ADM 1340 Lecture Notes - Lecture 2: Retained Earnings, Tranche, Scotiabank
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At June 30, 2017, the end of its most recent fiscal year, Primrose Comp Consultantsâ post-closing trial balance was as follows:
Debit | Credit | |||
Cash | $5,860 | |||
Accounts receivable | 1,340 | |||
Supplies | 770 | |||
Accounts payable | $450 | |||
Unearned service revenue | 1,250 | |||
Common stock | 4,000 | |||
Retained earnings | 2,270 | |||
$7,970 | $7,970 |
The company underwent a major expansion in July. New staff was hired and more financing was obtained. Culver conducted the following transactions during July 2017, and adjusts its accounts monthly.
July | 1 | Purchased equipment, paying $4,000 cash and signing a 2-year note payable for $22,400. The equipment has a 4-year useful life. The note has a 6% interest rate which is payable on the first day of each following month. | |
2 | Issued 22,400 shares of common stock for $56,000 cash. | ||
3 | Paid $4,200 cash for a 12-month insurance policy effective July 1. | ||
3 | Paid the first 2 (July and August 2017) monthsâ rent for an annual lease of office space for $4,500 per month. | ||
6 | Paid $4,300 for supplies. | ||
9 | Visited client offices and agreed on the terms of a consulting project. Culver will bill the client, Connor Productions, on the 20th of each month for services performed. | ||
10 | Collected $1,340 cash on account from Milani Brothers. This client was billed in June when Culver performed the service. | ||
13 | Performed services for Fitzgerald Enterprises. This client paid $1,250 in advance last month. All services relating to this payment are now completed. | ||
14 | Paid $450 cash for a utility bill. This related to June utilities that were accrued at the end of June. | ||
16 | Met with a new client, Thunder Bay Technologies. Received $13,400 cash in advance for future services to be performed. | ||
18 | Paid semi-monthly salaries for $12,300. | ||
20 | Performed services worth $31,400 on account and billed customers. | ||
20 | Received a bill for $2,500 for advertising services received during July. The amount is not due until August 15. | ||
23 | Performed the first phase of the project for Thunder Bay Technologies. Recognized $11,200 of revenue from the cash advance received July 16. | ||
27 | Received $16,800 cash from customers billed on July 20. |
Adjustment data:
1. | Adjustment of prepaid insurance. | |
2. | Adjustment of prepaid rent. | |
3. | Supplies used, $1,400. | |
4. | Equipment depreciation, $550 per month. | |
5. | Accrual of interest on note payable. | |
6. | Salaries for the second half of July, $12,300, to be paid on August 1. | |
7. | Estimated utilities expense for July, $900 (invoice will be received in August). | |
8. | Income tax for July, $1,340, will be paid in August |
*Journalize July Transactions**
B&L Landscapes, Inc. Mini Practice Part1
Bill Graham started his career mowing lawns for neighbors whilehe was in junior high school. Bill worked summers for the localgolf course while he was in high school and after he graduated, hestarted his own lawn care business, Billâs Lawn Care. In additionto lawn care, he also sells two types of fertilizer. Bill is readyto expand his business and wants to add sprinkler systems to hisproduct offering. Larry Miller has an established sprinkler systembusiness and they have agreed to merge their two businessestogether. They considered the partnership form of business but havedecided to incorporate. You are taking an accounting class at thelocal community college and have been helping Bill keep theaccounting records for his business. He has asked you to stay onand establish and maintain the accounting records for the newcompany, B&L Landscapes, Inc.
Bill and Larry have hired an attorney and filed theincorporation paperwork with the state of Colorado. In the articlesof incorporation, they are authorized to issue 150,000 shares of $1par value common stock and 5,000 shares of $100 par value, 5%,non-cumulative, non-participating preferred stock. The newcorporation will be created on July 1, 2014. The fair value of theassets and liabilities of both companies are as follows:
Account | Billâs Lawn Care |
---|---|
Cash | $12,500 |
Accounts Receivable | 500 |
Prepaid Insurance | 500 |
Inventory | 1,000 |
Land | 8,000 |
Building | 25,000 |
Equipment | 7,500 |
Accounts Payable | 5,000 |
Notes Payable (due 4/30/2024) | 45,000 |
Larryâs Sprinkler Systems | |
Cash | $10,000 |
Accounts Receivable | 3,000 |
Prepaid Insurance | 1,000 |
Inventory | 5,000 |
Equipment | 11,000 |
Accounts Payable | 5,000 |
Bill and Larry have decided that they will each receive 1 shareof common stock for every dollar of working capital (assets lessliabilities) they contribute to the new company. You may assumethat all the assets and liabilities listed above will be part ofthe new company. Additionally, they issue stock as follows:
Jul 1 Issued 30 sharesof preferred stock for $100 per share cash to Billâs father.
Jul 1 Issued 20 sharesof preferred stock for $100 per share cash to Larryâs mother.
Instructions:
Using the chart of accounts provided below, and the Exceltemplate provided with this assignment, prepare journal entries, ingood form, to record the creation of B&L Landscapes, Inc. andthe issuance of stock. Use July 1 for the creation journal entries.Start with Page 1 of the General Journal.Explanations are optional.
Prepare a classified balance sheet for B&L Landscapes, Inc.for July 1, 2014.
During the first year of operations, B&L Inc. earned netincome of $22,500. They also declared a $2,000 dividend on June 10,2015 payable on June 30, 2015. Prepare an allocation of thedividend to each class of stock.
Record the journal entries for the dividend declaration andpayment on Page 2 of the General Journal.Explanations are optional.
Prepare the Stockholdersâ Equity section of the balance sheetfor June 30, 2015.
Account Tracking form provided:
Account Title -> copy the name of the accounts from the listbelow
Account Major Classification -> Asset (A), Liability (L),Ownerâs Equity (OE), Revenue (R) or Expense (E) or Not Applicable(NA)
Contra account -> place a check mark in this column if theitem is a contra account
Account Sub Classification -> only to be used with Asset andLiability accounts; Current Asset (CA); Property, Plant &Equipment (PPE); Current Liability (CL), Long-term Liability (LTL)or Not Applicable (NA)
Normal Balance -> debit (DR), credit (CR) or Not Applicable(NA)
Financial Statement-> Income Statement (IS), Statement ofOwnerâs Equity (SOE), Balance Sheet (BS) or Not Applicable (NA)
Temporary or Permanent -> T for temporary (nominal) accountsand P for permanent (real) accounts
Accounts Payable |
Accounts Receivable |
Accumulated Depreciation |
Advertising Expense |
Buildings |
Cash |
Depreciation Expense |
Fees Earned |
Income Summary |
Insurance Expense |
Interest Payable (due in 1 month) |
Interest Receivable (due in 2 months) |
Joey Bee, Capital |
Joey Bee, Drawing |
Land |
Notes Payable (due in 3 years) |
Notes Receivable (due in 2 months) |
Office Equipment |
Prepaid Insurance |
Prepaid Rent |
Rent Expense |
Notes Payable (due in 2 months) |
Store Equipment |
Supplies |
Supplies Expense |
Taxes Payable (due in 4 months) |
Unearned Fees |
Unearned Rent |
Unearned Revenue |
Wages Payable |