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 $31,000 cash and computer equipment worth $40,000 in the company in exchange for common stock. 2 The company rented furnished office space by paying $3,000 cash for the first month's (April) rent. 3 The company purchased $1,300 of office supplies for cash. 10 The company paid $2,000 cash for the premium on a 12-month insurance policy. Coverage begins on April 11. 14 The company paid $1,300 cash for two weeks' salaries earned by employees. 24 The company collected $13,500 cash for commissions earned. 28 The company paid $1,300 cash for two weeks salaries earned by employees. 29 The company paid $500 cash for minor repairs to the company's computer. 30 The company paid $1,450 cash for this month's telephone bili. 30 The company paid $2,000 cash in dividends. The company's chart of accounts follows: 101 Cash 106 Accounts Receivable 124 Office Supplies 128 Prepaid Insurance 167 Computer Equipment 168 Accumulated Depreciation-Computer Equip. 209 Salaries Payable 307 Common Stock 318 Retained Earnings 319 Dividends 405 Commissions Earned 612 Depreciation Expense-Computer Equip. 622 Salaries Expense 637 Insurance Expense 640 Rent Expense 650 Office Supplies Expense 684 Repairs Expense 688 Telephone Expense 901 Income Summary Use the following information: a. Prepaid insurance of $111 has expired this month. b. At the end of the month, $700 of office supplies are still available. c. This month's depreciation on the computer equipment is $500. d. Employees earned $580 of unpaid and unrecorded salaries as of month-end. e. The company earned $1,700 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

Ans.1. The journal entries are as follows:

Journal entries in the books of Adventure Travel
Date	Particulars	Debit amount	Credit amount
1-Apr	Cash	$31,000
	Computer Equipment	$40,000
	Common Stock		$71,000
	(Being capital invested in the form of cash and computer equipment)
2-Apr	Rent expense	$3,000
	Cash		$3,000
	(Being office rent for April paid in cash)
3-Apr	Office Supplies	$1,300
	Cash		$1,300
	(Being office supplies purchased in cash)
10-Apr	Prepaid insurance	$2,000
	Cash		$2,000
	(Being prepaid insurance paid in cash)
14-Apr	Salaries expense	$1,300
	Cash		$1,300
	(Being salaries paid in cash)
24-Apr	Cash	$13,500
	Commission Earned		$13,500
	(Being commission earned in cash)
28-Apr	Salaries expense	$1,300
	Cash		$1,300
	(Being salaries paid in cash)
29-Apr	Repairs expense	$500
	Cash		$500
	(Being repairs expense paid in cash)
30-Apr	Telephone expense	$1,450
	Cash		$1,450
	(Being telephone expense for April paid in cash)
30-Apr	Dividends	$2,000
	Cash		$2,000
	(Being dividends paid in cash)

Ans.2. The ledger accounts will appear as follows:

Cash A/c
Date	Particulars	Debit Amount	Date	Particulars	Credit Amount
1-Apr	Common Stock	$31,000	2-Apr	Rent expense	$3,000
24-Apr	Commission Earned	$13,500	3-Apr	Office Supplies	$1,300
			10-Apr	Prepaid insurance	$2,000
			14-Apr	Salaries expense	$1,300
			28-Apr	Salaries expense	$1,300
			29-Apr	Repairs expense	$500
			30-Apr	Telephone expense	$1,450
			30-Apr	Dividends	$2,000
			30-Apr	Balance c/d	$31,650
		$44,500			$44,500
Computer Equipment A/c
Date	Particulars	Debit Amount	Date	Particulars	Credit Amount
1-Apr	Common Stock	$40,000	30-Apr	Balance c/d	$40,000
		$40,000			$40,000
Common Stock A/c
Date	Particulars	Debit Amount	Date	Particulars	Credit Amount
30-Apr	Balance c/d	$71,000	1-Apr	Cash	$31,000
			1-Apr	Computer Equipment	$40,000
		$71,000			$71,000
Rent Expense A/c
Date	Particulars	Debit Amount	Date	Particulars	Credit Amount
2-Apr	Cash	$3,000	30-Apr	Balance c/d	$3,000
		$3,000			$3,000
Office Supplies A/c
Date	Particulars	Debit Amount	Date	Particulars	Credit Amount
3-Apr	Cash	$1,300	30-Apr	Balance c/d	$1,300
		$1,300			$1,300
Prepaid insurance A/c
Date	Particulars	Debit Amount	Date	Particulars	Credit Amount
10-Apr	Cash	$2,000	30-Apr	Balance c/d	$2,000
		$2,000			$2,000
Salaries expense A/c
Date	Particulars	Debit Amount	Date	Particulars	Credit Amount
14-Apr	Cash	$1,300	30-Apr	Balance c/d	$2,600
28-Apr	Cash	$1,300
		$2,600			$2,600
Commission Earned A/c
Date	Particulars	Debit Amount	Date	Particulars	Credit Amount
30-Apr	Balance c/d	$13,500	24-Apr	Cash	$13,500
		$13,500			$13,500
Repairs expense A/c
Date	Particulars	Debit Amount	Date	Particulars	Credit Amount
29-Apr	Cash	$500	30-Apr	Balance c/d	$500
		$500			$500
Telephone expense A/c
Date	Particulars	Debit Amount	Date	Particulars	Credit Amount
30-Apr	Cash	$1,450	30-Apr	Balance c/d	$1,450
		$1,450			$1,450
Dividends A/c
Date	Particulars	Debit Amount	Date	Particulars	Credit Amount
30-Apr	Cash	$2,000	30-Apr	Balance c/d	$2,000
		$2,000			$2,000

Ans.3. The unadjusted trial balance as on April 30 will be:

Unadjusted Trial Balance as of April 30
Particulars	Debit Amount	Credit Amount
Cash	$31,650
Computer Equipment	$40,000
Common Stock		$71,000
Rent expense	$3,000
Office Supplies	$1,300
Prepaid insuarnce	$2,000
Salaries expense	$2,600
Commission earned		$13,500
Repairs expense	$500
Telephone expense	$1,450
Dividends	$2,000
Total	$84,500	$84,500

Ans.4.

Adjusting journal entries
S.No.	Particulars	Debit amount	Credit amount
a.	Insurance expense	$111
	Prepaid insurance		$111
	(Being prepaid insurance of $111 expired)
b.	Office Supplies expense	$600
	Office Supplies		$600
	(Being $600 of office supplies consumed)
c.	Depreciation expense - Computer Equip.	$500
	Accumulated Depreciation - Computer Equip.		$500
	(Being April's depreciation on computer equipment)
d.	Salaries expense	$580
	Salaries payable		$580
	(Being accrued salaries for April)
e.	Accounts receivable	$1700
	Commission earned		$1700
	(Being commission earned but not yet recorded)

Working note:

For entry no. B, office supplies purchased were $1,300 and ending balance was $700. So, supplies consumed = $1,300 - $700 = $600.

The adjusted trial balance based on adjustment entries will be as follows:

Adjusted Trial Balance as of April 30
Particulars	Debit Amount	Credit Amount
Cash	$31,650
Computer Equipment	$40,000
Common Stock		$71,000
Rent expense	$3,000
Office Supplies	$700
Prepaid insuarnce	$2,000
Salaries expense	$3,180
Commission earned		$15,200
Repairs expense	$500
Telephone expense	$1,450
Dividends	$2,000
Office Supplies expense	$600
Depreciation expense - Computer equip.	$500
Accumulated depreciation - Computer equip.		$500
Salaries payable		$580
Accounts receivable	$1,700
Total	$87,280	$87,280