures	$100
Prepaid Insurance	$1,611
Total current assets		$166,111
Property, plant and equipment
Equipment - Boat	$17,000
Less: Accumulated depreciation - Equipment	($1,574)	$15,426
Total assets		$181,537
Liabilities and stockholders equity
Current liabilities
Accounts Payable	$4,500
Unearned Service Revenue	$10,500
Interest Payable	$200
Total current liabilities		$15,200
Noncurrent liabilities
Notes Payable		$15,000
Total liabilities		$30,200
Stockholders' equity
Common stock	$14,000
Additional Paid in Capital - CS	$134,000
Retained earnings	$3,337
Total stockholders' equity		$151,337
Total Liabilities and stockholders equity		$181,537

Requirement 3: Prepare the following closing journal entries

Date	Account Title and Explanation	Debits	Credits
Dec 31	Service Revenue	$42,500
2019	Unearned Revenue- Gain on Sale	$400
	Income summary		$42,900
	To close revenue accounts
	Income summary	$38,763
	Salaries Expense		$11,000
	Utilities Expense		$3,000
	Boat Gas Expense		$13,000
	Depreciation Expense		$1,574
	Supplies Expense		$8,400
	Insurance Expense		$1,289
	Interest Expense		$500
	To close expense accounts
	Income summary	$4,137
	Retained earnings		$4,137
	To close income summary to retained earnings
	Retained earnings	$800
	Dividends		$800
	To close dividends to retained earnings

Notes: