Question

On April 1, Jiro Nozomi created a new travel agency, Adventure Travel. The following transactions occurred during the company’s first month. April 1 Nozomi invested $37,000 cash and computer equipment worth $40,000 in the company in exchange for common stock.

2 The company rented furnished office space by paying $1,900 cash for the first month’s (April) rent.

3 The company purchased $1,600 of office supplies for cash.

10 The company paid $2,200 cash for the premium on a 12-month insurance policy. Coverage begins on April 11.

14 The company paid $1,500 cash for two weeks' salaries earned by employees.

24 The company collected $17,500 cash for commissions revenue.

28 The company paid $1,500 cash for two weeks' salaries earned by employees.

29 The company paid $450 cash for minor repairs to the company's computer.

30 The company paid $1,450 cash for this month's telephone bill.

30 The company paid $2,300 cash in dividends.

The company's chart of accounts follows:

101 Cash 405 Commissions Revenue 106 Accounts Receivable 612 Depreciation Expense—Computer Equip. 124 Office Supplies 622 Salaries Expense 128 Prepaid Insurance 637 Insurance Expense 167 Computer Equipment 640 Rent Expense 168 Accumulated Depreciation—Computer Equip. 650 Office Supplies Expense 209 Salaries Payable 684 Repairs Expense 307 Common Stock 688 Telephone Expense 318 Retained Earnings 901 Income Summary 319 Dividends

Use the following information:

Prepaid insurance of $122 has expired this month.

At the end of the month, $600 of office supplies are still available.

This month’s depreciation on the computer equipment is $500.

Employees earned $500 of unpaid and unrecorded salaries as of month-end.

The company earned $1,650 of commissions that are not yet billed at month-end.

Required: 1. & 2. Prepare journal entries to record the transactions for April and post them to the ledger accounts in Requirement 6b.

The company records prepaid and unearned items in balance sheet accounts.

3. Using account balances from Requirement 6b, prepare an unadjusted trial balance as of April 30. 4. Journalize the adjusting entries for the month and prepare the adjusted trial balance. 5a. Prepare the income statement for the month of April 30. 5b. Prepare the statement of retained earnings for the month of April 30. 5c. Prepare the balance sheet at April 30. 6a. Prepare journal entries to close the temporary accounts and then post to Requirement 6b. 6b. Post the journal entries to the ledger. 7. Prepare a post-closing trial balance.

Answer 1

3.

Adventure Travel Unadjusted Trial Balance April 30
Account Titles	Debit	Credit
	$	$
Cash	41,600
Accounts Receivable	0
Office Supplies	1,600
Prepaid Insurance	2,200
Computer Equipment	40,000
Accumulated Depreciation : Computer Equipment		0
Salaries Payable		0
Common Stock		77,000
Retained Earnings		0
Dividends	2,300
Commissions Revenue		17,500
Depreciation Expense: Computer Equip.	0
Salaries Expense	3,000
Insurance Expense	0
Rent Expense	1,900
Office Supplies Expense	0
Repairs Expense	450
Telephone Expense	1,450
Totals	$ 94,500	$ 94,500

4.

Date	General JJournal	Debit	Credit
		$	$
April 30	Insurance Expense	122
	Prepaid Insurance		122
April 30	Office Supplies Expense	1,000
	Office Supplies		1,000
April 30	Depreciation Expense: Computer Equip.	500
	Accumulated Depreciation : Computer Equip.		500
April 30	Salaries Expense	500
	Salaries Payable		500
Aril 30	Accounts Receivable	1,650
	Commissions Revenue		1,650

Adventure Travel Adjusted Trial Balance April 30
Account Titles	Debit	Credit
	$	$
Cash	41,600
Accounts Receivable	1,650
Office Supplies	600
Prepaid Insurance	2,078
Computer Equipment	40,000
Accumulated Depreciation : Computer Equipment		500
Salaries Payable		500
Common Stock		77,000
Retained Earnings		0
Dividends	2,300
Commissions Revenue		19,150
Depreciation Expense: Computer Equip.	500
Salaries Expense	3,500
Insurance Expense	122
Rent Expense	1,900
Office Supplies Expense	1,000
Repairs Expense	450
Telephone Expense	1,450
Totals	$ 97,150	$ 97,150

5.a.

Adventure Travel Income Statement For the month ended April 30
Revenues
Commissions Revenue		$19,150
Expenses
Depreciation Expense: Computer Equip.	500
Salaries Expense	3,500
Insurance Expense	122
Rent Expense	1,900
Office Supplies Expense	1,000
Repairs Expense	450
Telephone Expense	1,450
Total Expenses		8,922
Net Income		$10,228

5.b.

Adventure Travel Statement of Retained Earnings For the month ended April 30
Balance, April 1	$ 0
Add: Net Income	10,228
Less: Dividends	(2,300)
Balance, April 30	$ 7,928

5.c.

Adventure Travel Balance Sheet April 30
Assets
Cash		$ 41,600
Accounts Receivable		1,650
Office Supplies		600
Prepaid Insurance		2,078
Computer Equipment	$ 40,000
Less: Accumulated Depreciation	(500)	39,500
Total Assets		$ 85,428
Liabilities
Salaries Payable	500
Total Liabilities		500
Stockholders Equity
Common Stock	77,000
Retained Earnings	7,928
Total Stockholders Equity		84,928
Total Liabilities and Stockholders Equity		$ 85,428

6a.

Date	General Journal	Debit	Credit
		$	$
April 30	Commissions Revenue	19,150
	Income Summary		19,150
	To close revenue account
April 30	Income Summary	8,922
	Depreciation Expense: Computer Equip.		500
	Salaries Expense		3,500
	Insurance Expense		122
	Rent Expense		1,900
	Office Supplies Expense		1,000
	Repairs Expense		450
	Telephone Expense		1,450
	To close expense accounts
April 30	Income Summary	10,228
	Retained Earnings		10,228
	To close income summary
April 30	Retained Earnings	2,300
	Dividends		2,300
	To close dividends

7.

Adventure Travel Post Closing Trial Balance April 30
Account Titles	Debit	Credit
	$	$
Cash	41,600
Accounts Receivable	1,650
Office Supplies	600
Prepaid Insurance	2,078
Computer Equipment	40,000
Accumulated Depreciation : Computer Equipment		500
Salaries Payable		500
Common Stock		77,000
Retained Earnings		7,928
Totals	$ 85,928	$ 85,928