Question

Part 1 – General Journal – Post the following journal entries to the general journal.   

Trans.	Date	Description
1	May 1	Sell 50,000 shares of common stock for $50,000 to obtain the funds necessary to start your business.
2	May 1	Borrow $20,000 from the local bank and sign a note promising to repay the full amount of the debt in 5 years.
3	May 1	Issue 1,500 shares of $2 par value preferred stock at $30/share.
4	May 1	Purchase equipment necessary for business operations for $15,000.
5	May 1	Pay one year of rent in advance, $12,000 ($1,000 per month.)
6	May 3	Purchase supplies on account, $800.
7	May 3	Purchase 200 units of inventory with cash.
8	May 6	Provide 40 hours of services to customers for cash (calculate using your hourly service rate).
9	May 10	Sell 100 units of inventory on account. (Perpetual method = 2 entries)
10	May 12	Sell 50 units of inventory to a customer on account with a sales discount of 2/10, n/30.
11	May 15	Purchase an additional 300 units of inventory on account.
12	May 20	The customer who purchased product on May 12th pays the amount due (within discount period).
13	May 23	Receive cash in advance for 20 hours of services to be completed in the future.
14	May 31	Sell 200 units of inventory to a customer who signs a 6-month promissory note at 10% interest for the balance due.
15	May 31	Pay employee salaries, $1,000.
16	May 31	Pay cash dividends to shareholders, $600.

Part 3 – General Ledger – Post the information from the journal entries into the general ledger.   

Part 4 – Trial Balance – Prepare a trial balance from the information in the general ledger.    

Part 2 cont. – Adjusting journal Entries – Post the following adjusting entries to the general journal

Adj-1	May 31	Record the portion of the Prepaid Rent used in May.
Adj-2	May 31	The company has $300 of supplies left at month end
Adj-3	May 31	Record one month of depreciation on the equipment. The equipment has a useful life of 10 years
Adj-4	May 31	Provide 10 hours of services that were paid in advance on May 23rd.
Adj-5	May 31	Record the receipt of a $300 utilities bill due on June 5th.
Adj-6	May 31	Record accrued interest on the $20,000 – 5 year note payable. The annual interest rate is 10%.

Part 3 cont. – General Ledger - Post the adjusting entries to the General Ledger.   

Part 5 – Adjusted Trial Balance – Post the ending balances from the General Ledger to the Adjusted Trial Balance. Debits should equal credits if you have done the prior steps correctly.

Part 6 – Prepare the end of month Income Statement

Part 7 – Prepare the end of month Retained Earnings Statement

Part 8 – Prepare the end of month Balance Sheet

Part 1 cont. - Add the following closing entries to the general journal:

Clo-1	May 31	Close out revenues/income
Clo-2	May 31	Close out expenses/losses
Clo-3	May 31	Close out dividends

Part 2 cont. - Post the above closing entries to the general ledger.

Part 9 – Prepare a post-closing trial balance.

Answer 1

Formula sheet

A	B	C	D	E	F	G	H
2
3		Part-1:
4		Journal Entry for the transactions will be as follows:
5		Date	Account	Debit	Credit
6		43221	Cash	50000
7			Common Stock		=E6
8
9		43221	Cash	20000
10			Notes Payable		=E9
11
12		43221	Cash (1500*$30)	=1500*30
13			Preferred Stock (1500*$2)		=1500*2
14			Paid in capital in excess of par		=E12-F13
15
16		43221	Equipment	15000
17			Cash		=E16
18
19		43221	Prepaid rent	12000
20			Cash		=E19
21
22		43223	Supplies	800
23			Cash		=E22
24
25
26		Assuming
27		Purchase price of inventory per unit is		20
28		Sales price per unit is		50
29		Service rate per hour		60
30		43223	Inventory (200*$20)	=200*E27
31			Cash		=E30
32
33		43226	Cash (40*$60)	=40*E29
34			Service Revenue		=E33
35
36		43230	Accounts Receivable (100*$50)	=100*E28
37			Sales Revenue		=E36
38
39			Cost of goods sold ($100*$20)	=100*E27
40			Inventory		=E39
41
42		43232	Accounts Receivable (50*$50)	=50*E28
43			Sales Revenue		=E42
44
45			Cost of goods sold ($50*$20)	=50*E27
46			Inventory		=E45
47
48		43235	Inventory (300*$20)	=300*E27
49			Cash		=E48
50
51		43240	Cash	=F53-E52
52			Sales Discount	=F53*2%		=F53*2%
53			Accounts Receivables		=E42
54
55		43243	Cash (20*$60)	=20*E29
56			Unearned revenue		=E55
57
58		43251	Notes Receivable (200*$50)	=200*E28
59			Sales Revenue		=E58
60
61			Cost of goods sold (200*$20)	=200*E27
62			Inventory		=E61
63
64		43251	Salaries Expense	1000
65			Cash		=E64
66
67		43251	Dividends	600
68			Cash		=E67
69