Question

Kelly Pitney began her consulting business, Kelly Consulting, on April 1, 2018. The accounting cycle for Kelly Consulting for April, including financial statements, was illustrated in this chapter. During May, Kelly Consulting entered into the following transactions: May 3 Received cash from clients as an advance payment for services to be provided and recorded it as unearned fees, $4,500. 5 Received cash from clients on account, $2,450. 9 13 15 Paid cash for a newspaper advertisement, $225. Paid Office Station Co. for part of the debt incurred on April 5, $640. Recorded services provided on account for the period May 1-15, $9,180. Paid part-time receptionist for two weeks' salary including the amount owed on April 30, $750. Recorded cash from cash clients for fees earned during the period May 1-16, $8,360. 16 17 Record the following transactions on Page 6 of the journal: May 20 Purchased supplies on account, $735. Recorded services provided on account for the period May 16-20, $4,820. 21 25 Recorded cash from cash clients for fees earned for the period May 17-23, $7,900. Received cash from account, $9,520. 28 30 Paid part-time receptionist for two weeks' salary, $750. Paid telephone bill for May, $260. Paid electricity bill for May, $810. 31 31 Recorded cash from cash clients for fees earned for the period May 26-31, $3,300.

Answer 1

Account Miscellaneous Expense Account No. 59 Balance Debit Credit Post. Rer. Debit Credit 225 Date Item 2016 May, 9 May, 30 May, 31 May, 31 Closing 225 260 810 485 1,295 1,295 After preparing all the four column accounts, we need to pass some adjusting entries to show the correct record of the year of operation. We can joumalize the adjusting entries as below: May, 31 $275 Insurance Expense Prepaid Insurance $275 May 31 $1,370 Supplies Expense Supplies $1,370 May, 31 $330 $330 Depreciation Expense Accumulated Depreciation Salary Expense Salaries Payable May, 31 $325 $325 May, 31 $1,600 Rent Expense Prepaid Rent $1,600 May, 31 Unearned Fees 3.210 Fees Earned $3,210 Now we have journalized all the adjustment entries so now we can proceed with trial balance. We have posted all the adjustments and an adjusted trial balance is prepared below:

Kelly Consulting End-of-Period Spreadsheet For the Period Ended May 31, 2016 Adjusted Trial Balance Unadjusted Trial Balance Dr. Account Title Adjustments Dr. Cr. Cr. Dr. Cr. 44,195 44,195 11 Cash Accounts 12 Receivable 8,080 8,080 2,085 1,370 715 3,200 1,600 1,600 1,500 275 1.225 14,500 14,500 14 Supplies 15 Prepaid Rent Prepaid 16 Insurance Office 18 Equipment Accumulated 19 Depreciation Accounts 21 Payable Salaries 22 Payable 23 Unearned Fees 330 330 660 895 895 325 325 7.000 3,790 3.210 30,000 30,000 31 Common Stock Retained 32 Earnings 12,300 12,300 33 Dividends 10,500 10,500 36,210 3,790 40,000 41 Fees Earned 31 Salary Expense 1,380 325 1,705 1,600 1,600 1.370 1,370 52 Rent Expense Supplies 53 Expense Depreciation 54 Expense Insurance 35 Expense Miscellaneous 59 Expense 330 330 275 275 1.295 1,295 86,735 86,735 7,690 7,690 87,390 87,390 To prepare Income Statement, we post all the income and expense accounts from trial balance to income statement and then arrive at net income or net loss as follows:

Cr. 40,000 Kelly Consulting Income Statement For the Period ended May 31, 2016 Account Title Dr. Fees Earned Expenses Salary Expense 1.705 Rent Expense Supplies Expense 1,370 Depreciation Expense 330 Insurance Expense 275 Miscellaneous Expense 1.295 Total Expenses Net Income 1.600 6.575 33,425 To prepare retained earnings statement, we post opening balance of retained earnings, net income and dividend and calculate retained earnings at the end of the year: Kelly Consulting Retained Earnings Statement For the Period ended May 31, 2016 Account Title Dr. Cr. Retained Earnings, May 1, 2016 12.300 Net Income for the Period 33,425 Less: Dividends 10,500 Increase in Retained Earnings 22.925 Retained Earnings, May 31, 2016 35,225 We post all the assets and liabilities to the balance sheet as shown below: Kelly Consulting Balance Sheet May 31, 2016 Assets Liabilities Current Assets Current Liabilities Accounts Payable 44.195 895 Cash Accounts Receivable 8.080 Salaries Payable 325 Supplies 715 3.210 Unearned Fees Total Current Liabilities Prepaid Rent 1.600 4,430 1.225 Prepaid Insurance Total Current Assets 55,815 Stockholders' Equity Property, Plant and Equipment 30.000 14.500 35.225 Office Equipment Less: Accumulated Depreciation Equipment Total Property, Plant and Equipment Common Stock Retained Earnings Total Stockholders' Equity 660 65,225 13,840 Total Liabilities and Stockholders' Total Assets 69.655 equity "Closing entries involve four steps: 69,655

1. Step 1 involves closing the Revenue a/e's to zero. This is done by transferring it to Income summary ale 2. Step 2 involves closing the expense ale's to zero. This is done by transferring it to Income summary a/c. 3. Step 3 involves closing the Income from summary a/c by transferring the Net gain to capitalale. 4. Step 4, which is the last step, involves closing the drawing ale by transferring balance to capital account. 1 Fees Earned 40,000 May, 31 Income Summary 40.000 Income Summary 6,575 May, 31 1,705 Salary Expense Rent Expense 1600 1,370 330 Supplies Expense Depreciation Expense Insurance Expense Miscellaneous Expense 275 1295 May 31 Income Summary 33.425 Retained Earnings 33,425 May, Retained Earnings 10,500 31 Dividend 10,500 Post-Closing Trial Balance: The accounting cycle ends with the preparation of a post-closing trial balance. Post- closing Trial Balance shows only liabilities, Stockholders' equity, and asset accounts. Temporary accounts like dividends, expenses, and revenue accounts are not included since these accounts have been closed. Post-Closing trial balance lists the accounts and their after closing adjusted balances. Kelly Consulting Post-Closing Trial Balance May 31, 2016 Debit Balances Credit Balances 44,195 8,080 715 1,600 1.225 14.500 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Rent 16 Prepaid Insurance 18 Office Equipment Accumulated 19 Depreciation 21 Accounts Payable 22 Salaries Payable 23 Unearned Fees 31 Common Stock 32 Retained Earnings 660 895 325 3.210 30,000 35.225 70,315 70.315