Question

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

April		1		Nozomi invested $50,000 cash and computer equipment worth $25,000 in the company in exchange for common stock.
		2		The company rented furnished office space by paying $1,600 cash for the first month’s (April) rent.
		3		The company purchased $1,900 of office supplies for cash.
		10		The company paid $2,800 cash for the premium on a 12-month insurance policy. Coverage begins on April 11.
		14		The company paid $900 cash for two weeks' salaries earned by employees.
		24		The company collected $13,500 cash for commissions earned.
		28		The company paid $900 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 $1,500 cash for this month's telephone bill.
		30		The company paid $2,200 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:

1. Prepaid insurance of $156 has expired this month.
2. At the end of the month, $400 of office supplies are still available.
3. This month’s depreciation on the computer equipment is $600.
4. Employees earned $590 of unpaid and unrecorded salaries as of month-end.
5. The company earned $1,500 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 the adjusting entries for the month and prepare the adjusted trial balance.
5a. Prepare the income statement for the month of April 30.
5b. Prepare the statement of retained earnings for the month of April 30.
5c. Prepare the balance sheet at April 30.
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 & 2.

GENERAL JOURNAL
Date	Account Titles and Explanation	Ref.	Debit	Credit
01-Apr	Cash	101	$        50,000
	Computer Equipemnt	167	$        25,000
	Common Stock	307		$        75,000
	(Commenced business with cash and equipment against common stock)
02-Apr	Rent Expense	640	$          1,600
	Cash	101		$          1,600
	(Incurred Rent Expense for the month of April)
03-Apr	Office Supplies	124	$          1,900
	Cash	101		$          1,900
	(Purchased office supplies for cash)
10-Apr	Prepaid Insurance	128	$          2,800
	Cash	101		$          2,800
	(Paid Prepaid Insurance for 12 months commencing April 11)
14-Apr	Salaries Expense	622	$              900
	Cash	101		$              900
	(Paid salaries for 2 weeks)
24-Apr	Cash	101	$        13,500
	Commission Earned	405		$        13,500
	(Commision Earned and received)
28-Apr	Salaries Expense	622	$              900
	Cash	101		$              900
	(Paid salaries for 2 weeks)
29-Apr	Repairs Expense	684	$              350
	Cash	101		$              350
	(Paid for Minor Repairs of computer equipment)
30-Apr	Telephone Expense	688	$          1,500
	Cash	101		$          1,500
	(April's Month Telephone Bill Paid in cash)
30-Apr	Dividends	319	$          2,200
	Cash	101		$          2,200
	(Paid Dividends in Cash)

General Ledger: Before Adjusting Entries

ACCOUNT Cash	ACCOUNT NO. 101
DATE	DESCRIPTION	POST REF.	DEBIT	CREDIT	BALANCE
DEBIT	CREDIT
April	30			51,350.00		51,350.00
ACCOUNT Computer Equipment	ACCOUNT NO. 167
DATE	DESCRIPTION	POST REF.	DEBIT	CREDIT	BALANCE
DEBIT	CREDIT
April	30			25,000.00		25,000.00
ACCOUNT Common Stock	ACCOUNT NO. 307
DATE	DESCRIPTION	POST REF.	DEBIT	CREDIT	BALANCE
DEBIT	CREDIT
April	30				75,000.00		7,500.00
ACCOUNT Rent Expense	ACCOUNT NO. 640
DATE	DESCRIPTION	POST REF.	DEBIT	CREDIT	BALANCE
DEBIT	CREDIT
April	30			1,600.00		1,600.00
ACCOUNT Office Supplies	ACCOUNT NO. 124
DATE	DESCRIPTION	POST REF.	DEBIT	CREDIT	BALANCE
DEBIT	CREDIT
April	30			1,900.00		1,900.00
ACCOUNT Prepaid Insurance	ACCOUNT NO. 128
DATE	DESCRIPTION	POST REF.	DEBIT	CREDIT	BALANCE
DEBIT	CREDIT
April	30			2,800.00		2,800.00
ACCOUNT Salaries Expense	ACCOUNT NO. 622
DATE	DESCRIPTION	POST REF.	DEBIT	CREDIT	BALANCE
DEBIT	CREDIT
April	30			1,800.00		1,800.00
ACCOUNT Commission Earned	ACCOUNT NO. 405
DATE	DESCRIPTION	POST REF.	DEBIT	CREDIT	BALANCE
DEBIT	CREDIT
April	30				13,500.00	-	13,500.00
ACCOUNT Repairs Expense	ACCOUNT NO. 684
DATE	DESCRIPTION	POST REF.	DEBIT	CREDIT	BALANCE
DEBIT	CREDIT
April	30			350.00		350.00
ACCOUNT Telephone Expense	ACCOUNT NO. 688
DATE	DESCRIPTION	POST REF.	DEBIT	CREDIT	BALANCE
DEBIT	CREDIT
April	30			1,500.00		1,500.00
ACCOUNT Dividends	ACCOUNT NO. 319
DATE	DESCRIPTION	POST REF.	DEBIT	CREDIT	BALANCE
DEBIT	CREDIT
April	30			2,200.00		2,200.00

3.

UNADJUSTED TRIAL BALANCE
AS ON 30 APRIL
Account Tiltles	Balance
	Debit	Credit
Cash	$        51,350
Computer Equipment	$        25,000
Common Stock		$ 75,000
Rent Expense	$          1,600
Office Supplies	$          1,900
Prepaid Insurance	$          2,800
Salaries Expense	$          1,800
Commission Earned		$ 13,500
Repairs Expense	$              350
Telephone Expense	$          1,500
Dividends	$          2,200
TOTAL	$        88,500	$ 88,500

4.

30-Apr	Insurance Expense	637	$              156
	Prepaid Insurance	128		$              156
	(Insurance expense for the month of april adjusted)
30-Apr	Office Supplies Expense	650	$          1,500
	Office Suuplies	124		$          1,500
	(Office supplies used during the month of April)
30-Apr	Depreciation Expense -Computer Equipment	612	$              600
	Accumulated Depreciation - Computer Equipment	168		$              600
	(Deprecaition for the month of April)
30-Apr	Salaries Expense	622	$              590
	Salaries Payable	209		$              590
	(Salary earned but remains unpaid)
30-Apr	Accounts Receivable	106	$          1,500
	Commision Earned	405		$          1,500
	(Commission earned but not received)

ADJUSTED TRIAL BALANCE
AS ON 30 APRIL
Account Tiltles	Balance
	Debit	Credit
Cash	$        51,350
Computer Equipment	$        25,000
Accounts Receivable	$          1,500
Office Supplies	$              400
Prepaid Insurance	$          2,644
Common Stock		$ 75,000
Accumulated Deprecaition: Computer Equipment		$        600
Salaries Payable		$        590
Dividends	$          2,200
Rent Expense	$          1,600
Salaries Expense	$          2,390
Repairs Expense	$              350
Telephone Expense	$          1,500	$           -
Depreciation Expense	$              600
Insurance Expense	$              156
Office Supplies Expense	$          1,500
Commission Earned		$ 15,000
TOTAL	$        91,190	$ 91,190

5a.

FOR THE MONTH OF APRIL
Revenue:
Commission Earned	$                                             15,000
Total of Revenues	$                                             15,000
Expenses:
Rent Expense	1,600
Salaries Expense	2,390
Repairs Expense	350
Telephone Expense	1,500
Depreciation Expense	600
Insurance Expense	156
Office Supplies Expense	1,500
Total of Expenses	$                                                8,096
Net Income (Revenue - Expenses)	$                                                6,904
Dividends	$                                                2,200
Retained Earnings (Net Income - Dividends)	$                                                4,704

5b.

STATEMENT OF RETAINED EARNINGS
AS ON 30 APRIL
Opening Retained Earnings	$                                                       -
Add: Profit for year after payment of dividends	$                                                4,704
Closing Retained Earnings	$                                                4,704

5c.

BALANCE SHEET
AS ON 30 APRIL
Assets:
Cash	$                                             51,350
Accounts Receivable	$                                                1,500
Office Supplies	$                                                   400
Prepaid Insurance	$                                                2,644
Computer Equipment	$                                             25,000
Less: Accumulated Depreciation	$                                                 (600)
Total Assets	$                                             80,294
Equity and Liabilities:
Common Stock	$                                             75,000
Retained Earnings	$                                                4,704
Salaries Payable	$                                                   590
Total Equity & Liabilities	$                                             80,294

6a.

30-Apr	Commission Earned	405	$        15,000
	Rent Expense	640		$          1,600
	Salaries Expense	622		$          2,390
	Insurance Expense	637		$              156
	Depreciation Expense	612		$              600
	Office Supples Expense	650		$          1,500
	Telephone Expense	688		$          1,500
	Repairs Expense	684		$              350
	Income Summary	901		$          6,904