Question

Problem 3.6A
Short Comprehensive Problem

Donegan’s Lawn Care Service began operations in July 2009. The company uses the following general ledger accounts:

Cash Capital stock
Accounts Receivable Retained Earnings
Office Supplies Mowing Revenue
Mowing Equipment Salaries Expense
Accounts Payable Fuel Expense
Notes Payable

The company engaged in the following transactions during its first month of operations:

July 18 Issues 500 shares of capital stock to Patrick Donegan for $1,500.
July 22 Purchased office supplies on account for $100.
July 23 Purchased mowing equipment for $2,000, paying $400 cash and issuing a 60-day note payable for the remaining balance.
July 24 Paid $25 cash for gasoline. All of this fuel will be used in July.
July 25 Billed Lost Creek Cemetery $150 for mowing expenses. The entire amount is due July 30.
July 26 Billed Golf View Condominiums $200 for mowing services. The entire amount is due August 1.
July 30 Collected $150 from Lost Creek Cemetery for mowing services performed on July 25.
July 31 Paid $80 salary to employee Teddy Grimm for work performed in July.


Instructions
a. Record each of the above transactions in general journal form. Include a brief explanation of the transaction as part of each journal entry.
b. Post each entry to the appropriate ledger accounts (use the T account format illustrated in Exhibit 3-8 on page 110).
c. Prepare a trial balance dated July 31, 2009.
d. Explain why the Retained Earnings account has a zero balance in the trial balance.

Answer 1

a. Journal entries:

Date	Particulars	L/F	Dr $	Cr $
18-Jul	Cash	1,500
Capital stock	1,500
(issued 500 shares of capital stock to Patrick Donegan)
22-Jul	Office supplies	100
Accounts payable	100
(Purchased office supplies onaccount)
23-Jul	Equipment	2,000
Cash	400
Notes payable	1,600
(purchased equipment for cash and notes payable)
24-Jul	Fuel expenses	25
Cash	25
(cash paid forgasoline)
25-Jul	Accounts receivable	150
Mowing expenses	150
(Billed for mowingexpenses)
26-Jul	Accounts receivable	200
Mowing services	200
(Billed for mowingservices)
30-Jul	Cash	150
Accounts receivable	150
(cash received fro mowing services performed)
31-Jul	Salary expense	80
Cash	80
(salary paid to employee)

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b. Ledger accounts:Cash:

Date	Particulars	Dr $	Date	Particulars	Cr $
18	To Capital stock	1,500	23	By equipment	400
30	To accounts receivable	150		By fuel expenses	25
				By salary expense	80

Capital stock:

Date	Particulars	Dr $	Date	Particulars	Cr $
			18	By cash	1,500

Accounts receivable:

Date	Particulars	Dr $	Date	Particulars	Cr $
25	To mowing expenses	150	30	By cash	150
26	To mowing services	200

Retained earnings:

Date	Particulars	Dr $	Date	Particulars	Cr $
	0			0

Office supplies:

Date	Particulars	Dr $	Date	Particulars	Cr $
22	To accounts payable	100

Mowing revenue:

Date	Particulars	Dr $	Date	Particulars	Cr $
			25	By accounts receivable	150
			26	By accounts receivable	200

Mowing equipment:

Date	Particulars	Dr $	Date	Particulars	Cr $
23	To cash	400
	To notes payable	1,600

Salaries expense:

Date	Particulars	Dr $	Date	Particulars	Cr $
30	To cash	80

Accounts payable:

Date	Particulars	Dr $	Date	Particulars	Cr $
			22	By office supplies	100

Fuel expense:

Date	Particulars	Dr $	Date	Particulars	Cr $
24	To cash	25

Notes payable:

Date	Particulars	Dr $	Date	Particulars	Cr $
			23	By equipment	1,600

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c. Trial balance:

Trial balance
Particulars	Dr $	Particulars	Cr $
cash	1145	Mowing revenue	350
Accounts receivable	200	capital	1500
Office supplies	100	Accounts payable	100
mowing equipment	2,000	Notes payable	1,600
Salaries expense	80
Fuel expense	25
Total	3,550	Total	3550