This task assesses the following learning outcomes: Understand how companies

  1. This task assesses the following learning outcomes:
    • Understand how companies are created and how to register all business transactions in the main accounting books: The Journal and the Ledger.
    • Understand how to prepare a company’s Trial Balance.
    • Learning how to record adjusting entries at the end of each month and preparing and Adjusted Trial Balance.
    • Understand how to record the closing entries to be able to close the company’s accounting books.
    • Understand how to prepare the company’s financial statements: Balance Sheet, Income Statement and Statement of Retained Earnings.
    • Acquire a thorough understanding of the company’s accounting cycle and the importance of all the procedures need to determine the company’s final
      net income and its financial situation in the Balance Sheet.
      Problem 1: Recording transactions in the journal, posting to T accounts and trial balance (30 points)
      On February 20, Jane Doe began a new business called Doe Printing, which provides typing, duplicating, and printing services. The following six transactions were completed by the business during February.

1. 2.

3. 4.

5. 6.

Issued to Jane 1,000 shares of capital stock in exchange for her investment of $200,000 cash. (4 points)
Purchased land and a small building for $550,000, paying $150,000 cash and signing a note payable for the balance. The land was worth $240,000 and the building $310,000. (5 points)
Purchased office equipment for $50,000 from Staples, Inc. Paid $18,000 cash and agreed to pay the balance within 60 days. (4 points) Purchased a motorcycle on credit for $3,500 to be used for making deliveries to customers and agreed to make payment to Spokes, Inc. within 10 days. (4 points)

Paid in full the account payable to Spokes, Inc. (4 points)
Borrowed $40,000 from a bank and signed a note payable due in six months. (4 points)

Instructions:
1. Record the above transactions in general journal form. (18 points) 2. Post the entries in the T accounts below. (12 points)

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Problem 2: Recording adjusting entries (24 points)

Hollander Laboratory adjusts and closes its accounts at the end of each month. The trial balance on September 30, 2020, before adjustments is as follows:

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Cash
Accounts Receivable
Prepaid Rent
Office Supplies
Medical Equipment
Accumulated Depreciation: Medical
Equipment
Accounts Payable
Notes Payable
Unearned Revenue
Capital Stock
Retained Earnings
Dividends
Medical Revenue
Salaries Expense
Utilities Expense
Insurance Expense
Total $96,000

$18,200 27,000 5,000 1,200

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21,800
$6,000

3,000

8,000 14,000 18,000 16,000

1,000
31,000

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14,000 2,000 5,800

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$96,000

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The following information relates to month end adjustments:

(1) Office supplies consumed during September 30 amounted to $600.
(2) The useful life of the medical equipment was estimated to be 10 years.
(3) Many patients pay in advance for major medical procedures. Fees of $7,000 were earned during the month by performing procedures patients who had paid in advance.
(4) Salaries earned by employees during the month but not yet recorded amounted to $2,500.
(5) On September 1 Hollander Laboratory paid $5,000 for 2 month’s rent in advance.
(6) Medical procedures performed during the month but not yet billed or recorded amounted to $8,600.

Instructions: Prepare the adjusting entries required at September 30. (4 points per entry)

Problem 3: Closing entries and preparing Financial Statements (46 points)

Funky Beat Studio provides music lessons to student musicians. Some students pay in advance for lessons; others are billed after lessons have been already provided and the amounts are credited to “Lessons revenue”. The advanced payments are credited to an account entitled “Unearned revenue”.

FUNKY BEAT STUDIO ADJUSTED TRIAL BALANCE DECEMBER 31, 2020

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Cash
Accounts receivable
Unexpired insurance
Prepaid rent
Sheet music supplies
Music Equipment
Accumulated depreciation: music equipment
Accounts payable
Notes payable
Dividend payable
Interest payable
Income taxes payable
Unearned revenue
Capital stock
Retained earnings
Dividends
Lessons revenue
Advertising expense
Insurance expense
Rent expense
Sheet music supplies expense
Utilities expense
Depreciation expense: music equipment
Salaries expense
Interest expense
Income tax expense
Total $322,000

$ 72,000 3,500 5,000 1,000 25 3,400 1,100

20,000 56,600

159,375

$ 20,800 2,100 3,200 6,000 450 180,000

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1,000

7,400

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4,400 16,500 780 5,000 33,000 27,500 25 13,845

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$322,000

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From the adjusted trial balance dated December 31, 2020, provided above, complete the following:

1. Prepare all the closing entries for the company. (12 points)

  1. Prepare the Income Statement dated 31/12/20. (10 points)
  2. Prepare a Statement of Retained Earnings dated 31/12/2020. (10 points)
  3. Prepare the company’s Balance Sheet dated 31/12/2020. (14 points)
 

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