Question

The trial balance of Palicio Security Services Inc. as of January 1, 2016 had following normal balances: 

The following transactions took place during 2016 for Palicio Security Service

 1. Paid the salaries payable from 2015.

 2. On March 1, 2016, Palicio established a $100 petty cash fund to handles expenditures.

 3. Paid $4,800 on May 1, 2016, for one year's lease on the company van in advance.

 4. Paid $7,200 on May 2, 2016 for one year's office rent in advance.

 5. Purchased $400 of supplies on account.

 6. Purchased 100 alarm systems for $28,000 cash during the year.

 7. Sold 102 alarm systems for $57,120. All sales were on account. (Compute cost of goods sold using the FIFO cost flow method)

 8. Paid $2,100 on accounts payable during the year.

 9. Replenished the petty cash fund on August 1. At this time, the petty cash had only $7 of currency left. It contained the following receipts: office supply expense $23, cutting grass $55, and miscellaneous $14. 

10. Billed $52,000 of monitoring services for the year.

 11. Paid installers and other employees a total of $25,000 cash for salaries

 12. Collected $89,300 of accounts receivable during the year.

 13. Paid $3,600 of advertising expense during the year.

 14. Paid $2,500 of utilities expense for the year.

 15. Paid a dividend of $10,000 to the shareholders. 

HINTS: First record the Journal entries for each transaction listed above and then record the transactions on the Trial Balance worksheet. ALSO, set up an Excel Spreadsheet like the Trial Balance sheet shown on next page and use to record adjusting entries. 

INSTRUCTIONS: 

A. Prepare and record the Adjusting Journal Entries 

B. Complete the trial balance worksheet LISTED on the PRIOR page for the month ended December 31, 200x for Palicio Security Service Company based on the transactions RECORDED IN THE JOURNAL ENTRIES LISTED ABOVE:

C. Prepare the trial balance as at Dec 31, 2016 for Palicio Security Services 

D. Prepare the income statement for Palicio Security Services as of Dec 31, 2016 

E. Prepare statement of changes in equity for Palicio Security Services as of Dec 31, 2016 

F. Prepare the balance sheet for Palicio Security Services Inc. as of Dec 31, 2016

Answer 1

Solution:

(1) Journal Entries: (Amounts in $)

Date	Particulars	Debit	Credit
2016	Salaries Payable A/c          Dr.       To Cash A/c (Being unpaid salary of the Year 2015 paid)	1,000	1,000
March 01	Petty Cash Fund A/c           Dr.       To Cash A/c (Being patty cash fund created)	100	100
May 01	Prepaid Lease Payment A/c         Dr.            To Cash A/c (Being advance lease payment made)	4,800	4,800
May 02	Prepaid Rent A/c              Dr.          To Cash A/c (Being office rent paid in advance)	7,200	7,200
2016	Supplies A/c               Dr.        To Accounts Payable A/c (Being supplies has been purchased)	400	400
2016	Purchase A/c               Dr.       To Cash A/c (Being alarm system purchased)	28,000	28,000
2016	Accounts Receivable             Dr.         To Sales A/c (Being 102 alarm systems were sold)	57,120	57,120
2016	Accounts Payable A/c              Dr.      To Cash A/c (Being accounts payable paid)	2,100	2,100
2016	Office Supply Expense A/c      Dr. Cutting Grass Expense A/c     Dr. Miscellaneous A/c                   Dr. Cash Short & Over A/c           Dr.       To Cash A/c (Being petty cash fund replenished)	23 55 14 1	93
2016	Account Receivable A/c         Dr.         To Service Revenue A/c (Being billed for monitoring services)	52,000	52,000
2016	Salaries A/c             Dr.         To Cash A/c (Being salaries paid)	25,000	25,000
2016	Cash A/c         Dr.        To Accounts receivable A/c (Being amount from accounts receivable collected)	89,300	89,300
2016	Advertising Expenses A/c Dr.         To Cash A/c (Being advertising expenses paid)	3,600	3,600
2016	Utility Expenses A/c      Dr.         To Cash A/c (Being Utility expenses paid)	2,500	2,500
2016	Retained Earnings Dr.           To Cash A/c (Being Dividend paid to shareholders)	10,000	10,000
2016	Profit & Loss A/c Dr.            To Retained Earnings A/c (Being profit for the year 2016 transferred in Retained Earnings A/c)	39,747	39,747

Computation of Profit or Loss as transferred to Retained Earning A/c for the year 2016:

Particulars	Amount in $
Sales Revenue Sale of Alarm Systems Monitoring Service	57,120 52,000
Total Revenue (A)	109,120
Expenses Cost of Goods Sold * Office Supply Expense Cutting Grass Expense Miscellaneous Cash Short & Over Salaries Advertising Expense Utility Expense	28,180 23 55 14 1 25,000 3,600 2,500
Total Expenses (B)	59,373
Net Profit (A-B)	49,747
Less: Dividend	(10,000)
Profit transferred to Retained Earning A/c	39,747

(*) Cost of Goods Sold:                               $

Opening Stock                                 6,620

Add: Purchases                               28,000

Less: Closing Stock **                     (6,440)

Cost of Goods Sold                       28,180

(**) Computation of Closing Stock using FIFO Cost Flow Method:

Opening Stock

24 Alarm Systems @ $265 per system                             $ 6,360

1 Alarm System @ $260 per system                                   $ 260

Add: Purchase

100 Alarm Systems @ $280 per system                      $ 28,000

Less: 102 Alarm systems sold

24 Alarm systems of $ 265 per system                          ($ 6,360)

1 Alarm systems of $ 260 per system                               ($ 260)

77 Alarm Systems of $ 280 per system                        ($ 21,560)

Closing stock

23 alarm system of $ 280 per system                           $ 6,440

(2) Trial Balance, Income Statement & Balance Sheet of Palicio Security Services Inc.

(3) Statement of Change in Equity

(Amounts in $)

Common Stock as on Jan. 01, 2016                                                        50,000

Retained Earnings                                                                                      47,800

Add: Profit for the year 2016                                                                      49,747

Less: Dividend                                                                                             (10,000)

Balance of Shareholder’s Fund as on Dec. 31, 2016                        137,547