Question

Jeremy Johnson incorporated a consulting firm named Johnson’s Consulting Ltd. in December 2017. He found out that you have been taking an accounting course and has asked you for assistance in preparing the financial information for his banker (who has asked for financial statements). He has decided on a December 31 year-end.

Dec 1 The Company issued common shares to Jeremy for $5,000 cash.

Dec 1 A business loan was approved by the bank for $10,000, which was deposited into the Company’s bank account on the same day. The loan bears interest at 5% per annum payable on the first day of each month. The loan principal is due in 2 years.

Dec 1 Jeremy was able to find suitable office space available immediately and the company paid 6 months rent in advance for $4,500.

Dec 1 Jeremy purchased a new computer on account for the Company for $2,400. The total invoice is due on January 15, at which time it will be paid. The computer is expected to last 2 years (24 months) at which time it will have a zero value.

Dec 4 The Company paid $800 cash for supplies.

Dec 5 Jeremy hired Harris Advertising Agency to prepare advertising brochures for the Company. These were delivered the same day and the Company paid them $1,300 cash. All of these brochures were delivered to prospective clients.

Dec 6 Customer #1 hired Jeremy to prepare a consulting report.

Dec 11 Jeremy completed consulting services for Customer #1 and received $7,500 cash.

Dec 13 Customer #2 hired Jeremy for a consulting job totaling $13,500. Jeremy expects it will take him a couple of weeks to complete the work.

Dec 15 Because of the successful first few weeks, Jeremy hired an Administrative Assistant to organize the office. The Admin Assistant has agreed to a bi-weekly salary of $500, which is to be paid every second Friday with the first paycheque due on December 22. (The work week is Monday to Friday). (Hint: you will need a journal entry to record the payment of the Admin Assistant’s salary on December 22 for 6 days).

Dec 27 Jeremy completed the work for Customer #2 and the Admin Assistant sent out an invoice to bill the customer.

Dec 29 Customer #3 hired Jeremy for a month-long project expected to bring in $28,000 in revenue. Because of the length of time before completion, Jeremy asked for and received a deposit from the client for half of the amount. Jeremy does not expect to do any work on this project until after the end of the year.

Dec 31 In order to pay off Jeremy’s personal credit card for his Christmas shopping and to celebrate the success of the first month, the Company declared a dividend of $1,000 to be paid on December 31.

Required: Part A – Prepare journal entries for the December transactions.

Jeremy records adjustments monthly. Adjustment data for the month of December is as follows:

Accrual of interest on bank loan (calculate on 31 days and round to nearest dollar)

Adjustment of prepaid rent

Computer equipment depreciation, using the straight-line method of depreciation

Supplies were counted on December 31and there was $540 of supplies remaining.

Salary for the Admin Assistant to the end of the month (5 days)

Required: Part B – Prepare all adjusting journal entries.

Required: Part C – Post all journal entries to T accounts

Required: Part D – Prepare an adjusted trial balance as at December 31 2017.

Required: Part E – Prepare an Income Statement, Statement of Changes in Equity and classified Statement of Financial Position for the Company’s bank to review.

Required Part F – Prepare the closing journal entries and post to T accounts.

Answer 1

	General Journal
Date	Journal	Amount (DR)	Amount (CR)
1-Dec	Cash	$                         5,000.00
	To Jeremy's Capital		$                                 5,000.00
	(Being amount deposited by Jeremy Johnson in the business)
1-Dec	Cash	$                       10,000.00
	To Bank Loan		$                             100,000.00
	(Being amount of bank loan)
1-Dec	Prepaid Rent	$                         4,500.00
	To Cash		$                                 4,500.00
	(being amount of 6 months rent paid in advance)
1-Dec	Computer	$                         2,400.00
	To Accounts Payable		$                                 2,400.00
	(Being amount of computer purchased on account)
4-Dec	Supplies	$                             800.00
	To Cash		$                                     800.00
	(Being amount of supplies purchased)
5-Dec	Advertisement Expenses	$                         1,300.00
	To Cash		$                                 1,300.00
	(Being amount paid for Brouchers)
6-Dec	No Entry
	(Being customer hired Jeremy for consulting report)
11-Dec	Cash	7500
	To Service Revenue		$                                 7,500.00
	(Being amount of Service Performed)
15-Dec	No Entry
	(Being customer hired Jeremy for consulting Job)
22-Dec	Assistant Salary	$                             500.00
	To Cash		$                                     500.00
	(being amount paid assistant salary)
27-Dec	Accounts Receivable	$                       13,500.00
	To Service Revenue		$                               13,500.00
	(being amount of Service Revenue)
29-Dec	Cash	$                       14,000.00
	To Unearned Service Revenue		$                               14,000.00
	(Being amount received as advance)
31-Dec	Dividend	$                         1,000.00
	To Cash		$                                 1,000.00
	(Being amount of dividend)
31-Dec	Interest A/c=($10000*5%)/12	$                                     42
	To Interest Payable		$                                       42.00
	(Being amount of intt due on Bank Loan)
31-Dec	Rent =($4500/6)	$                             750.00
	To Prepaid Rent		$                                     750.00
	(Being amount of Rent)
31-Dec	Depreciation	$                             100.00
	To Computer		$                                     100.00
	(Being amount of Depreciation)
31-Dec	Supplies Expenses	$                             260.00
	To Supplies		$                                     260.00
	(Being amount of Supplies Expenses)
31-Dec	Salary A/c	$                             500.00
	To Salary Payable		$                                     500.00
	(Being amount of Salary Payable)
	Cash A/c
	Particular	Amount	Particular	Amount
	To Jeremy	5000	By Prepaid Rent	$    4,500.00
	To Banl Loan	10000	By Supplies	$        800.00
	To Service Revenue	7500	By Advertisement	$    1,300.00
	To Unearned Service Revenue	14000	By Assistant Salary	$        500.00
			By Dividend	$    1,000.00
			By Balance C/d	$ 28,400.00
	$                                                                         -	36500		$ 36,500.00
	Computer A/c
	Particular	Amount( DR)	Particular	Amount (CR)
	To Accounts Payable	$                         2,400.00	By depreciation	100
			By Balance C/d	2300
	Total	$                         2,400.00	Total	$    2,400.00
	Prepaid Rent A/c
	Particular	Amount( DR)	Particular	Amount (CR)
	To Cash	$                         4,500.00	By Rent	$        750.00
			By Balance C/d	3750
	Total	$                         4,500.00	Total	$    4,500.00
	Rent A/c
	Particular	Amount( DR)	Particular	Amount (CR)
	To Prepaid Rent	$                             750.00	By Bal c/d	$        750.00
	Total	$                             750.00	Total	$        750.00
	Depreciation A/c
	Particular	Amount( DR)	Particular	Amount (CR)
	To Computer	$                             100.00	By Bal c/d	$        100.00
	Total	$                             100.00	Total	$        100.00
	Supplies
	Particular	Amount( DR)	Particular	Amount (CR)
	To Cash	$                             800.00	By Supplies Expenses	$        260.00
			By Balance C/d	540
	Total	$                             800.00	Total	$        800.00
	Salaries
	Particular	Amount( DR)	Particular	Amount (CR)
	To Cash	$                             500.00	By Bal c/d	$    1,000.00
	To Salary Payable	$                             500.00
	Total	$                         1,000.00	Total	$    1,000.00
	Bank Loan
	Particular	Amount( DR)	Particular	Amount (CR)
	To Balance C/d	$                       10,000.00	By Cash	$ 10,000.00
	Total	$                       10,000.00	Total	$ 10,000.00
	Interest A/c
	Particular	Amount( DR)	Particular	Amount (CR)
	To Interest Payable	$                               42.00	By Bal c/d	$          42.00
	Total	$                               42.00	Total	$          42.00
	Interest Payable
	Particular	Amount( DR)	Particular	Amount (CR)
	To Bal c/d	$                               42.00	By Interest	$          42.00
	Total	$                               42.00	Total	$          42.00
	Accounts Payable
	Particular	Amount( DR)	Particular	Amount (CR)
	To Balance C/d	$                         2,400.00	By Computer Equipment	$    2,400.00
	Total	$                         2,400.00	Total	$    2,400.00
	K.Resser's Capital A/c
	Particular	Amount( DR)	Particular	Amount (CR)
	To Bal C/d	$                         5,000.00	By Cash	$    5,000.00
	Total	$                       25,000.00	Total	$ 25,000.00
	Supplies Expenses
	Particular	Amount( DR)	Particular	Amount (CR)
	To Supplies	$                             260.00	By Bal C/d	$        260.00
	Total	$                             260.00	Total	$        260.00
	Trial Balance
	Account Head	Debit	Credit
	Cash	$                       28,400.00
	Accounts Receivable	$                       13,500.00
	Prepaid Rent	$                         3,750.00
	Computer Equipment	$                         2,300.00
	Supplies	$                             540.00
	Accounts payable		$                                 2,400.00
	Capital A/c		$                                 5,000.00
	Bank Loan		$                               10,000.00
	Salaries	1000
	Salary Payable		$                                     500.00
	Service Revenue		$                               21,000.00
	Unearned Service Revenue		$                               14,000.00
	Rent	$                             750.00
	Interest	$                               42.00
	Interest Payable		42
	Depreciation	$                             100.00
	Advertisement	$                         1,300.00
	Wages Expenses	$                         1,000.00
	Supplies Expenses	$                             260.00
	Dividend	$                         1,000.00
	Total	$                       53,942.00	$                               52,942.00
	Jeremy's
	Income Statement
	December 31st
	Service Revenue		$                               21,000.00
	Expenses
	wages	$                         1,000.00
	Rent	$                             750.00
	Advertisement	$                         1,300.00
	Supplies Expenses	$                             260.00
	Interest	$                               42.00
	Depreciation	$                             100.00	$                                 3,452.00
	Net Income		$                               17,548.00
	Less: dividend		$                                 1,000.00
	Retained Earnings		$                               16,548.00
	Statement of Owner's Equity
	Jeremy's Capital A/c	$                         5,000.00
	Net Income	$                       16,548.00
			$                               21,548.00
	Jeremy's
	Balance Sheet as at December 31st
	Assets
	Cash	$                       28,400.00
	Supplies	$                             540.00
	Prepaid Rent	$                         3,750.00
	Accounts Receivable	13500
	Computer	$                         2,300.00
	Total Assets		$                               48,490.00
	Liabilities
	Accounts Payable	$                         2,400.00
	Unearned Service Revenue	$                       14,000.00
	Salary Payable	$                             500.00
	Interest Payable	$                               42.00
	Bank Loan	$                       10,000.00
	Capital	$                       21,548.00
	Total Liabilities		$                               48,490.00