Question

Project 1 – The Accounting Cycle – Acct 1A -Summer 2020

Kelly Reilly owns a decorating service call K & R Decorating and provides its services for a fee. Kelly has hired you to prepare the books and financial statements. She provided the following information:

1. The following is the December 31, 20x0 post closing trial balance:

ACCOUNT

Cash
Supplies
Equipment
Accumulated Depreciation Miscellaneous Payables Salaries Payable
Long Term Note Payable K. Reilly, Capital

DEBIT

$200,000 20,000 100,000

_________ $320,000 ======

CREDIT

$ 10,000 40,000 4,000 50,000

216,000 $320,000 ======

The following transaction occurred during January, 20x1:

1. Purchased additional supplies for $12,000 on account (record the liability as a Miscellaneous Liability.)

2. Paid salaries owed to employees at December 31 20x0.

3. Provided decorating services for $84,000 cash.

4. Paid entire balance in Accounts Payables (including purchase in 1 above).

5. Purchased $15,000 worth of supplies on account (use Miscellaneous

   Payables.)

6. Paid six months’ worth of rent on buildings for $6,000, starting in January.

7. Made a payment on the long-term loan of $5,000. Of this amount $4,950 was

   principal and $50 was interest for January.

Additional information:

1. There was $5,000 worth of supplies left on hand at the end of the month.

2. The equipment is being depreciated at $833 per month.

3. At month end, the following expenses for January (to be paid in February) has

   not been recorded: Utilities $350 and Salaries $4,600.

Project 1 – The Accounting Cycle – Acct 1A -Summer 2020 Required:

1. Set up ledger (T accounts) and post the beginning balances.

2. Prepare journal entries for each of the transactions and post them to the

   ledgers.

3. Prepare unadjusted trial balance on the end of period (EOP) worksheet.

4. Journalize the adjusting entries needed for depreciation, supplies, rent and

   accrued liabilities; place adjustments on the EOP worksheet.

5. Prepare an adjusted trial balance on the EOP worksheet.

6. Extend the adjusted trial balance to prepare the Income Statement and

   Balance Sheet on the EOP worksheet.

7. Prepare the four basic financial statements for the month of January: Income

   Statement, Statement of Owner’s Equity, Balance Sheet & Statement of Cash

   Flows.

8. Prepare the closing entries and post to ledger.

9. Prepare post closing trial balance.

Answer 1

Solution:

1. Journal Entries

2. Posting in Ledgers

3. Adjusted Trial Balance and Post-closing trial balance

4. Income Statement

5. Balance Sheet and Equity Statement

6. Cash Flow Statement (Direct Method)