Question

*LONG QUESTION--Feel free to split up between multiple comments if necessary. TIA!*

The comprehensive problem provides an illustration of the basic accounting cycle. Students must complete the following items for the first month of operation (January) and the second month of operations (February). Hint: Complete all items listed below (#1-#11) for January prior to starting February.

Record transactions with journal entries in the General Journal.
Post journal entries to the General Ledger.
Prepare the trial balance before adjustment (on the worksheet).
Prepare the adjusting journal entries.
Post the adjusting entries to the General Ledger.
Prepare the adjusted trial balance (on the worksheet).
Complete the worksheet.
Prepare closing journal entries.
Post the closing entries to the General Ledger.
Prepare the post-closing trial balance.
Prepare the following financial statements:
Income Statement
Balance Sheet
Statement of Retained Earnings.

Comprehensive Problem
Part One - January

Kellers Music was organized in January of 2017. The company offers music lessons to people of all ages and skill level. The company charges an annual $50 registration fee and $100 monthly due per student for music lessons. You have been hired by the company to install and maintain the company’s accounting system. The owner of Kellers Music would like see the following statements at the end of each month:

Income Statement
Balance Sheet
Retained Earnings Statement

The following transactions occurred during the month of January:

Jan. 1   Kellers Music is organized as a corporation and sells $50,000 of capital stock to its owners.
1 Paid the annual insurance premium of $1,824.
(Hint: Prepaids are recorded as an asset until the resource has been used up.)
1 Rented a building for $1,250 per month and paid the first three month’s rent in advance.
1   Paid $17,340 for the purchase, delivery, and installation of the following:

       Musical Instruments . . . . . . . . . . $12,000
       Computer . . . . . . . . . . . . . . . . . . . $1,440
       Furniture . . . . . . . . . . . . . . . . . . . $3,900
      
2 Received cash of $1,650 for signing up 11 students. The $1,650 included $550 collected for the
   annual registration fee and $1,100 for the monthly dues for lessons.
3 Paid $220 for fliers to be distributed this week to local schools.   
5    Purchased supplies (business cards, ink, paper, pencils, etc…) on account, $225.
5 Purchased snacks on account for grand opening event for $145 (advertising expense).
9 Received cash of $1,250 for signing up 10 additional students. The $1,250 included $500
collected for the annual registration fee and $750 for the prorated monthly dues for lessons.
10   Hired a music teacher to help out in the evenings at $20/hour. (Hint: No entry required.)
Signed up 7 additional students for $700. The $700 included $350 collected for the annual
registration fee and $350 for prorated monthly dues for lessons.
24 Paid the music teacher hired on January 10th for 9 hours.
26 Signed up 10 additional students which paid an annual registration fee of $50/student and
   $100/monthly dues. These students will not begin music lessons until next month, but each
student paid for February lessons in advance.
(Hint: The amount collected for the annual registration fee is earned in January as that is when
the registration took place in January. The amount collected for lessons is recorded as unearned
revenue since the service will not be provided until February).
31 The owner/manager is a musician giving lessons (employee of company) and takes a salary of
   $2,500 for first month.

Additional Information needed for adjusting entries at January 31st:

Record depreciation expense using the straight line depreciation method for the month of January using the following useful lives (no residual value is anticipated):

a. Musical Instruments 10 years
b. Computer    4 years
c. Furniture           5 years

The cost of supplies on hand at January 31st was $95.
The music teacher has worked 4.5 hours since January 24th that he hasn’t been paid. These wages will not be paid until next pay day.
Electricity bill received but unpaid at January 31st, totaled $196.
Additional adjustments are required for the rent and insurance expired during the month of January.

DO NOT START ON FEBRUARY UNTIL YOU HAVE COMPLETED ALL 11 STEPS IN THE INSTRUCTIONS FOR THE JANUARY!!!

Comprehensive Problem
Part Two – February

In February, Kellers Music begins selling music books. It uses the first-in, first-out method to account for inventories (books) in a perpetual inventory system.

Feb. 1 Received cash of $100/student in from the 25 of the students that signed up last month.
1 There were 3 students from last month did not have payment for February lessons. The parents explained that they will have the money by the end of the month. Mr. Keller agreed to continue to give the students lessons, but get paid later this month. (Hint: Cash to be received in the future is recorded as Accounts Receivable.)
1 Purchased 24 music books at a cost of $5/unit.
Received cash of $600 for signing up 4 students. The $600 included $200 collected for the
registration fees and $400 for monthly dues.
6   Paid the electricity bill received at the end of last month.
7 Paid music teacher for 16 hours worked over the last couple of weeks. (Hint: The 16 hours
includes the 4.5 hours already recorded at the end of January.)   
8 Sold 16 music books for $20/unit receiving cash.
14 Purchased 24 more music books. The cost per unit went up to $5.25/unit.
15 Purchased supplies on account, $110.
17 Sold 16 music books for $20/unit receiving cash.
18 Purchased 20 more music books. The cost per unit went up to $5.50/unit.
21 Paid music teacher for 14 hours.
21 Sold 20 music books for $20/unit receiving cash.
27 Paid cash of $160 on account.
Owners’ are paid a dividend of $250.
28 The owner/manager receives a salary of $2,650 for the month.
28 Received $200 from 2 of the students that did not have the money at the beginning of the month.   

Additional information needed for adjusting entries at February 28th, 2017:

Record appropriate entries for the depreciation of assets using the straight line method.
Supplies on hand at Feb. 28th, $135.
The music teacher has worked 6.5 hours since she was last paid on February 21st. These wages will not be paid until next payday.
Electricity bill received but unpaid at Feb. 28th, totaled $185.
Additional adjustments are required for the rent and insurance expired in February.
If you have not already done so then don’t forget to record the unearned revenue from last month that has been earned.

Answer 1

Journal Entries:-

Date	Account	Debit $	Credit $
Jan 1	Cash A/c	50,000
	To Capital A/c		50,000
	shares issued
Jan 1	Prepaid Insurance A/c	1824
	To Cash A/c		1824
	Paid insurance premium
Jan 1	Prepaid Rent Expense A/c	3750
	To Cash A/c		3750
	Paid Rent in advance
Jan 1	Machine A/c	12000
	Computer A/c	1440
	Furniture A/c	3900
	To Cash A/c		17340
	paid for the purchase, delivery, and installation in cash
Jan 2	Cash A/c	1650
	To Revenue A/c		1650
	Cash received for the fees
Jan 3	Fliers expense A/c	220
	To Cash A/c		220
	paid for fliers distribution
Jan 5	Supplies A/c	225
	To A/P A/c		225
	Purchased supplies on credit
Jan 5	Advertisement Expense A/c	145
	To A/P A/c		145
	Purchased snacks on credit
Jan 9	Cash A/c	1250
	To Revenue A/c		1250
	received cash for the annual fee and monthly dues
Jan 10	No entry required
Jan 24	Music Expense A/c	180
	To Cash A/c		180
	Paid to the music teacher
Jan 26	Cash A/c	1500
	To Unearned Income A/c		1500
	Received fees in advance
Jan 31	Manager Salary A/c	2500
	To Cash A/c		2500
	Paid salary to Manager
Jan 31	Depreciation on Machine A/c	100
	Depreciation on Computer A/c	30
	Depreciation on Furniture A/c	65
	To Machine A/c		100
	To Computer A/c		30
	To Furniture		65
	Depreciation provided on assets
Jan 31	Closing Supplies A/c	95
	To Supplies A/c		95
	adjusted closing supplies
Jan 31	Music Expense A/c	90
	To Music Expense Payable A/c		90
	music expense not paid yet

Jan 31	Electricity Bill A/c	196
	To Electricity bill payable A/c		196
	electricity bill payable
Part 2
Feb 1	Cash A/c	2500
	To Revenue A/c		2500
	Cash received as a revenue from students
Feb 1	A/R A/c	450
	To Revenue A/c		450
	fess to be received from students
Feb 1	Music Book A/c	120
	To Cash A/c		120
	Purchased music books
Feb 1	Cash A/c	600
	To Revenue A/c		600
	purchased fees from students
Feb 6	Electricity bill payable A/c	196
	To Cash A/c		196
	Paid electricity bill
Feb 7	Music Expense A/c	230
	To Cash A/c		230
	paid to music teacher
Feb 8	Cash A/c	320
	To Sales A/c To Profit on sale A/c		80 240
	sold music for cash
Feb 14	Music Book A/c	126
	To Cash A/c		126
	purchased music book in cash
Feb 15	Supplies A/c	110
	To A/P A/c		110
	Purchased supplies on credit
Feb 17	Cash A/c	400
	To Sales A/c		82
	To Profit on Sales A/c		318
	sold music books on profit
Feb 18	Music Book A/c	110
	To Cash A/c		110
	Purchased music book
Feb 21	Music Expense A/c	280
	To Cash A/c		280
	Paid to Music Teacher for 40 hours
Feb 21	Cash A/c	400
	To Sales A/c		106
	To Profit on Sales A/c		294
	Sold Music books on profit
Feb 27	A/P A/c	160
	To Cash A/c		160
	Paid cash on account
Feb 27	Dividend A/c	250
	To Retained Earnings A/c		250
	dividend paid in cash
Feb 28	Manager Salary Expense A/c	2650
	To Cash A/c		2650
	Paid salary to Manager
Feb 28	Cash A/c	200
	To A/R A/c		200
	received cash from debtors
Feb 28	Depreciation on Machine A/c	100
	Depreciation on Computer A/c	30
	Depreciation on Furniture A/c	65
	To Machine A/c		100
	To Computer A/c		30
	To Furniture		65
	Depreciation provided on assets
Feb 28	Music Expense A/c	130
	To Music Expense Payable A/c		130
	Music teacher's salary payable

Feb 28	Electricity Bill A/c	185
	To Electricity Bill Payable A/c		185
	electricity bill not paid yet
Feb 28	Rent Expense A/c	1250
	To Prepaid Rent expense A/c		1250
	rent expired for the month
Feb 28	Insurance Expense A/c	152
	To Prepaid Insurance Expense A/c		152
	Insurance Expired for the month

Cash A/c

Particulars	Amount $	Particulars	Amount $
To Capital A/c	50,000	To Prepaid Insurance Expense A/c	1824
To Revenue A/c	6000	To Prepaid Rent Expense A/c	3750
To Unearned Income A/c	1500	To Machine A/c	12000
To Sales A/c	268	To Computer A/c	1440
To Profit on Sales A/c	852	To Furniture A/c	3900
To A/R A/c	200	To Fliers Expense A/c	220
		To Music Expense A/c	690
		To Manager Salary Expense A/c	5150
		To Music Book A/c	586
		To Electricity Bill Payable A/c	196
		To A/P A/c	160
		To Balance C/d	29134
Total	58820	Total	58820