Question

On April 1, 2017, Jiro Nozomi created a new travel agency, Adventure Travel. The following transactions occurred during the company’s first month.
  

April		1		Nozomi invested $30,000 cash and computer equipment worth $20,000 in the company in exchange for common stock.
		2		The company rented furnished office space by paying $1,800 cash for the first month's (April) rent.
		3		The company purchased $1,000 of office supplies for cash.
		10		The company paid $2,400 cash for the premium on a 12-month insurance policy. Coverage begins on April 11.
		14		The company paid $1,600 cash for two weeks' salaries earned by employees.
		24		The company collected $8,000 cash on commissions from airlines on tickets obtained for customers.
		28		The company paid $1,600 cash for two weeks' salaries earned by employees.
		29		The company paid $350 cash for minor repairs to the company's computer.
		30		The company paid $750 cash for this month's telephone bill.
		30		The company paid $1,500 cash in dividends.

  
The company's chart of accounts follows:

101	Cash	405	Commissions Earned
106	Accounts Receivable	612	Depreciation Expense—Computer Equip.
124	Office Supplies	622	Salaries Expense
128	Prepaid Insurance	637	Insurance Expense
167	Computer Equipment	640	Rent Expense
168	Accumulated Depreciation—Computer Equip.	650	Office Supplies Expense
209	Salaries Payable	684	Repairs Expense
307	Common Stock	688	Telephone Expense
318	Retained Earnings	901	Income Summary
319	Dividends

  
Use the following information:

Two-thirds (or $133) of one month’s insurance coverage has expired.

At the end of the month, $600 of office supplies are still available.

This month’s depreciation on the computer equipment is $500.

Employees earned $420 of unpaid and unrecorded salaries as of month-end.

The company earned $1,750 of commissions that are not yet billed at month-end.

  
Required:
1. & 2. Prepare journal entries to record the transactions for April and post them to the ledger accounts in Requirement 6b. The company records prepaid and unearned items in balance sheet accounts.
3. Using account balances from Requirement 6b, prepare an unadjusted trial balance as of April 30.
4. Journalize and post the adjusting entries for the month and prepare the adjusted trial balance.
5a. Prepare the income statement for the month of April 30, 2017.
5b. Prepare the statement of retained earnings for the month of April 30, 2017.
5c. Prepare the balance sheet at April 30, 2017.
6a. Prepare journal entries to close the temporary accounts and then post to Requirement 6b.
6b. Post the journal entries to the ledger.
7. Prepare a post-closing trial balance.

Answer 1

1.

Adventure Travel
General journal for the month of April 2017
Date	Account Title	Debit	Credit
4/1/2017	Cash	30000
	Computer Equipment	20000
	Common Stock		50000
	(Investment made )
4/2/2017	Rent expense	1800
	Cash		1800
	(Rent paid for April)
4/3/2017	Office supplies	1000
	Cash		1000
	(Office supplies purchase for cash)
4/10/2017	Prepaid expense	2400
	Cash		2400
	(Cash paid for 12-month insurance policy)
4/14/2017	Salaries expense	1600
	Cash		1600
	(Cash paid for two weeks' salaries)
4/24/2017	Cash	8000
	Commission earned		8000
	(Cash received for commission earned)
4/28/2017	Salaries expense	1600
	Cash		1600
	(Cash paid for two weeks' salaries)
4/29/2017	Repairs expense	350
	Cash		350
	(Cash paid for repairs expense)
4/30/2017	Telephone expense	750
	Cash		750
	(Cash paid for telephone expense)
4/30/2017	Dividends	1500
	Cash		1500
	(Cash paid for dividends)

3.

Adventure Travel
Worksheet for the month ending April 30, 2017
Account	Unadjusted Trial Balance
	Debit	Credit
Cash	28500
Accounts Receivable	0
Office Supplies	1000
Prepaid Expenses	2400
Computer Equipment	20000
Accumulated Depreciation - Computer Equip.		0
Salaries Payable		0
Common stock		50000
Retained Earnings		0
Dividends	0
Commissions earned		8000
Depreciation expense - Computer Equip.	0
Salaries Expense	3200
Insurance Expense	0
Rent Expense	1800
Office Supplies expense	0
Repairs Expense	350
Telephone Expense	750
T O T A L	58000	58000

4.

Adventure Travel
Adjustment entries for the month of April, 2017
Date	Account Title	Debit	Credit
4/30/2017	Insurance expense	133
	Prepaid expense		133
	(Insurance expired recorded)
	Office supplies expense	400
	Office supplies expense		400
	(Office supplies expense recorded)
	Depreciation expense	500
	Accumulated depreciation - Computer Equip.		500
	(Depreciation expense recorded)
	Salaries expense	420
	Salaries payable		420
	(Unpaid and accrued salaries recorded)
	Accounts Receivable	1750
	Commission earned		1750
	(Unbilledcommission revenue recorded)

Adventure Travel
Worksheet for the month ending April 30, 2017
Account	Adjusted
	Debit	Credit
Cash	28500
Accounts Receivable	1750
Office Supplies	600
Prepaid Expenses	2267
Computer Equipment	20000
Accumulated Depreciation - Computer Equip.		500
Salaries Payable		420
Common stock		50000
Retained Earnings		0
Dividends	0
Commissions earned		9750
Depreciation expense - Computer Equip.	500
Salaries Expense	3620
Insurance Expense	133
Rent Expense	1800
Office Supplies expense	400
Repairs Expense	350
Telephone Expense	750
T O T A L	60670	60670

5a.

Adventure Travel
Income statement for the month ending April30, 2017
Commission Earned		9750
Expenses:
Salaries Expense	3620
Rent Expense	1800
Telephone Expense	750
Depreciation expense	500
Office supplies expense	400
Repairs expense	350
Insurance expense	133
Total expenses		7553
Net Income		2197

5b.

Adventure Travel
Statement of retained earnings for the month of April 2017
Balance as at April 1, 2017		0
Add: Net income for the month		2197
Less: Dividend paid		1500
Balance as at April 30, 2017		697

5c.

Adventure Travel
Balance sheet as at April 30, 2017
Assets
Cash		27000
Accounts receivable		1750
Office supplies		600
Prepaid expenses		2267
Total current asets		31617
Computer equipment	20000
Less: Accumulated depreciation	500	19500
Total Assets		51117
Liabilities and stockholders' equity
Salaries payable		420
Common stock		50000
Retained earnings		697
Total liabilities and equity		51117

6a.

Adventure Travel
Closing entries for the month of April, 2017
Date	Account Title	Debit	Credit
4/30/2017	Commission earned		9750
	Salaries Expense	3620
	Rent Expense	1800
	Telephone Expense	750
	Depreciation expense	500
	Office supplies expense	400
	Repairs expense	350
	Insurance expense	133
	Income summary		2197
4/30/2017	Retained earnings	1500
	Dividends		1500

7.

Adventure Travel
Worksheet for the month ending April 30, 2017
Account	Post Closing Trial balance
	Debit	Credit
Cash	27000
Accounts Receivable	1750
Office Supplies	600
Prepaid Expenses	2267
Computer Equipment	20000
Accumulated Depreciation - Computer Equip.		500
Salaries Payable		420
Common stock		50000
Retained Earnings		697
Dividends
Commissions earned
Depreciation expense - Computer Equip.
Salaries Expense
Insurance Expense
Rent Expense
Office Supplies expense
Repairs Expense
Telephone Expense
T O T A L	51617	51617