Question

Listed below are the transactions for Ajayi Art, Inc. for the month of July:

July 1 Ajayi Art, Inc. is started with an investment of $275,000 cash.

July 1 Ajayi purchases office equipment for $22,500 by signing a 10% note (interest and principal to be paid over the next 12 months).

July 6 Pays rent for the art gallery in advance for the next three months with a check for $3,030.

July 8 Purchases art supplies from Wacky Art Co. on credit for $10,500.

July 9 Receipt of $3,850 from a customer who has commissioned a piece of custom art to be completed by the end of the year.

July 11 Pays miscellaneous office expenses totaling $415 in cash.

July 13 Bills customers $4,730 for art classes provided in June.

July 15 Pays $3,850 to Wacky Art Co.

July 20 Receives $2,090 from customers on account.

July 30 Ajayi records $4,180 in salaries for the month of July. Paychecks will be disbursed to employees on August 2nd.

Enter the transactions shown above in appropriate general ledger accounts (use T-accounts). Use the following ledger accounts: Cash, Accounts Receivable, Supplies on Hand, Office Equipment, Accumulated Depreciation, Accounts Payable, Common Stock, Service Revenue, Rent Expense, Miscellaneous Office Expense, Office Salaries Expense, Supplies Expense, Depreciation Expense, and Income Summary.

Prepare an unadjusted trial balance.

Record depreciation using a 5-year life on the office equipment, the straight-line method, and no salvage value. Round to whole numbers. Also, record an adjustment for art supplies used in the amount of $1,660 and record interest expense for the note.

Prepare an adjusted trial balance.

Prepare an income statement, a statement of retained earnings, and an unclassified balance sheet.

Prepare closing entries.

Answer 1

Date	Account	Debit	Credit
Jul 1	Cash	275000
	Common Stock		275000
Jul 1	Office Equipment	22500
	Note Payable-Short Term		22500
Jul 6	Prepaid Rent	3030
	Cash		3030
Jul 8	Supplies on Hand	10500
	Accounts Payable		10500
Jul 9	Cash	3850
	Unearned Revenue		3850
Jul 11	Miscellaneous Expense	415
	Cash		415
Jul 13	Accounts Receivable	4730
	Service Revenue		4730
Jul 15	Accounts Payable	3850
	Cash		3850
Jul 20	Cash	2090
	Accounts Receivable		2090
Jul 30	Office Salaries Expense	4180
	Office Salaries Payable		4180
Adjusting Entries
Jul 30	Depreciation Expense	375
	Accumulated Depreciation		375
	22500/5/12
Jul 30	Supplies Expense	1660
	Supplies on Hand		1660
Jul 30	Interest Expense	187.5
	Interest Payable		187.5
	22500*10%/12

Cash
Jul 1	275000	Jul 1	3030
Jul 9	3850	Jul 11	415
Jul 20	2090	Jul 15	3850
End Bal	273645
Office Equipment
Jul 1	22500
End Bal	22500
Note Payable
		Jul 1	22500
		End Bal	22500
Misc Expense
Jul 11	415	Income Summary	415
Accounts Receivable
Jul 13	4730	Jul 20	2090
End Bal	2640
Accounts Payable
Jul 15	3850	Jul 1	10500
		End Bal	6650
Service Revenue
Income Summary	4730	Jul 13	4730
Supplies Expense
Jul 30	1660	Income Summary	1660
Interest Payable
		Jul 30	187.5
		End Bal	187.5

Common Stock
		Jul 1	275000
		End Bal	275000
Prepaid Rent
Jul 1	3030
End Bal	3030
Supplies on Hand
Jul 1	10500	Jul 30	1660
End Bal	8840
Unearned Revenue
		Jul 9	3850
		End Bal	3850
Office Salaries Expense
Jul 30	4180	Income Summary	4180
Office Salaries Payable
		Jul 30	3850
		End Bal	3850
Depreciation Expense
Jul 30	375	Income Summary	375
Accumulated Dep
		Jul 30	375
		End Bal	375
Interest Expense
Jul 30	187.5	Income Summary	187.5

	Unadjusted		Adjustments		Adjusted		Income Statement		Balance Sheet
	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit
Cash	273645				273645				273645
Accounts Receivable	2640				2640				2640
Supplies on Hand	10500			1660	8840				8840
Preapaid Rent	3030				3030				3030
Office Equipment	22500				22500				22500
Acc Depreciation				375		375				375
Accounts Payable		6650				6650				6650
Note Payable		22500				22500				22500
Unearned Revenue		3850				3850				3850
Interest Payable				187.5		187.5				187.5
Office Salaries Payable		4180				4180				4180
Common Stock		275000				275000				275000
Service Revenue		4730				4730		4730
Office Salaries Expense	4180				4180		4180
Misc Expense	415				415		415
Depreciation Expense			375		375		375
Interest Expense			187.5		187.5		187.5
Supplies Expense			1660		1660		1660
Total	316910	316910	2222.5	2222.5	317472.5	317472.5	6817.5	4730	310655	312742.5
							-2087.5			-2087.5
Grand Total									310655	310655