Question

Part 1:

Below are the external transactions for Brandy Corporation. During the first month of operations, the following events and transactions occurred.

December 1^st: Issued common stock to investors in exchange for $100,000 in cash.

December 1^st: Borrowed $45,000 by issuing notes. $45,000 of notes payable are due for payment next year on December 1^st.

December 1^st: Purchased delivery trucks for $65,000 cash.

December 1^st: Paid $24,000 cash for a 2-year insurance policy starting on December 1^st.

December 5^th: Purchased supplies for $4,700 on account.

December 1st: Brandy Corporation owns a warehouse. On December 1st, it rented storage space to a tenant for 5 months for a total cash payment of $20,000 received in advance.

December 16^th: Provided services to customer X for $35,000. Customer X pays the entire amount immediately.

December 20^th: Provided services to customer Z on account for $60,000.

December 25^th: Collected $30,000 from customer Z.

December 27^th: Paid salaries of $28,000.

December 30^th: Paid a dividend of $11,000 to shareholders.

Journalize the transactions.

Part 2 : Prepare a Trial Balance. List the account titles and their balances in the appropriate debit or credit column.  

Part 3:

Brandy Corporation adjusts its accounts annually. The following information is available for the year ended December 31.

Record interest expense for interest accrued on the note payable in December. Note has a 10% annual interest charge.

Record depreciation expense for December for the delivery trucks. The delivery trucks have a residual value of $5,000 and an estimated useful life of 10 years.

Record insurance expense for December.

Record supplies expense for supplies used before end of year. $1,700 supplies are left over at the end of December.

Record rent revenue for December.

For each of the above transactions, prepare the adjusting entries on December 31.

Part 4 :Prepare an Adjusted Trial Balance. List the account titles and their balances in the appropriate debit or credit column.  

Part 5 : Prepare closing entries.

Answer 1

Part 1 : Journal Entries (Amount in $)

Date	Account Titles	Debit	Credit
Dec. 1	Cash	100,000
	Common Stock		100,000
Dec. 1	Cash	45,000
	Notes Payable		45,000
Dec. 1	Delivery Trucks	65,000
	Cash		65,000
Dec. 1	Prepaid Insurance (for 2 years or 24 months)	24,000
	Cash		24,000
Dec. 5	Supplies	4,700
	Accounts Payable		4,700
Dec. 1	Cash	20,000
	Rent Received in Advance (for 5 months)		20,000
Dec. 16	Cash	35,000
	Service Revenue		35,000
Dec. 20	Accounts Receivable	60,000
	Service Revenue		60,000
Dec. 25	Cash	30,000
	Accounts Receivable		30,000
Dec. 27	Salaries	28,000
	Cash		28,000
Dec. 30	Dividend	11,000
	Cash		11,000

Part 2 : Trial Balance (Amount in $)

Account Titles	Debit	Credit
Cash (100,000+45,000-65,000-24,000+20,000+35,000+30,000-28,000-11,000)	102,000
Common Stock		100,000
Notes Payable		45,000
Delivery Trucks	65,000
Prepaid Insurance	24,000
Supplies	4,700
Accounts Payable		4,700
Rent Received in Advance		20,000
Service Revenue (60,000+35,000)		95,000
Accounts Receivable (60,000-30,000)	30,000
Salaries	28,000
Dividend	11,000
Totals	264,700	264,700

Part 3 : Adjusting entries (Amount in $)

Date	Account Titles	Debit	Credit
Dec. 31	Interest expense (for December month)	375
	Accrued Interest on Notes Payable (45,000*10%*1/12)		375
Dec. 31	Depreciation expense - Delivery Trucks (for December month)	500
	Accumulated Depreciation [(65,000-5,000)/10*1/12]		500
Dec. 31	Insurance Expense	1,000
	Prepaid Insurance (24,000/24 months)		1,000
Dec. 31	Supplies Expense (4,700-1,700)	3,000
	Supplies		3,000
Dec. 31	Rent Received in Advance (20,000/5 months)	4,000
	Rent Revenue		4,000

Part 4 : Adjusted Trial Balance (Amount in $)

Account Titles	Debit	Credit
Cash	102,000
Common Stock		100,000
Notes Payable		45,000
Interest Expense	375
Accrued Interest on Notes Payable		375
Delivery Trucks	65,000
Depreciation expense-Delivery Trucks	500
Accumulated Depreciation		500
Insurance Expense	1,000
Prepaid Insurance (24,000-1,000)	23,000
Supplies Expense	3,000
Supplies	1,700
Accounts Payable		4,700
Rent Revenue		4,000
Rent Received in Advance (20,000-4,000)		16,000
Service Revenue		95,000
Accounts Receivable	30,000
Salaries	28,000
Dividend	11,000
Totals	265,575	265,575