Question

On April 1, 2017, Jiro Nozomi created a new travel agency, Adventure Travel. The following transactions occurred during the company’s first month.

April		1		Nozomi invested $30,000 cash and computer equipment worth $30,000 in the company in exchange for common stock.
		2		The company rented furnished office space by paying $2,000 cash for the first month’s (April) rent.
		3		The company purchased $1,800 of office supplies for cash.
		10		The company paid $2,300 cash for the premium on a 12-month insurance policy. Coverage begins on April 11.
		14		The company paid $1,700 cash for two weeks' salaries earned by employees.
		24		The company collected $20,000 cash on commissions from airlines on tickets obtained for customers.
		28		The company paid $1,700 cash for two weeks' salaries earned by employees.
		29		The company paid $550 cash for minor repairs to the company's computer.
		30		The company paid $850 cash for this month's telephone bill.
		30		The company paid $1,900 cash in dividends.

The company's chart of accounts follows:

101	Cash	405	Commissions Earned
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:

1. Two-thirds (or $128) of one month’s insurance coverage has expired.
2. At the end of the month, $500 of office supplies are still available.
3. This month’s depreciation on the computer equipment is $600.
4. Employees earned $340 of unpaid and unrecorded salaries as of month-end.
5. The company earned $2,400 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 and post the adjusting entries for the month and prepare the adjusted trial balance.
5a. Prepare the income statement for the month of April 30, 2017.
5b. Prepare the statement of retained earnings for the month of April 30, 2017.
5c. Prepare the balance sheet at April 30, 2017.
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

1. journal entries to record the transactions for April is as shown below:

Date   Particulars   L.F   Amount ($)   Amount ($)
Apr-01   Cash       30,000  
   Computer equipment       30,000  
   Common Stock           60,000
   (For cash and equipment invested)          
              
Apr-02   Rent Expense       2,000  
   cash           2,000
   (for rent paid for april)          
              
Apr-03   Office Supplies       1,800  
   cash           1,800
   (For office supplies purchased)          
              
Apr-10   Prepaid Insurance        2,300  
   Cash           2,300
   (For insurance premium for 12 months paid in advance)          
              
Apr-14   Salaries expense       1,700  
   cash           1,700
   (for 2 weeks salaries paid)          
              
Apr-24   Cash       20,000  
   Commissions earned           20,000
   (For cash received for commissions earned)          
              
Apr-28   Salaries expense       1,700  
   cash           1,700
   (for 2 weeks salaries paid)          
              
Apr-29   Repairs Expense       550  
   cash           550
   (for cash paid for computer repair)          
              
Apr-30   Telephone expense       850  
   cash           850
   (For cash paid for telephone expense)          
              
              
Apr-30   Dividends       1,900  
   cash           1,900
   (For cash paid for dividends)          
              
Ledger accounts

Cash          
Date   Debit   Credit   Balance
Apr-01   30,000       30,000
Apr-02       2,000   28,000
Apr-03       1,800   26,200
Apr-10       2,300   23,900
Apr-14       1,700   22,200
Apr-24 20,000       42,200
Apr-28       1,700   40,500
Apr-29       550   39,950
Apr-30       850   39,100
Apr-30       1,900   37,200
          
Computer Equipment          
Date   Debit   Credit   Balance
Apr-01   30,000       30,000
          
Common Stock          
Date   Debit   Credit   Balance
Apr-01       60,000   60,000
          
Rent Expense          
Date   Debit   Credit   Balance
Apr-02   2,000       2,000
          
Office Supplies          
Date   Debit   Credit   Balance
Apr-03   1,800       1,800
          
Prepaid Insurance          
Date   Debit   Credit   Balance
Apr-10   2,300       2,300
          
Salaries exp          
Date   Debit   Credit   Balance
Apr-14   1,700       1,700
Apr-28   1,700       3,400
          
          
Commissions earned          
Date   Debit   Credit   Balance
Apr-24       20,000   20,000
          
          
Repairs Expense          
Date   Debit   Credit   Balance
Apr-29   550       550
          
Telephone Expense          
Date   Debit   Credit   Balance
Apr-30   850       850
          
Dividends          
Date   Debit   Credit   Balance
Apr-30   1,900       1,900

Trial Balance

Adventure Travel      
Unadjusted Trial Balance      
April 30, 2017      
   Debit   Credit
Cash   37,200  
      
Office Supplies   1,800  
Prepaid insurance   2,300  
Computer equipment   30,000  
Accumulated dep-Computer Equipment       0
Salaries payable       0
Common Stock       60,000
Retained Earnings      
Dividends   1,900  
      
Commission earned       20,000
Depreciation exp-computer equipment   0  
Salaries exp   3,400  
Insurance exp   0  
      
Rent Expense   2,000  
Office Supplies expense   0  
Repair Expense   550  
Telephone Expense   850  
Total   80,000   80,000

4. Adjusting entries

       Adjusting Entries:          
a.   Apr-30   Insurance expense       128  
       Prepaid Insurance           128
       (For Insurance for 30 days expired)          
                  
b.   Apr-30   Supplies Expense       1,300  
       Office Supplies           1300
       (for office supplies expensed)          
                  
c.   Apr-30   Depreciation exp-Computer Equipment       600  
       Accumulated dep-Computer Equipment           600
       (For equipment depreciated)          
                  
d.   Apr-30   Salaries expense       340  
       Salaries payable           340
       (For salaries earned)          
                  
e.   Apr-30   Account Receivable       2,400  
       Commission Earned           2,400
       (for commission eraned but not billed)