Question

On November 1, 2018, Kris Lehman established an interior decorating business, Modern Designs. During the month, Kris completed the following transactions related to the business:

Nov.	1	Kris transferred cash from a personal bank account to an account to be used for the business in exchange for common stock, $26,000.
	1	Paid rent for period of November 1 to end of month, $3,800.
	6	Purchased office equipment on account, $12,710.
	8	Purchased a truck for $30,400 paying $6,100 cash and giving a note payable for the remainder.
	10	Purchased supplies for cash, $1,920.
	12	Received cash for job completed, $8,300.
	15	Paid annual premiums on property and casualty insurance, $2,200.
	23	Recorded jobs completed on account and sent invoices to customers, $12,220.
	24	Received an invoice for truck expenses, to be paid in November, $1,010.

Enter the following transactions on Page 2 of the two-column journal:

Nov.	29	Paid utilities expense, $3,510.
	29	Paid miscellaneous expenses, $1,650.
	30	Received cash from customers on account, $7,300.
	30	Paid wages of employees, $4,550.
	30	Paid creditor a portion of the amount owed for equipment purchased on November 6, $6,200.
	30	Paid dividends, $2,400.
	Required:
1.	Journalize each transaction in a two-column journal beginning on Page 1, referring to the chart of accounts in selecting the accounts to be debited and credited. (Do not insert the post reference numbers until you have posted the entry to the general ledger in part 2.) Refer to the Chart of Accounts for exact wording of account titles.
2.	Post (in chronological order) the journal to a ledger of four-column accounts, inserting appropriate posting references in both the journal and the ledger as each item is posted. Extend the balances to the appropriate balance columns after each transaction is posted.
3.	Prepare an unadjusted trial balance for Modern Designs as of November 30, 2018.
4.	Determine the excess of revenues over expenses for November.
5.	Can you think of any reason why the amount determined in (4) might not be the net income for November?

CHART OF ACCOUNTSModern DesignsGeneral Ledger

	ASSETS
11	Cash
12	Accounts Receivable
13	Supplies
14	Prepaid Insurance
16	Equipment
18	Truck
	LIABILITIES
21	Notes Payable
22	Accounts Payable

	EQUITY
31	Common Stock
33	Dividends
	REVENUE
41	Fees Earned

	EXPENSES
51	Wages Expense
53	Rent Expense
54	Utilities Expense
55	Truck Expense
59	Miscellaneous Expense

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19

2. Post (in chronological order) the journal to a ledger of four-column accounts, inserting appropriate posting references in both the journal and the ledger as each item is posted. Extend the balances to the appropriate balance columns after each transaction is posted.

LEDGER

Account: Cash11Account No.

Account: Accounts Receivable12Account No.

Account: Supplies13Account No.

Account: Prepaid Insurance14Account No.

Account: Equipment16Account No.

Account: Truck18Account No.

Account: Notes Payable21Account No.

Account: Accounts Payable22Account No.

Account: Common Stock31Account No.

Account: Dividends33Account No.

Account: Fees Earned41Account No.

Account: Wages Expense51Account No.

Account: Rent Expense53Account No.

Account: Utilities Expense54Account No.

Account: Truck Expense55Account No.

Account: Miscellaneous Expense59Account No.

	DATE	ITEM	POST. REF.	DEBIT	CREDIT	BALANCE
						DEBIT	CREDIT
1

3. Prepare an unadjusted trial balance for Modern Designs as of November 30, 2018.

Modern Designs

UNADJUSTED TRIAL BALANCE

November 30, 2018

	ACCOUNT TITLE	DEBIT	CREDIT
1	Cash
2	Accounts Receivable
3	Supplies
4	Prepaid Insurance
5	Equipment
6	Truck
7	Notes Payable
8	Accounts Payable
9	Common Stock
10	Dividends
11	Fees Earned
12	Wages Expense
13	Rent Expense
14	Utilities Expense
15	Truck Expense
16	Miscellaneous Expense
17	Totals

Answer 1

Answer 1.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
1-Nov	Cash	26,000.00
	Common Stock		26,000.00
	(Record the common Stock issued)
1-Nov	Rent Expense	3,800.00
	Cash		3,800.00
	(Record the rent paid)
6-Nov	Equipment	12,710.00
	Accounts Payable		12,710.00
	(Record the purchase of equipment)
8-Nov	Truck	30,400.00
	Cash		6,100.00
	Notes Payable		24,300.00
	(record the purcahse of truck)
10-Nov	Supplies	1,920.00
	Cash		1,920.00
	(record the supplies purcahsed)
12-Nov	Cash	8,300.00
	Fees Earned		8,300.00
	(record the fees earned)
15-Nov	Prepaid Insurance	2,200.00
	Cash		2,200.00
	(Record the insurance paid)
23-Nov	Accounts Receivable	12,220.00
	Fees Earned		12,220.00
	(record the fees earned)
24-Nov	Truck Expense	1,010.00
	Accounts Payable		1,010.00
	(record the truck expense)
29-Nov	Miscellaneous Expense	1,650.00
	Cash		1,650.00
	(record the Misc. expense)
30-Nov	Cash	7,300.00
	Accounts Receivable		7,300.00
	(record the cash recd)
30-Nov	Wages Expense	4,550.00
	Cash		4,550.00
	(record the wages expense)
30-Nov	Dividends	2,400.00
	Cash		2,400.00
	(record the dividends paid)
30-Nov	Accounts Payable	6,200.00
	Cash		6,200.00
	(record the amount paid)

Answer 2.

Cash

Accounts Receivable

Supplies

Date

Debit

Credit

Balance

Date

Debit

Credit

Balance

Date

Debit

Credit

Balance

1-Nov

26,000.00

26,000.00

Dr.

23-Nov

12,220.00

12,220.00

Dr.

10-Nov

1,920.00

1,920.00

Dr.

1-Nov

3,800.00

22,200.00

Dr.

30-Nov

7,300.00

4,920.00

Dr.

8-Nov

6,100.00

16,100.00

Dr.

10-Nov

1,920.00

14,180.00

Dr.

12-Nov

8,300.00

22,480.00

Dr.

15-Nov

2,200.00

20,280.00

Dr.

29-Nov

1,650.00

18,630.00

Dr.

30-Nov

7,300.00

25,930.00

Dr.

30-Nov

4,550.00

21,380.00

Dr.

30-Nov

2,400.00

18,980.00

Dr.

30-Nov

6,200.00

12,780.00

Dr.

Prepaid Insurance

Date

Debit

Credit

Balance

15-Nov

2,200.00

2,200.00

Dr.

Equipment

Truck

Date

Debit

Credit

Balance

Date

Debit

Credit

Balance

6-Nov

12,710.00

12,710.00

Dr.

8-Nov

30,400.00

30,400.00

Dr.

Notes Payable

Date

Debit

Credit

Balance

8-Nov

24,300.00

24,300.00

Cr.

Accounts Payable

Common Stock

24,300.00

Cr.

Date

Debit

Credit

Balance

Date

Debit

Credit

Balance

24,300.00

Cr.

6-Nov

12,710.00

12,710.00

Cr.

1-Nov

26,000.00

26,000.00

Cr.

24-Nov

1,010.00

13,720.00

Cr.

26,000.00

Cr.

Dividends

30-Nov

6,200.00

7,520.00

Cr.

26,000.00

Cr.

Date

Debit

Credit

Balance

30-Nov

2,400.00

2,400.00

Dr.

Fees Earned

Wages Expense

2,400.00

Dr.

Date

Debit

Credit

Balance

Date

Debit

Credit

Balance

12-Nov

8,300.00

8,300.00

Cr.

30-Nov

4,550.00

4,550.00

Dr.

23-Nov

12,220.00

20,520.00

Cr.

4,550.00

Dr.

Rent Expense

Date

Debit

Credit

Balance

1-Nov

3,800.00

3,800.00

Dr.

Truck Expense

Date

Debit

Credit

Balance

24-Nov

1,010.00

1,010.00

Dr.

Miscellaneous Expense

Date

Debit

Credit

Balance

29-Nov

1,650.00

1,650.00

Dr.

Answer 3.
Modern Designs
Unadjusted Trial Balance
As of Nov 3o, 2018
	Debit	Credit
Cash	12,780.00
Accounts Receivable	4,920.00
Supplies	1,920.00
Prepaid Insurance	2,200.00
Equipment	12,710.00
Truck	30,400.00
Notes Payable		24,300.00
Accounts Payable		7,520.00
Common Stock		26,000.00
Dividends	2,400.00
Fees Earned		20,520.00
Wages Expense	4,550.00
Rent Expense	3,800.00
Truck Expense	1,010.00
Miscellaneous Expense	1,650.00
Totals	78,340.00	78,340.00
		-
Answer 4.
Income Statement
For the Month Ended Nov 30, 2018
Revenue
Fees Earned		20,520.00
Expense
Wages Expense	4,550.00
Rent Expense	3,800.00
Truck Expense	1,010.00
Miscellaneous Expense	1,650.00	11,010.00
Net Operating Income		9,510.00
Answer 5.
Reasons the above might not be Net Income for october are:
1. Insurnace Expense for the November month is not recognized.
2. Depreciation Expense is not recognized on Truck & Equipment.
3. Some Supplies must be consumed or used. Supplies Expenses are not recognized.
4. Some Fees are earned and the bills are not raised in the month of November. Such revenues should be Recognized.