Question

Exercise 3-21

On January 1, 2018, the general ledger of Dynamite Fireworks includes the following account balances:

Accounts	Debit			Credit
Cash	$	25,800
Accounts Receivable		7,200
Supplies		5,100
Land		70,000
Accounts Payable					5,200
Common Stock					85,000
Retained Earnings					17,900
Totals	$	108,100		$	108,100

  

During January 2018, the following transactions occur:
  

January	2		Purchase rental space for one year in advance, $12,000 ($1,000/month).
January	9		Purchase additional supplies on account, $5,500.
January	13		Provide services to customers on account, $27,500.
January	17		Receive cash in advance from customers for services to be provided in the future, $5,700.
January	20		Pay cash for salaries, $13,500.
January	22		Receive cash on accounts receivable, $26,100.
January	29		Pay cash on accounts payable, $6,000.

The following information is available on January 31, 2018.

Rent for the month of January has expired.

Supplies remaining at the end of January total $4,800.

By the end of January, $4,700 of services has been provided to customers who paid in advance on January 17.

Unpaid salaries at the end of January are $4,400.

	Record each of the transactions listed above in the 'General Journal' tab (these are shown as items 1 - 7). Review the 'General Ledger' and the 'Trial Balance' tabs to see the effect of the transactions on the account balances.
2.		Record the adjusting entries in the 'General Journal' tab (these are shown as items 8-11).
3.		Review the adjusted 'Trial Balance' as of January 31, 2018.
4.		Prepare an income statement for the period ended January 31, 2018, in the 'Income Statement' tab.
5.		Prepare a classified balance sheet as of January 31, 2018 in the 'Balance Sheet' tab.
6.		Record the closing entries in the 'General Journal' tab (these are shown as items 12 and 13).
7.		Using the information from the requirements above, complete the 'Analysis' tab.

Answer 1

Since, the question has multiple sub-parts, I have answered the first four parts.

______

Part a)

The journal entries are prepared as below:

Date	General Journal	Debit	Credit
Jan-02	Prepaid Rent	$12,000
	Cash		$12,000
Jan-09	Supplies	$5,500
	Accounts Payable		$5,500
Jan-13	Accounts Receivable	$27,500
	Service Revenue		$27,500
Jan-17	Cash	$5,700
	Deferred Revenue		$5,700
Jan-20	Salaries Expense	$13,500
	Cash		$13,500
Jan-22	Cash	$26,100
	Accounts Receivable		$26,100
Jan-29	Accounts Payable	$6,000
	Cash		$6,000

_____

Part b)

The adjusting entries are given as follows:

Date	General Journal	Debit	Credit
Jan-31	Rent Expense	$1,000
	Prepaid Rent		$1,000
Jan-31	Supplies Expense (5,100 + 5,500 - 4,800)	$5,800
	Supplies		$5,800
Jan-31	Deferred Revenue	$4,700
	Service Revenue		$4,700
Jan-31	Salaries Expense	$4,400
	Salaries Payable		$4,400

_____

Part c)

The adjusted trial balance is prepared as below:

DYNAMITE FIREWORKS
Adjusted Trial Balance
January 31, 2018
Accounts	Debit	Credit
Cash (25,800 - 12,000 + 5,700 -13,500 + 26,100 - 6,000)	$26,100
Accounts Receivable (7,200 + 27,500 - 26,100)	$8,600
Supplies	$4,800
Land	$70,000
Prepaid Rent	$11,000
Accounts Payable (5,200 + 5,500 - 6,000)		$4,700
Common Stock		$85,000
Retained Earnings		$17,900
Salaries Payable		$4,400
Deferred Revenue (5,700 - 4,700)		$1,000
Service Revenue (27,500 + 4,700)		$32,200
Salaries Expense (13,500 + 4,400)	$17,900
Rent Expense	$1,000
Supplies Expense	$5,800
Total	$145,200	$145,200

_____

Part d)

The income statement is prepared as follows:

DYNAMITE FIREWORKS
Income Statement
For the Period Ended 31st January 2018
Revenues:
Service Revenue	32,200
Expenses
Salaries Expense (13,500 + 4,400)	17,900
Rent Expense	1,000
Supplies Expense	5,800
Total Expenses	24,700
Net Income	$7,500