Question

On January 1, 2018, Red Flash Photography had the following balances: Cash, $21,000; Supplies, $8,900; Land, $69,000; Deferred Revenue, $5,900; Common Stock $59,000; Retained Earnings, $34,000. During 2018, the company had the following transactions: February 15 Issue additional shares of common stock, $29,000. May 20 Provide services to customers for cash, $44,000, and on account, $39,000. August 31 Pay salaries to employees for work in 2018, $32,000. October 1 Purchase rental space for one year, $21,000. November 17 Purchase supplies on account, $31,000. December 30 Pay dividends, $2,900. The following information is available on December 31, 2018: Employees are owed an additional $4,900 in salaries. Three months of the rental space has expired. Supplies of $5,900 remain on hand. All of the services associated with the beginning deferred revenue have been performed.

1. Record the transactions that occurred during the year

2. Record the adjusting entries at the end of the year.

3. Prepare an adjusted trial balance.

4. Prepare an income statement, statement of stockholders’ equity, and classified balance sheet.

5.Prepare closing entries.

(journal entries)

Answer 1

Red Flash Photography

1. Record the transactions that occurred during the year:

Date	Account Tiles and Explanations	Ref. No.	Debit	Credit
15-Feb	Cash		$29,000
	Common Stock			$29,000
	(To record the issue of common stock)
20-May	Cash		$44,000
	Accounts Receivable		$39,000
	Service Revenue			$83,000
	(To record service revenue)
31-Aug	Salaries Expense		$32,000
	Cash			$32,000
	(To record salaries paid)
1-Oct	Prepaid Rent		$21,000
	Cash			$21,000
	(To record payment towards rental space for one year)
17-Nov	Supplies		$31,000
	Accounts Payable			$31,000
	(To record supplies purchased on account)
30-Dec	Dividends		$2,900
	Cash			$2,900
	(To record payment of dividends)

1. Adjusting entries at the end of the year:

Date	Account Tiles and Explanations	Ref. No.	Debit	Credit
31-Dec	Supplies Expense		$34,000
	Supplies			$34,000
	(To record cost of supplies used, beginning balance + supplies purchased - ending balance = 8,900 + 31,000 -5,900 = $34,000)
31-Dec	Deferred Revenue		$5,900
	Service Revenue			$5,900
	(To record all deferred revenue services being performed)
31-Dec	Rent Expense		$5,250
	Prepaid Rent			$5,250
	(To record expired portion of prepaid rent, 21,000 x 1/12 x 3 months (Oct - Dec) = $5,250)
31-Dec	Salaries Expense		$4,900
	Salaries Payable			$4,900
	(To record unpaid salaries)

1. Adjusted Trial Balance:

Red Flash Photography
Adjusted Trial Balance
For the year ended December 31, 2018
Account Titles	Debit	Credit
Cash	$38,100
Supplies	$5,900
Accounts Receivable	$39,000
Prepaid Rent	15,750
Land	$69,000
Accounts Payable		$31,000
Salaries Payable		$4,900
Common Stock		$88,000
Service Revenue		$88,900
Retained Earnings		$34,000
Salaries Expense	$36,900
Rent Expense	$5,250
Supplies Expense	$34,000
Dividends	$2,900
Totals	$246,800	$246,800

Workings –

		Cash
Debit					Credit
Date	Description	Amount	Date	Description	Amount
1-Jan	Beginning Balance	$21,000
15-Feb	Common Stock	$29,000	31-Aug	Salaries Expense	$32,000
20-May	Service Revenue	$44,000	1-Oct	Prepaid Rent	$21,000
			30-Dec	Dividends	$2,900
			31-Dec	Ending Balance	$38,100
	Total	$94,000		Total	$94,000
		Salaries Expense
Debit					Credit
Date	Description	Amount	Date	Description	Amount
31-Aug	Cash	$32,000
31-Dec	Salaries Payable	$4,900	31-Dec	Ending Balance	$36,900
		$36,900			$36,900
		Service Revenue
Debit					Credit
Date	Description	Amount	Date	Description	Amount
			20-May	Cash	$44,000
			20-May	Accounts Receivable	$39,000
31-Dec	Ending balance	$88,900	31-Dec	Deferred Revenue	$5,900
	Total	$88,900		Total	$88,900

4a. Income Statement

Red Flash Photography
Income Statement
For the year ended December 31, 2018
Service Revenue	$88,900
Expenses:
Salaries Expense	$36,900
Supplies Expense	$34,000
Rent Expense	$5,250
Total Expense	$76,150
Net Income	$12,750

4b. Statement of Stockholders’ Equity

Red Flash Photography
Statement of Changes in Stockholders' Equity for the year ended December 31, 2018
Common Stock
Beginning		$59,000
Add: New issues		$29,000
Ending Balance		$88,000
Retained Earnings
Beginning		$34,000
Add: Net Income	$12,750
Less: Dividends paid	($2,900)	$9,850
Ending Balance		$43,850
Total Stockholders' Equity		$131,850

4c. Classified Balance Sheet

Red Flash Photography
Classified Balance as on December 31, 2018
Assets
Cash	$38,100
Accounts Receivable	$39,000
Supplies	$5,900
Prepaid Rent	$15,750
Land	$69,000
Total Assets	$167,750
Liabilities and Stockholders' Equity
Liabilities
Accounts Payable	$31,000
Salaries Payable	$4,900
Total Liabilities	$35,900
Stockholders' Equity
Common Stock	$88,000
Retained Earnings	$43,850
Total Stockholders' Equity	$131,850
Total Liabilities and Stockholders' Equity	$167,750

5a. Closing Entries:

Date	Account Tiles and Explanations	Ref. No.	Debit	Credit
31-Dec	Income Summary		$76,150
	Salaries Expense			$36,900
	Supplies Expense			$34,000
	Rent Expense			$5,250
	(To close expenses account to income summary)
31-Dec	Retained Earnings		$2,900
	Dividends			$2,900
	(To close dividends account to retained earnings)
31-Dec	Service Revenue		$88,900
	Income Summary			$88,900
	(To close revenue account to income summary)
31-Dec	Income Summary		$12,750
	Retained Earnings			$12,750
	(To close income summary account to retained earnings)