Question

Dreamland Security Services Inc. had the following account balances as of January 1, 2020:

Cash	74,925
Petty Cash	150
Accounts Receivable	18,500
Allowance for Doubtful Accounts	1,675
Supplies	350
Prepaid Rent (24 months remaining)	10,800
Inventory (27 @ $180)	4,860
Equipment	10,000
Service Truck	36,000
Accumulated Depreciation	25,540
Accounts Payable	12,500
Interest Payable	225
Notes Payable*	15,000
Common Stock	50,000
Retained Earnings	50,645

* Terms: Notes Payable with Trust Bank - $15,000 - 1 yr. at 6% int. rate began on 10/1/19.

During 2020 Dreamland Security Services experienced the following transactions:

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.

Required:

a. Record the above transactions in general journal form. Round all amounts to nearest whole dollar.

b. Prepare a trial balance.

Answer 1

Dreamland Security Services Inc
General Journal for the year ending December 31, 2020
Ref	Account Title	Debit	credit
1	Land	10000
	Building	90000
	Cash		15000
	Notes Payable		85000
2	Accounts Payable	12500
	Cash		12500
3	Supplies	500
	Accounts Payable		500
4	Inventory	20000
	Accounts Payable		20000
5	Advertising Expenses	6000
	Cash		6000
6	Accounts Receivable	38000
	Sales		38000
	Cost of goods sold	18460
	Inventory		18460
7	Utilities Expenses	7500
	Cash		7500
8	Accounts Receivable	65000
	Service Revenue		65000
9	Miscellaneous Expense	125
	Cash		125
10	Allowance for doubtful accounts	650
	Accounts Receivable		650
11	Cash	83000
	Accounts Receivable		83000
12	Cash	24500
	Discount on bond issue	500
	Bonds Payable		25000
13	Notes Payable	15000
	Interest Expense	900
	Cash		15900
14	Salary Expense	20000
	Federal Income tax payable		2200
	Cash		17800
15	Federal Income tax payable	2200
	Cash		2200
16	Notes Payable	6758
	Interest Expense	4250
	Cash		11008
17	Dividend	10000
	Cash		10000
18	Supplies Expense	575
	Supplies		575
19	Rent Expense	5400
	Prepaid Rent		5400
20	Bad Debt Expense	760
	Allowance for doubtful accounts		760
21	Depreciation expense	1250
	Accumulated Deprciation		1250
22	Depreciation expense	5184
	Accumulated Deprciation		5184
23	Depreciation expense	1000
	Accumulated Deprciation		1000
	Service Truck
	Cost	36000
	Life	5
	Rate of depreciation	40%
	2018 Depreciation	14400
	Book value for 2019	21600
	2019 Depreciation	8640
	Book value for 2020	12960
	2020 Depreciation	5184

Dreamland Security Services Inc
Worksheet for the year ending December 31, 2020
	Opening Balance		Transactions		Final
Account	Debit	Credit	Debit	Credit	Debit	Credit
Cash	74925		107500	98033	84392
Petty cash	150				150
Accounts Receivable	18500		103000	83650	37850
Allowance for doubtful accounts		1675	650	760		1785
Supplies	350		500	575	275
Prepaid Rent	10800			5400	5400
Inventory	4860		20000	18460	6400
Land			10000		10000
Building			90000		90000
Equipment	10000				10000
Service Truck	36000				36000
Accumulated Depreciation		25540		7434		32974
Accounts Payable		12500	12500	20500		20500
Interest Payable		225				225
Federal income tax payable			2200	2200		0
Notes Payable		15000	21758	85000		78242
Bonds Payable				25000		25000
Discount on bond issue			500		500
Common Stock		50000				50000
Retained Earnings		50645				50645
Dividend			10000		10000
Sales				38000		38000
Service Revenue				65000		65000
Cost of goods sold			18460		18460
Advertising Expenses			6000		6000
Utilities Expense			7500		7500
Miscellaneous Expenses			125		125
Interest Expense			5150		5150
Salary Expense			20000		20000
Supplies Expense			575		575
Rent Expense			5400		5400
Bad Debt Expense			760		760
Depreciation expense			7434		7434
	155585	155585	450012	450012	362371	362371