Question

J. Sweet incorporated a marketing firm named J. Sweet & Associates Ltd. at the beginning of January 2020. JS (J. Sweet’s nickname) discovered that you are taking an accounting course and has asked you for assistance in preparing the financial information for the company’s bank. JS decided on January 31^st for the end of their fiscal period, so you only need statements for the first month of operations. If you need to calculate any numbers please include these calculations in the narrative line for your journal entry. Journal entry narratives are recorded below the journal entry and include relevant information (including calculations) about the entry. For the purposes of this assignment, round any cents to the nearest dollar (using the 4/5 rule).

Jan 1       The company issued 50 common shares to JS for $7,500 cash.

Jan 1         A business loan was approved by the bank for $35,000, which was deposited into the company’s bank account on the same day. The loan bears interest at 6%, payable on the first day of each month. The loan principal of $35,000 is due on January 1, 2022.

Jan 1         JS was able to find suitable office space available immediately and the company paid for three month’s rent in advance for a total of $4,500.

Jan 1       JS purchased a new computer on account for the company for $2,700. The total invoice is due on February 15, at which time it will be paid. The computer is expected to last three years (36 months) at which time it will have a zero $ value. JS felt that straight line depreciation would be appropriate for this asset.

Jan 1         JS also felt that name recognition was important for the firm and purchased an existing trademark (from a competing firm whose owner/founder was retiring and shutting down the business). JS planned to use this in all the firm’s promotional material for the foreseeable future. Purchasing the trademark and its legal rights cost JS $5,000.

Jan 3         JS went shopping for office supplies and paid $3,800 cash for the purchases.

Jan 6         JS hired Wyatt Printing to print brochures for the Company at a cost of $1,750. These were delivered the same day and the company paid for them. All of these brochures were delivered to prospective clients that week.

Jan 7         Client #1 hired JS to prepare a marketing plan for his business.

Jan 10       JS completed the plan for Client #1 and received $3,000 cash.

Jan 13       Client #2 hired JS to prepare a media plan and media buy. JS expects it will take a couple of weeks to research and complete the work. JS will not invoice the client until the work is completed.

Jan 17       Because of the success of the first few weeks, JS hired (and immediately put to work that day) an Administrative Assistant on Friday January 17^th to organize the office. The Admin Assistant agreed to a bi-weekly (every two weeks) salary of $1,600, which is to be paid every second Friday with the first paycheque due on Friday, January 24. (The work week is Monday to Friday).

Jan 24       JS completed the work for Client #2 and the Admin Assistant sent out an invoice for $14,000 to the customer. The customer said they wouldn’t be able to pay the bill until February.

Jan 29       Client #3 hired JS to do a feasibility study for a new product. JS expects this will be a month-long project and is expected to bring in $32,000 in revenue. Because of the length of time before completion, JS asked for and received an $8,000 deposit from the client. JS does not expect to do any work on this project until February.

Jan 31       In order to pay off JS’s personal credit card bill (a result of some enthusiastic Christmas shopping) and to celebrate the success of the first month, the Company declared a dividend of $5,000 to be paid on January 31.

The company plans to record adjusting entries at the end of each month. Additional data for January is as follows:

1. Supplies were counted on January 31 and there was $2,750 worth of supplies remaining.
2. The firm planned to be open as much as possible in January. But due to a previous commitment, JS had to shut the firm down on January 27^th & 28^th. The Administrative Assistant was not paid for those days (but didn’t really mind because it gave her a 4 day weekend!).
3. JS had been using a personal cell phone during January for business activities. JS’s accountant had indicated that this was an allowable expense for the business, so JS planned to write a reimbursement cheque (to himself) for $95 but hadn’t gotten around to it (this would probably happen in the February sometime.
4. The bank indicated that the 6% interest rate would be applied on the basis of the nearest full month for interest purposes (i.e. any month or part-month would be 1/12 of the year for interest purposes).
5. As it turned out, JS had been able to do some of the feasibility study for Client #3. JS estimated that about $10,000 of the project had been completed and delivered to the client by January 31. JS wasn’t sure what to do about this, because the remaining work on the project (and the billing to the client) wouldn’t happen until the next month (February).

As this firm would be considered a small business for tax purposes, the firm faced an effective tax rate of 12% (this is the combined federal and provincial rates).

Part C – From the journal entries and adjusting entries provided in the Part 1 solution (after having submitted Part 1), post these entries to T accounts using the Super T form provided on Brightspace. Make sure they are referenced appropriately back to the original journal entries (use the J numbers and AE numbers provided in the Part 1 solution). The Super T form is simply provided to assist you, you will have to provide appropriate headers, titles, etc., and, may, have to add accounts where needed and as appropriate. Remember to organize them correctly in the Super-T quadrants.

Part D – Prepare an adjusted trial balance (in good form) using the trial balance form on Brightspace as a template for your work, as at January 31, 2020.

Part E – Prepare a multi-step Statement of Income, Statement of Changes in Equity, and Statement of Financial Position for the company’s bank to review (using Excel). Refer to the Term Assignment Instructions (in Brightspace).

Answer 1

Part I :

Date	General Journal	Debit	Credit
2020		$	$
Jan 1	Cash	7,500
	Common Stock		7,500
Jan 1	Cash	35,000
	Loan Payable		35,000
Jan 1	Prepaid Rent	4,500
	Cash		4,500
Jan 1	Computer Equipment	2,700
	Accounts Payable		2,700
Jan 1	Trademark	5,000
	Cash		5,000
Jan 3	Office Supplies	3,800
	Cash		3,800
Jan 6	Advertising and Promotion Expense	1,750
	Cash		1,750
Jan 7	No journal entry required	0	0
Jan 10	Cash	3,000
	Service Revenue		3,000
Jan 13	No journal entry required	0	0
Jan 17	No journal entry required	0	0
Jan 24	Accounts Receivable	14,000
	Service Revenue		14,000
Jan 24	Wages Expense	800
	Cash		800
Jan 29	Cash	8,000
	Unearned Revenue		8,000
Jan 31	Dividends	5,000
	Cash		5,000
Adusting Entries
Jan 31	Supplies Expense	1,050
	Office Supplies		1,050
Jan 31	Wages Expense	480
	Wages Payable		480
Jan 31	Telephone Expense	95
	Accounts Payable		95
Jan 31	Interest Expense ( $ 35,000 x 6% x 1/12)	175
	Interest Payable		175
Jan 31	Unearned Revenue	8,000
	Accounts Receivable	2,000
	Service Revenue		10,000
Jan 31	Rent Expense	1,500
	Prepaid Rent		1,500
Jan 31	Depreciation Expense	75
	Accumulated Depreciation: Computer Equipment		75
Jan 31	Income Tax Expense	2,529
	Income Taxes Payable		2,529