Question

Use the following transactions to create transactions for a service business of your choice:

Al Ain Services Company had the following transactions for January 2020.

January 1 The owner invested in the company cash $70,000 and Equipment $25,000.

January 2 The company purchased office supplies for $4,200, on account

January 5 Paid $600 for an insurance covering the full year

January 7 Provided a service to a client and received $27,500 cash.

January 9 The company borrowed $20,000 cash from the bank. Annual interest is 12% .

January 12 Received $15,000 cash in advance from Fayda Company in payment for a service to be completed within the 3 months.

January 15 The company purchased equipment for $60,000 and paid $12,000 cash. The remaining amount was on account.

January 20 Owner withdrew $5,500 cash from the company for personal use.

January 31 The company paid $ 2,800 cash for advertising in a local news paper.

I. Required:

A. Prepare general journal entries for the month.                                                [20 Marks]

B. Post entries to the Ledger                                                                                         [10 marks]

C. Prepare Trial balance                                                                                                   [10 Marks]

Following additional information was provided at the end of January 2019.

1. The insurance expense for January was not recorded.

2. The equipment has a useful life of 10 years. Record depreciation expense for January.

3. On January 31, physical count found that supplies of $1,300 were in hand.

4. $5,000 worth of services was provided to Fayda Company during January

5 The interest on note payable for $150 has not yet been paid.

6. Wages for the last 2 days of January was unpaid, weekly wages for 5-days a week is $15,000

II. Required

Prepare adjusting entries for the above information and prepare an adjusted Trial Balance.

                                                                                                                                                               [30 Marks]

III. Required

Prepare the following financial statements based from the above adjusted trial balance:

1. Income statement                                                                                             [10 Marks]
2. Statement of Owner’s Equity                                                                                        [5 Marks]
3. Classified Balance sheet                                                                                                 [15 Marks]

Answer 1

Requirement 1. General Journal
Date	Account Title	Debit	Credit
01-Jan	Cash	70,000
	Equipment	25,000
	Owner's Capital		95,000
02-Jan	Office Supplies	4,200
	Account Payable		4,200
05-Jan	Prepaid Insurance	600
	Cash		600
07-Jan	Cash	27,500
	Service Revenue		27,500
09-Jan	Cash	20,000
	Bank Loan-Note Payable		20,000
12-Jan	Cash	15,000
	Unearned Service Revenue		15,000
15-Jan	Equipment	60,000
	Cash		12,000
	Account Payable		48,000
20-Jan	Owner's Drawings	5,500
	Cash		5,500
31-Jan	Advertising Expense	2,800
	Cash		2,800
General Ledger
Cash
Date	Account title	Debit	Credit	Balance
01-Jan	Owner's Capital	$70,000		$70,000
05-Jan	Prepaid Insurance		600	69,400
07-Jan	Service Revenue	27,500		96,900
09-Jan	Bank Loan	20,000		1,16,900
12-Jan	Unearned Service Revenue	15,000		1,31,900
15-Jan	Equipment		12,000	1,19,900
20-Jan	Owner's Drawing		5,500	1,14,400
31-Jan	Advertising Expense		2,800	1,11,600
Equipment
01-Jan	Owner' Capital	25,000		25,000
15-Jan	Cash	12,000		37,000
	Account Payable	48,000		85,000
Owner's Capital
01-Jan	Cash		70,000	70,000
	Equipment		25,000	95,000
Office Supplies
02-Jan	Account Payable	4,200		4,200
Account Payable
02-Jan	Office Supplies		4,200	4,200
15-Jan	Equipment		48,000	52,200
Prepaid Insurance
05-Jan	Cash	600		600
Service Revenue
07-Jan	Cash		27,500	27,500
Bank Loan
09-Jan	Cash		20,000	20,000
Unearned Service Revenue
12-Jan	Cash		15,000	15,000
Owner' Drawings
20-Jan	Cash	5,500		5,500
Advertising Expense
31-Jan	Cash	2,800		2,800

Al Ain
Unadjusted Trial Balance
For the Month Ended January 31
Account Title	Debit	Credit
Cash	$111,600
Office Supplies	4200
Prepaid Rent	600
Equipment	85000
Account Payable		52,200
Unearned Service Revenue		15,000
Bank Loan		20,000
Owner's Capital		95,000
Service Revenue		27,500
Owner's Drawings	5,500
Advertisement	2,800
Total	$209,700	$209,700

Adjusting Entries III

31-Jan	Insurance Expense	50
	Prepaid Insurance		50
31-Jan	Depreciation Expense	708
	Accumulated Depreciation-Equipment		708
31-Jan	Supplies Expense	2,900
	Office Supplies		2,900
31-Jan	Unearned Service Revenue	5,000
	Service Revenue		5,000
31-Jan	Interest Expense	150
	Interest Payable		150
31-Jan	Wage Expense	6,000
	Wage Payable		6,000

Al Ain
Adjusted Trial Balance
For the Month Ended January 31
Account Title	Debit	Credit
Cash	111600
Office Supplies	1300
Prepaid Rent	550
Equipment	85000
Accumulated Depreciation-Equipment		708
Account Payable		52,200
Interest Payable		150
Wage Payable		6,000
Unearned Service Revenue		10,000
Bank Loan		20,000
Owner's Capital		95,000
Service Revenue		32,500
Owner's Drawings	5,500
Interest Expense	150
Wage Expense	6,000
Supplies Expense	2,900
Insurance Expense	50
Depreciation Expense	708
Advertisement	2,800
Total	216,558	216,558