Question

1. On January 1, 2020, Dreamland purchased land for $10,000 and a building for $90,000. The land was paid for with cash. The building was paid for with $5,000 cash and the remainder was financed with a 10-year notes payable.

2. Paid the accounts payable balance from 2019.

3. Purchase $500 of supplies on account.

4. Purchased 100 alarm systems (inventory) on account at a cost of $200 each.

5. Paid $6,000 of advertising expense during the year.

6. Sold 95 alarm systems for $400 each. All sales were on account. (Note - Be sure to compute cost of goods sold using the FIFO cost flow method.)

7. Paid $7,500 of utilities expense for the year.

8. Billed $65,000 of monitoring services on account for the year.

9. Replenished the petty cash fund on June 30. The fund had $25 cash remaining and receipts of $90 for yard mowing and $35 for postage.

10. After numerous attempts to collect from customers, the company wrote off $650 of uncollectible accounts receivable.

11. Collected $83,000 of accounts receivable during the year.

12. On July 1, 2020, issued $25,000 of 5 percent, five year bonds. The bonds were issued at 98.

13. On October 1, 2020, paid the note and interest owed to Trust Bank (See Beg. Balance in Notes Payable). (Note - Record Interest Expense for January-September)

14. Paid employees a total of $20,000 for salaries for the year. Federal income taxes withheld amounted to $2,200. The net amount of salaries was paid in cash. (Note - $20,000 is the gross salary amount and the actual amount paid in cash will be less due to the federal income taxes withheld. Ignore employer taxes.)

15. Paid the Federal Income Taxes withheld from salaries.

16. Paid the annual installment on the note used to finance the purchase of the building. The note had an interest rate of 5 percent and annual payments of $11,008.

17. Paid a dividend of $10,000 to the shareholders.

Adjustments:

18. There was $275 of supplies on hand at the end of the year.

19. Recognized the expired rent for the office building for the year.

20. Recognized the uncollectible accounts expense for the year using the allowance method. Dreamland estimates that 2 percent of sales on account will not be collected.

21. Recognized depreciation expense on the equipment. The equipment has a six-year life and a $2,500 salvage value. The company uses straight-line depreciation for the equipment. The equipment was purchased in 2018 and a full year of depreciation was taken in 2018 and in 2019. (Only record 2020 depreciation.)

22. Recognized depreciation expense on the service truck. The service truck has a five-year life and an $8,000 salvage value. The company uses double-declining-balance for the service truck. The truck was purchased in 2018 and a full year of depreciation was taken in 2018 and in 2019. (Only record 2020 depreciation.)

23. Recognized depreciation expense on the building. The building has a 40-year life and a $50,000 salvage value. The company uses straight-line depreciation for the building.

Dreamland Security Services Inc
Journal Entries for the year ending December 31, 2020
Transaction	Account Title	Debit	Credit
1	Land	10,000
	Building	90,000
	Cash		15,000
	Notes Payable		85,000
2	Accounts Payable	12,500
	Cash		12,500
3	Supplies	500
	Accounts Payable		500
4	Inventory	20,000
	Accounts Payable		20,000
5	Advertising Expense	6,000
	Cash		6,000
6	Accounts Receivable	38,000
	Sales		38,000
	Cost of Goods Sold	18,460
	Inventory		18,460
7	Utilities Expense	7,500
	Cash		7,500
8	Accounts Receivable	65,000
	Service Revenue		65,000
9	Mics Expense	125
	Cash		125
10	Allowance for Doubtful Accounts	650
	Accounts Receivable		650
11	Cash	83,000
	Accounts Receivable		83,000
12	Cash	24,500
	Discount on Bond Issue	500
	Bonds Payable		25,000
13	Notes Payable	15,000
	Interest Expense	900
	Cash		15,900
14	Salary Expense	20,000
	Federal Income Tax Payable		2,200
	Cash		17,800
15	Federal Income Tax Payable	2,200
	Cash		2,200
16	Notes Payable	6,758
	Interest Expense	4,250
	Cash		11,008
17	Dividend	10,000
	Cash		10,000
18	Supplies Expense	575
	Supplies		575
19	Rent Expense	5,400
	Prepaid Rent		5,400
20	Bad Debt Expense	760
	Allowance for Doubtful Accounts		760
21	Depreciation Expense	1,250
	Accumulated Depreciation		1,250
22	Depreciation Expense	5,184
	Accumulated Depreciation		5,184
23	Depreciation Expense	1,000
	Accumulated Depreciation		1,000

Service Truck
Cost	36,000
Life	5 Years
Rate of Depreciation	40%
2018 Depreciation	14,400
Book Value for 2019	21,600
2019 Depreciation	8,640
Book Value for 2020	12,960
2020 Depreciation	5,184

Dreamland Securities Services, Inc. Trial Balance
Account	Debit	Credit
Cash	84,392
Petty Cash	150
Accounts Receivable	37,850
Allowance for Doubtful Accounts		3,085
Supplies	275
Prepaid Rent	5,400
Inventory	6,400
Land	10,000
Equipment	10,000
Service Truck	36,000
Building	90,000
Accumulated Depreciation		32,750
Accounts Payable		20,500
Notes Payable		78,242
Bonds Payable		25,000
Discount on Bonds Payable	500
Common Stock		50,000
Retained Earnings		50,645
Monitoring Revenue		65,000
Alarm Sales		38,000
Cost of Goods Sold	18,460
Postage Expense	35
Yard Care Expense	90
Supplies Expense	575
Uncollectible Accounts Expense	2,060
Interest Expense	4,925
Rent Expense	5,400
Advertising Expense	6,000
Depreciation Expense	7,210
Utilities Expense	7,500
Salaries Expense	20,000
Dividends	10,000
Totals	363,222	363,222

	Cash
	Debit	Credit
Beginning Balance	74,925
Transaction #1		15,000
Transaction #2		12,500
Transaction #5		6,000
Transaction #7		7,500
Transaction #9		125
Transaction #11	83,000
Transaction #12	24,500
Transaction #13		15,900
Transaction #14		17,800
Transaction #15		2,200
Transaction #16		11,008
Transaction #17		10,000
Total	84,392

Required:

Prepare a multi-step income statement, statement of changes in stockholders' equity, a classified balance sheet, and statement of cash flows using the direct method.

Close the temporary accounts to retained earnings and prepare a post-closing trial balance.

Answer 1