week6.acomprehensiveillustration
DESCRIPTION
accountingTRANSCRIPT
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Week 6:
A Comprehensive
Illustration
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Iron Mountain Consulting
For the past several years, Kareem Ismail has operated a part-time consulting business from his home. As of 1 October 2010, Kareem decided to move to rented quarters and to operate the business, which was to be known as Iron Mountain Consulting, on a full-time basis.Iron Mountain Consulting entered into the following transactions during October: -
October Transactions
DateOct 1The following assets were received from Kareem Ismail:Cash, $18,000 Accounts receivable, $5,000 Supplies, $1,500Office equipment, $10,750.There were no liabilities received.Oct 1Paid 3 months rent on a lease rental contract, $4,800.Oct 2Paid the premiums on property and casualty insurance policies, $2,700.Oct 4Received cash from clients as an advance payment for services to be provided and recorded it as unearned fees, $3,150.Oct 5Purchased additional office equipment on account from Office Station Co., $1,250.Oct 6Received cash from clients on account, $2,000. -
October Transactions (Contd.)
DateOct 10Paid cash for a newspaper advertisement, $325.Oct 12Paid Office Station Co. for part of the debt incurred on Oct 5, $750.Oct 12Recorded services provided on account for the period Oct 1-12, $5,750.Oct 14Paid part-time receptionist for 2 weeks salary, $900.Oct 17Recorded cash from cash clients for fees earned for the period Oct 1-17, $9,250.Oct 18Paid cash for supplies, $600.Oct 20Recorded services provided on account for the period Oct 13-20, $4,100.Oct 24 Recorded cash from cash clients for fees earned during the period Oct 17-24, $4,850. -
October Transactions (Contd.)
DateOct 26Received cash from clients on account, $3,450.Oct 27Paid part-time receptionist for 2 weeks salary, $900.Oct 29Paid telephone bill for October, $250.Oct 31Paid electricity bill for October, $300.Oct 31Recorded cash from cash clients for fees earned for the period Oct 25-31, $3,975.Oct 31Recorded services provided on account for the remainder of October, $2,500.Oct 31Kareem withdrew $7,500 for personal use. -
Instructions
Journalise each transaction. -
Journal entries
Oct 1:
The following assets were received from Kareem Ismail:
Cash, $18,000
Accounts receivable, $5,000
Supplies, $1,500
Office equipment, $10,750.
There were no liabilities received.
Journal entry
DRCash 18,000
DRAccounts Receivable 5,000
DRSupplies 1,500
DROffice Equipment 10,750
CRKareem Ismail, Capital 35,250
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Journal entries
Oct 1:
Paid 3 months rent on a lease rental contract, $4,800.
Journal entry
DRPrepaid Rent 4,800
CRCash 4,800
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Journal entries
Oct 2:
Paid the premiums on property and casualty insurance policies, $2,700.
Journal entry
DRPrepaid Insurance2,700
CRCash 2,700
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Journal entries
Oct 4:
Received cash from clients as an advance payment for services to be provided and recorded it as unearned fees, $3,150.
Journal entry
DRCash3,150
CRUnearned fees3,150
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Journal entries
Oct 5:
Purchased additional office equipment on account from Office Station Co., $1,250.
Journal entry
DROffice equipment1,250
CRAccounts payable1,250
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Journal entries
Oct 6:
Received cash from clients on account, $2,000.
Journal entry
DRCash2,000
CRAccounts receivables2,000
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Journal entries
Oct 10:
Paid cash for a newspaper advertisement, $325.
Journal entry
DRMiscellaneous expense325
CRCash325
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Journal entries
Oct 12:
Paid Office Station Co. for part of the debt incurred on Oct 5, $750.
Journal entry
DRAccounts payable 750
CRCash750
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Journal entries
Oct 12:
Recorded services provided on account for the period Oct 1-12, $5,750.
Journal entry
DRAccounts receivable5,750
CRFees earned5,750
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Journal entries
Oct 14:
Paid part-time receptionist for 2 weeks salary, $900.
Journal entry
DRSalary expense900
CRCash900
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Journal entries
Oct 17:
Recorded cash from cash clients for fees earned for the period Oct 1-17, $9,250.
Journal entry
DRCash9,250
CRFees earned9,250
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Journal entries
Oct 18:
Paid cash for supplies, $600.
Journal entry
DRSupplies 600
CRCash600
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Journal entries
Oct 20:
Recorded services provided on account for the period Oct 13-20, $4,100.
Journal entry
DRAccounts receivable4,100
CRFees earned4,100
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Journal entries
Oct 24:
Recorded cash from cash clients for fees earned for the period Oct 17-24, $4,850.
Journal entry
DRCash4,850
CRFees earned4,850
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Journal entries
Oct 26:
Received cash from clients on account, $3,450.
Journal entry
DRCash3,450
CRAccounts receivable3,450
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Journal entries
Oct 27:
Paid part-time receptionist for 2 weeks salary, $900.
Journal entry
DRSalary expense900
CRCash900
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Journal entries
Oct 29:
Paid telephone bill for October, $250.
Journal entry
DRMiscellaneous expense250
CRCash250
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Journal entries
Oct 31:
Paid electricity bill for October, $300.
Journal entry
DRMiscellaneous expense300
CRCash300
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Journal entries
Oct 31:
Recorded cash from cash clients for fees earned for the period Oct 25-31, $3,975.
Journal entry
DRCash3,975
CRFees earned3,975
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Journal entries
Oct 31:
Recorded services provided on account for the remainder of October, $2,500.
Journal entry
DRAccounts receivable2,500
CRFees earned2,500
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Journal entries
Oct 31:
Kareem withdrew $7,500 for personal use.
Journal entry
DRKareem Ismail, Drawing7,500
CRCash7,500
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Instructions
Post the journal to individual ledgers. -
Posting journal entries to ledger accounts
CashDebitCreditOct 118,00014,80022,70043,15062,000103251275014900179,25018600244,850263,450279002925031300313,975317,500Bal c/f25,65044,67544,675Bal b/f25,650 -
Posting journal entries to ledger accounts
Accounts receivableDebitCreditOct 15,00062,000125,750204,100263,450312,500Bal c/f11,90017,35017,350Bal b/f11,900 -
Posting journal entries to ledger accounts
SuppliesDebitCreditOct 11,50018600Bal c/f2,1002,1002,100Bal b/f2,100 -
Posting journal entries to ledger accounts
Prepaid rentDebitCreditOct 14,800Bal c/f4,8004,8004,800Bal b/f4,800 -
Posting journal entries to ledger accounts
Prepaid insuranceDebitCreditOct 22,700Bal c/f2,7002,7002,700Bal b/f2,700 -
Posting journal entries to ledger accounts
Office equipmentDebitCreditOct 110,75051,250Bal c/f12,00012,00012,000Bal b/f12,000 -
Posting journal entries to ledger accounts
Accounts payableDebitCreditOct 51,25012750Bal c/f5001,2501,250Bal b/f500 -
Posting journal entries to ledger accounts
Unearned feesDebitCreditOct 43,150Bal c/f3,1503,1503,150Bal b/f3,150 -
Posting journal entries to ledger accounts
Kareem Ismail, CapitalDebitCreditOct 135,250Bal c/f35,25035,25035,250Bal b/f35,250 -
Posting journal entries to ledger accounts
Kareem Ismail, DrawingDebitCreditOct 317,500Bal c/f7,5007,5007,500Bal b/f7,500 -
Posting journal entries to ledger accounts
Fees earnedDebitCreditOct 125,750179,250204,100244,850313,975312,500Bal c/f30,42530,42530,425Bal b/f30,425 -
Posting journal entries to ledger accounts
Salary expenseDebitCreditOct 1490027900Bal c/f1,8001,8001,800Bal b/f1,800 -
Posting journal entries to ledger accounts
Miscellaneous expenseDebitCreditOct 103252925031300Bal c/f875875875Bal b/f875 -
Instructions
Prepare an unadjusted trial balance. - AccountsUnadjusted Trial balanceDebitCreditCash25,650Accounts receivable11,900Supplies2,100Prepaid rent4,800Prepaid insurance2,700Office equipment12,000Accumulated depreciation office equipment0Accounts payable500Salary payable0Unearned fees3,150Kareem Ismail, capital35,250Kareem Ismail, drawing7,500
- AccountsUnadjusted Trial balanceDebitCreditFees earned30,425Salary expense1,800Rent expense0Supplies expense0Depreciation expense0Insurance expense0Miscellaneous expense87569,32569,325
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Adjustments
At the end of October, the following adjustment data were assembled:
Insurance expired during October is $225.Supplies on hand on Oct 31 are $875.Depreciation of office equipment for October is $400.Accrued receptionist salary on Oct 31 is $200.Rent expired during October is $1,600.Unearned fees on Oct 31 are $1,150. -
Journalise the adjusting entries & post them to the relevant ledger accounts.
1.Insurance expired during October is $225.
Journal entry:
Cr Prepaid insurance $225
Dr Insurance Expense $225
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Posting adjusting entries to ledger accounts
Prepaid insuranceDebitCreditOct 22,70031Adjusting225 -
Posting adjusting entries to ledger accounts
Insurance expenseDebitCredit31Adjusting225 -
2.Supplies on hand on Oct 31 are $875.
Supplies per unadjusted TB: $2,100
Actual balance at year end: $875
Therefore, the balance needs to be adjusted by: $2,100 - $875 = $1,225.
Journal entry:
Cr Supplies $1,225
Dr Supplies Expense $1,225
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Posting adjusting entries to ledger accounts
SuppliesDebitCreditOct 11,5001860031Adjusting1,225 -
Posting adjusting entries to ledger accounts
Supplies expenseDebitCredit31Adjusting1,225 - Depreciation of office equipment for October is $400.
Journal entry:
Cr Accumulated depreciation$400
Dr Depreciation Expense $400
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Posting adjusting entries to ledger accounts
Accumulated depreciationDebitCredit31Adjusting400 -
Posting adjusting entries to ledger accounts
Depreciation expenseDebitCredit31Adjusting400 -
4.Accrued receptionist salary on Oct 31 is $200.
Journal entry:
Cr Salaries payable$200
Dr Salary expense$200
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Posting adjusting entries to ledger accounts
Salaries payableDebitCreditOct 31Adjusting200 -
Posting adjusting entries to ledger accounts
Salary expenseDebitCreditOct 149002790031Adjusting200 -
5. Rent expired during October is $1,600.
Journal entry:
Cr Prepaid rent$1,600
Dr Rent Expense $1,600
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Posting adjusting entries to ledger accounts
Prepaid rentDebitCreditOct 14,80031Adjusting1,600 -
Posting adjusting entries to ledger accounts
Rent expenseDebitCredit31Adjusting1,600 -
6.Unearned fees on Oct 31 are $1,150.
Unearned service revenue per unadjusted TB: $3,150
Actual balance at year end: $1,150
Therefore, the balance needs to be adjusted by: $3,150 - $1,150 = $2,000.
Journal entry:
Dr Unearned fees$2,000
Cr Fees earned$2,000
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Posting adjusting entries to ledger accounts
Unearned feesDebitCreditOct 43,15031Adjusting2,000 -
Posting adjusting entries to ledger accounts
Fees earnedDebitCreditOct 125,750179,250204,100244,850313,975312,50031Adjusting2,000 -
Instructions
Prepare an adjusted trial balance, using an end-of-period worksheet. - AccountsTrial balanceAdjustmentsAdjd TBDebitCreditDebitCreditDebitCreditCash25,650Accounts receivable11,900Supplies2,100Prepaid rent4,800Prepaid insurance2,700225Office equipment12,000Accumulated depreciation office equipment0Accounts payable500Salary payable0Unearned fees3,150Kareem Ismail, capital35,250Kareem Ismail, drawing7,500Fees earned30,425Salary expense1,800Rent expense0Supplies expense0Depreciation expense0Insurance expense0225Miscellaneous expense87569,32569,325
- AccountsTrial balanceAdjustmentsAdjd TBDebitCreditDebitCreditDebitCreditCash25,650Accounts receivable11,900Supplies2,1001,225Prepaid rent4,800Prepaid insurance2,700225Office equipment12,000Accumulated depreciation office equipment0Accounts payable500Salary payable0Unearned fees3,150Kareem Ismail, capital35,250Kareem Ismail, drawing7,500Fees earned30,425Salary expense1,800Rent expense0Supplies expense01,225Depreciation expense0Insurance expense0225Miscellaneous expense87569,32569,325
- AccountsTrial balanceAdjustmentsAdjd TBDebitCreditDebitCreditDebitCreditCash25,650Accounts receivable11,900Supplies2,1001,225Prepaid rent4,800Prepaid insurance2,700225Office equipment12,000Accumulated depreciation office equipment0400Accounts payable500Salary payable0Unearned fees3,150Kareem Ismail, capital35,250Kareem Ismail, drawing7,500Fees earned30,425Salary expense1,800Rent expense0Supplies expense01,225Depreciation expense0400Insurance expense0225Miscellaneous expense87569,32569,325
- AccountsTrial balanceAdjustmentsAdjd TBDebitCreditDebitCreditDebitCreditCash25,650Accounts receivable11,900Supplies2,1001,225Prepaid rent4,800Prepaid insurance2,700225Office equipment12,000Accumulated depreciation office equipment0400Accounts payable500Salary payable0200Unearned fees3,150Kareem Ismail, capital35,250Kareem Ismail, drawing7,500Fees earned30,425Salary expense1,800200Rent expense0Supplies expense01,225Depreciation expense0400Insurance expense0225Miscellaneous expense87569,32569,325
- AccountsTrial balanceAdjustmentsAdjd TBDebitCreditDebitCreditDebitCreditCash25,650Accounts receivable11,900Supplies2,1001,225Prepaid rent4,8001,600Prepaid insurance2,700225Office equipment12,000Accumulated depreciation office equipment0400Accounts payable500Salary payable0200Unearned fees3,150Kareem Ismail, capital35,250Kareem Ismail, drawing7,500Fees earned30,425Salary expense1,800200Rent expense01,600Supplies expense01,225Depreciation expense0400Insurance expense0225Miscellaneous expense87569,32569,325
- AccountsTrial balanceAdjustmentsAdjd TBDebitCreditDebitCreditDebitCreditCash25,650Accounts receivable11,900Supplies2,1001,225Prepaid rent4,8001,600Prepaid insurance2,700225Office equipment12,000Accumulated depreciation office equipment0400Accounts payable500Salary payable0200Unearned fees3,1502,000Kareem Ismail, capital35,250Kareem Ismail, drawing7,500Fees earned30,4252,000Salary expense1,800200Rent expense01,600Supplies expense01,225Depreciation expense0400Insurance expense0225Miscellaneous expense87569,32569,325
- AccountsTrial balanceAdjustmentsAdjd TBDebitCreditDebitCreditDebitCreditCash25,65025,650Accounts receivable11,90011,900Supplies2,1001,225875Prepaid rent4,8001,6003,200Prepaid insurance2,7002252,475Office equipment12,00012,000Accumulated depreciation office equipment0400400Accounts payable500500Salary payable0200200Unearned fees3,1502,0001,150Kareem Ismail, capital35,25035,250Kareem Ismail, drawing7,5007,500Fees earned30,4252,00032,425Salary expense1,8002002,000Rent expense01,6001,600Supplies expense01,2251,225Depreciation expense0400400Insurance expense0225225Miscellaneous expense87587569,32569,32569,92569,925
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Instructions
Prepare an income statement, a statement of owners equity and a balance sheet. -
Income Statement
For the month ended 31 October 2010
Fees earned ........................................................................ $ 32,425
Expenses:
Salary expense ............................................... $2,000
Rent expense .................................................. 1,600
Supplies expense ............................................. 1,225
Depreciation expense ..................................... 400
Insurance expense ............................................. 225
Miscellaneous expense ..................................... 875
Total expenses ................................................... 6,325
Net income .......................................................................... $ 26,100
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Statement of Owners Equity
For the month ended 31 Oct 2010
Kareem Ismail, capital, October 1, 2010 ........................... $ 0
Additional investments during the month ....................... 35,250
Total .................................................................................. $ 35,250
Net income for the month ..............................$ 26,100
Less withdrawals ................................................ (7,500)
Increase in owners equity ................................................ 18,600
Kareem Ismail, capital, October 31, 2010 .....................$ 53,850
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Balance Sheet
31 Oct 2010
AssetsLiabilitiesCurrent assets:Current liabilities:Cash25,650Accounts payable500Accounts receivable11,900Salaries payable200Supplies875Unearned fees1,150Prepaid rent3,200Total liabilities1,850Prepaid insurance2,475Total current assets44,100Property, plant & equipment:Owners equityOffice equipment12,000Kareem Ismail, capital53,850Less: Acc. Depreciation(400)11,600Total assets55,700Total liabilities & owners equity55,700 -
Instructions
Prepare & post the closing entries. -
Closing entries
OctDebitCredit1.31Fees earned32,425Income summary32,4252.31Income summary6,325Salary expense2,000Rent expense1,600Supplies expense1,225Depreciation expense400Insurance expense225Miscellaneous expense875 -
Closing entries
OctDebitCredit3.31Income summary26,100Kareem Ismail, capital26,1004.31Kareem Ismail, capital7,500Kareem Ismail, drawing7,500 -
Posting closing entries to ledger accounts
Kareem Ismail, CapitalDebitCreditOct 135,250Oct 31Closing (Ref 3)26,100Oct 31Closing (Ref 4)7,500Balance c/f53,850 -
Posting journal entries to ledger accounts
Kareem Ismail, DrawingDebitCreditOct 317,500Closing (Ref 4)7,500Balance c/f0 -
Posting closing entries to ledger accounts
Income SummaryDebitCreditOct 31Closing (Ref 1)32,425Closing (Ref 2)6,325Closing (Ref 3)26,100Balance c/f0 -
Posting closing entries to ledger accounts
Fees earnedDebitCreditOct 31Adjusted balance32,425Closing (Ref 1)32,425Balance c/f0Salary expenseOct 31Adjusted balance2,000Closing (Ref 2)2,000Balance c/f0Rent expenseOct 31Adjusted balance1,600Closing (Ref 2)1,600Balance c/f0 -
Posting closing entries to ledger accounts
DebitCreditSupplies expenseOct 31Adjusted balance855Closing (Ref 2)855Balance c/f0Depreciation expenseOct 31Adjusted balance400Closing (Ref 2)400Balance c/f0 -
Posting closing entries to ledger accounts
DebitCreditInsurance expenseOct 31 Adjusted balance225Closing (Ref 2)225Balance c/f0Miscellaneous expenseOct 31 Adjusted balance875Closing (Ref 2)875Balance c/f0 -
Instructions
Prepare a post-closing trial balance. - AccountsPost closing TBDebitCreditCash25,650Accounts receivable11,900Supplies875Prepaid rent3,200Prepaid insurance2,475Office equipment12,000Accumulated depreciation office equipment400Accounts payable500Salary payable200Unearned fees1,150Kareem Ismail, capital53,85056,10056,100