Question

Based on the transactions below of Terry Company please complete the following tasks:

1. Prepare T Accounts for Each Transaction  

2. Prepare Journal Entries for Each Transaction

3. Prepare the Trial Balance as a result of the transactions

4. Prepare the income statement

5. Prepare the statement of Retained Earnings (Beg RE is $0)

6. Prepare the Balance Sheet

Transactions:

Oct. 1 Terry purchased computer equipment for $8,400, paying $1,000 now, and issuing a promissory note for the balance; the note is due in monthly installments of $500 plus interest at 10% on the unpaid balance.

Oct 8 Terry records service revenue earned: $3,200 from cash customers; $12,000 for customers billed for completed services.

Oct 22 Common stock is issued for land with a fair value of $35,000.

October 31 An invoice for $1,200 is received from the company's advertising agency for ads that were run on radio and TV during October; the invoice is due in 30 days.

Answer 1

1. T accounts are provided below:

Transaction 1:

Computer equipment
Debit			Credit
1-Oct	Cash	1,000.00
1-Oct	Notes payable	7,400.00
Cash
Debit			Credit
			1-Oct	Computer equipment	1,000.00
Notes payable
Debit			Credit
			1-Oct	Computer equipment	7,400.00

Transaction 2:

Cash
Debit			Credit
8-Oct	Service revenue	3,200.00
Accounts receivable
Debit			Credit
8-Oct	Service revenue	12,000.00
Service revenue
Debit			Credit
			8-Oct	Cash	3,200.00
			8-Oct	Accounts receivable	12,000.00

Transcation 3:

Land
Debit			Credit
22-Oct	Common stock	35,000.00
Common stock
Debit			Credit
			22-Oct	Land	35,000.00

Transaction 4:

Advertising expenses
Debit			Credit
31-Oct	Accounts payable	1,200.00
Accounts payable
Debit			Credit
			31-Oct	Advertising expenses	1,200.00

2. Journal entries:

Date	Particulars	Debit	Credit
1-Oct	Computer equipment	8,400.00
	Cash		1,000.00
	Notes payable		7,400.00
8-Oct	Cash	3,200.00
	Accounts receivable	12,000.00
	Service revenue		15,200.00
22-Oct	Land	35,000.00
	Common stock		35,000.00
31-Oct	Advertising expenses	1,200.00
	Accounts payable		1,200.00

31-Oct	Interest expenses	690.00
	Interest payable		690.00

Explanation: amount unpaid at the end of October for Notes payable = 7400-500 = 6900. Interest due = 10% of 6900 = 690

3. Trial balance:

Account	Debit	Credit
Cash	2,200.00
Accounts receivable	12,000.00
Computer equipment	8,400.00
Land	35,000.00
Accounts payable		1,200.00
Interest payable		690.00
Notes payable		7,400.00
Common stock		35,000.00
Service revenue		15,200.00
Advertising expenses	1,200.00
Interest expenses	690.00
Totals	59,490.00	59,490.00

4. Income statement:

Service revenue		15,200.00
less: expenses
Advertising expenses	1,200.00
Interest expense	690.00	1,890.00
Net income		13,310.00

5. Statement of retained earnings:

Retained earnings as on 1st October	0.00
Add: net income	13,310.00
less: dividenda	0.00
Retained earnings as on 31st October	13,310.00

6. Balance sheet:

Assets		Liabilities
Cash	2,200.00	Accounts payable	1,200.00
Accounts receivable	12,000.00	Interest payable	690.00
Total current assets	14,200.00	Total current liabilities	1,890.00
Fixed assets		Notes payable	7,400.00
Computer equipment	8,400.00	Total liabilities	9,290.00
Land	35,000.00
Total fixed assets	43,400.00	Stockholder's equity
		Capital stock	35,000.00
		Retained earnings	13,310.00
		Total stockholder's equity	48,310.00
Total assets	57,600.00	Total liabilities and equity	57,600.00