Question

Financial Accounting with IFRS 4/e (Kieso) ACR4.2

Lars Linken opened Lars Cleaners on March 1, 2020. Durng March, the following transac-tions were completed.

Mar. 1 Shareholders invested €15.000 cash in the business in exchange for ordinary shares.
Mar. 1 Borrowed €6,000 cash by signing a 6-month, 6%, €6,000 note payable. Interest will be paid the first day of each subsequent month.

Mar. 1 Purchased used truck for €8,000 cash.

Mar. 2 Paid €1,500 cash to cover rent from March 1 through May 31.

Mar. 3 Paid €2,400 cash on a 6-month insurance policy effective March 1.

Mar. 6 Purchased cleaning supplies for €2,000 on account.

Mar. 14 Billed customers €3,700 for cleaning services performed.

Mar. 18 Paid €500 on amount owed on cleaning supplies.

Mar. 20 Paid €1,750 cash for employee salaries.

Mar. 21 Collected €1,600 cash from customers billed on March 14.

Mar. 28 Billed customers €4,200 for cleaning services performed.

Mar. 31 Paid €350 for gas and oil used in truck during month (use Maintenance and Repairs Expense).

Mar. 31 Declared and paid a €900 cash dividend.

The chart of accounts for Lars Cleaners contains the following accounts: Cash, Accounts Receivable, Supplies, Prepaid Insurance, Prepaid Rent, Equipment, Accumulated Depreciation-Equipment, Accounts Payable, Salaries and Wages Payable, Notes Payable, Interest Payable, Share Capital-Ordinary, Retained Earnings, Dividends, Income Summary, Service Revenue, Maintenance and Repairs Expense, Supplies Expense, Depreciation Expense, Insurance Expense, Salaries and Wages Expense, Rent Expense, and Interest Expense.

Instructions:

a. Journalize the March transactions.

b. Post to the ledger accounts. (Use T-accounts.)

c. Prepare a trial balance at March 31,

d. Journalize the following adjustments.

1. Services performed but unbilled and uncollected at March 31 were €200.

2. Depreciation on equipment for the month was €250.

3. One-sixth of the insurance expired.

4. An inventory count shows €280 of cleaning supplies on hand at March 31.

5. Accrued but unpaid employee salaries were €1,080.

6. One month of the prepaid rent has expired.

7. One month of interest expense related to the note payable has accrued and will be paid April 1. (Hint: Use the formula from Illustration 3.17 to compute interest.)

e. Post adjusting entries to the T-accounts.

f. Prepare an adjusted trial balance.

g. Prepare the income statement and a retained earnings statement for March and a classified statement of financial position at March 31.

h. Journalize and post closing entries and complete the closing process.

i. Prepare a post-closing trial balance at March 31.

Answer 1

Lars Cleaners Journal Enteries Date Particulars 1.3.2020 Cash a/c Dr. To Common Stock (Common Stock issued) Debit in € Credit in € 15000 15000 Dr. 6000 1.3.2020 Cash a/c To Note Payable (Cash borrowed) 6000 Dr. 8000 1.3.2020 Truck a/c To Cash (Truck Purchased) 8000 1500 2.3.2020 Prepaid Rent a/c Dr. To Cash (3 months rent in advance) 1500 2400 3.3.2020 Prepaid Insurance a/c Dr. To Cash (6 month insurance in advance) 2400 2000 6.3.2020 Supplies a/c Dr. To Accounts Payable (Supplies on account) 2000 3700 14.3.2020 Accounts Receivable a/c Dr. To Service Revenue (Services provided on account) 3700 500 18.3.2020 Accounts Payable a/c Dr. To Cash (Creditors paid) 500 Dr. 1750 20.3.2020 Salaries Expense a/c To Cash (Salary paid) 1750 1600 21.3.2020 Cash a/c Dr. To Accounts Receivable (Cash from debtors) 1600 4200 28.3.2020 Accounts Receivable a/c Dr. To Service Revenue (Services provided on account) 4200 350 31.3.2020 Maintenance and Repair Expense a/c Dr. To Cash (Oil & gas expense paid) 350 Dr. 900 31.3.2020 Dividend a/c To Cash (Dividend paid) 900

Adjusting Enteries Date Particulars 31.3.2020 Accounts Receivable a/c Dr. To Service Revenue (Services provided on account) Debit in $ Credit in $ 200 200 Dr 250 31.3.2020 Depreciation Expense - Equip a/c To Accum. Depre - Equip. (To record depreciation) 250 400 31.3.2020 Insurance Expense a/c Dr. To Prepaid Insurance (Insurance Expensed) 2400/6 = 400 400 1720 31.3.2020 Supplies Expense a/c Dr. To Supplies (Supplies Expensed) 2000 - 280 = 1720 1720 Dr. 1080 31.3.2020 Salaries Expense a/c To Salary Payable (Salary accrued) 1080 Dr. 500 31.3.2020 Rent Expense a/c To Prepaid Rent (Rent expensed) 1500 / 3 500 30 31.3.2020 Interest Expense a/c Dr. To Interest Payable (Interest accrued) 6000 x 6% x 1/12 30 Closing Enteries Date Particulars 31.3.2020 Income Summary a/c Dr. To Salaries Expense To Maintenance and Repair Expense To Depreciation Expense - Equip To Insurance Expense To Supplies Expense To Rent Expense To Interest Expense (Expense accounts closed) Debit in $ Credit in $ 6080 2830 350 250 400 1720 500 30 8100 31.3.2020 Service Revenue a/c Dr. To Income Summary (Revenue accounts closed) 8100 Dr. 2020 31.3.2020 Income Summary a/c To Retained Earnings (Profits transferred) 2020 Dr. 900 31.3.2020 Retained Earnings a/c To Dividends (Dividends recorded) 900

Worksheet For the period ending 31.3.2020 7200 Particulars Cash Accounts Receivable Prepaid Rent Prepaid Insurance Supplies Truck Accum. Depre - Equip. Accounts Payable Interest Payable Salary Payable Note Payable Common Stock Retained Earnings Dividend Service Revenue Salaries Expense Maintenance and Repair Expense Depreciation Expense - Equip Insurance Expense Supplies Expense Rent Expense Interest Expense Totals Unadjusted Adjustments Adjusted Post Closing Debit in € Credit in € Debit in € Credit in € Debit in € Credit in € Debit in € Credit in € 7200 7200 6300 200 6500 6500 1500 500 1000 1000 2400 400 2000 2000 2000 1720 280 280 8000 8000 8000 250 250 250 1500 1500 1500 30 30 30 1080 1080 1080 6000 6000 6000 15000 15000 15000 1120 900 900 7900 200 8100 1750 1080 2830 350 350 250 250 400 400 1720 1720 500 500 30 30 31960 30400 30400 4180 4180 31960 24980 24980 8100 2830 350 Statement of Income For the period ending 31.3.2020 Service Revenue Less: Salaries Expense Maintenance and Repair Expense Depreciation Expense - Equip Insurance Expense Supplies Expense Rent Expense Interest Expense Net Income 250 400 1720 500 30 6080 2020 Statement of Retained Earnings For the period ending 31.3.2020 Net Income Dividend 2020 -900 1120

Balance sheet As at 31.3.2020 Assets Amounts in $ Amounts in $ Liabilities Amounts in $ Amounts in $ Current Assets Current Liabilities Cash 7200 Accounts Payable 1500 Accounts Receivable 6500 Interest Payable 30 Prepaid Rent 1000 Salary Payable 1080 2610 Prepaid Insurance 2000 Supplies 280 16980 Non Current Liabilities Note Payable 6000 Non Current Assets Truck 8000 Shareholders Equity Accum. Depre - Equip. -250 7750 Common Stock 15000 Retained Earnings 1120 16120 Total Assets 24730 Total Liabilities & Equity 24730