Question

John’s Company commenced operations in January 2017 and created a chart of accounts which it plans to use in the recording of its transactions:

Cash

Accounts receivable

Supplies

Prepaid insurance

Delivery truck

Accumulated depreciation

Accounts payable

Salary payable

Unearned service revenue

Destiney’s’, capital

Destiney’s’, drawing

Service revenue

Salary expense

Depreciation expense

Insurance expense

Fuel expense

Rent expense

Supplies expense

The company completed the following transactions during the month of January 2017:

a. John’s Company began operations by receiving $48,000 cash and a truck valued at $200,000. The business gave Destiney capital to acquire these assets.

b. Paid $1,600 cash for supplies.

c. Prepaid insurance, $4,200.

d. Performed delivery services for a customer and received $15,000 cash.

e. Completed a large delivery job, billed the customer $25,000, and received a promise to collect this amount within two months.

f. Paid employee salary, $68,500.

g. Received $9,000 cash for performing delivery services.

h. Collected $5,000 in advance for delivery service to be performed later.

i. Collected $5,500 cash from a customer on account.

j. Purchased fuel for the truck, paying $2,500 with a company credit card. (Credit Accounts payable)

k. Performed delivery services on account, $12,000.

l. Paid office rent, $600. This rent is not paid in advance.

m. Paid $200 on account relating to the fuel purchased for the truck.

n. Owner withdrew cash of $9,000 for personal use.

Requirements:

1. Record each transaction in the journal and key each by its letter as stated above. Explanations are not required.

2. Post the transactions that you recorded in Requirement 1 in their respective T-accounts and prepare the company’s trial balance:

3. Having completed the requirements for 1 and 2 above, use the following info to prepare the adjusting entries for the company and thereafter prepare the company’s adjusted trial balance.

a. Accrued salary expense, $3,500.

b. Depreciation expense, $2,000.

c. Prepaid insurance expired, $700.

d. Supplies on hand, $700.

e. Unearned service revenue earned during January, $2,500.

4. Prepare John’s Company income statement and statement of owner’s equity for the month ended January 31, 2017, and the classified balance sheet on that date.

Answer 1

1. Record each transaction in the journal

Journal Entry in the books of John’s Company

Event	Journal General	Debit	Credit
a.	Cash	48,000
	Delivery Truck	200,000
	Destiney’s, capital		248,000
b.	Supplies	1,600
	Cash		1,600
c.	Prepaid Insurance	4,200
	Cash		4,200
d.	Cash	15,000
	Service revenue		15,000
e.	Accounts receivable	25,000
	Service revenue		25,000
f.	Salary expense	68,500
	Cash		68,500
g.	Cash	9,000
	Service revenue		9,000
h.	Cash	5,000
	Unearned service revenue		5,000
i.	Cash	5,500
	Accounts Receivable		5,500
j.	Fuel expense	2,500
	Accounts Payable		2,500
k.	Accounts Receivable	12,000
	Service revenue		12,000
l.	Rent expense	600
	Cash		600
m.	Accounts Payable	200
	Cash		200
n.	Destiney’s, drawings	9,000
	Cash		9,000
	3. ADJUSTING ENTRIES
a.	Salaries expense	3,500
	Salary payable		3,500
b.	Depreciation expense	2,000
	Accumulated depreciation		2,000
c.	Insurance expense	700
	Prepaid Insurance		700
d.	Supplies expense	900
	Supplies		900
e.	Unearned service revenue	2,500
	Service revenue		2,500

Supplies Expenses = (Total supplies purchased –Closing Balance)

= (1,600- 700) = $900