ACC 101 Lecture Notes - Lecture 3: Trial Balance
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NUMBERS:
Service Revenue Per Hour: $90.50
Sales Revenue Per Unit: $50.50
Cost of Inventory Per Unit: $24.75
Part 1 General Journal â Post the followingjournal entries to the general journal.
Trans. | Date | Description |
1 | May 1 | Sell 50,000 shares of common stock for $50,000 to obtain thefunds necessary to start your business. |
2 | May 1 | Borrow $20,000 from the local bank and sign a note promising torepay the full amount of the debt in 5 years. |
3 | May 1 | Issue 1,500 shares of $2 par value preferred stock at$30/share. |
4 | May 1 | Purchase equipment necessary for business operations for$15,000. |
5 | May 1 | Pay one year of rent in advance, $12,000 ($1,000 per month.) |
6 | May 3 | Purchase supplies on account, $800. |
7 | May 3 | Purchase 200 units of inventory with cash. |
8 | May 6 | Provide 40 hours of services to customers for cash (calculateusing your hourly service rate). |
9 | May 10 | Sell 100 units of inventory on account. (Perpetual method = 2entries) |
10 | May 12 | Sell 50 units of inventory to a customer on account with a salesdiscount of 2/10, n/30. |
11 | May 15 | Purchase an additional 300 units of inventory onaccount. |
12 | May 20 | The customer who purchased product on May 12th pays the amountdue (within discount period). |
13 | May 23 | Receive cash in advance for 20 hours of services to be completedin the future. |
14 | May 31 | Sell 200 units of inventory to a customer who signs a 6-monthpromissory note at 10% interest for the balance due. |
15 | May 31 | Pay employee salaries, $1,000. |
16 | May 31 | Pay cash dividends to shareholders, $600. |
Part 3 â GeneralLedger â Post the information from the journal entries into thegeneral ledger.
Part 4 â TrialBalance â Prepare a trial balance from the information in thegeneral ledger.
Part 2 cont. âAdjusting journal Entries â Post the following adjusting entries tothe general journal
Adj-1 | May 31 | Record the portion of the Prepaid Rent used in May. |
Adj-2 | May 31 | The company has $300 of supplies left at month end |
Adj-3 | May 31 | Record one month of depreciation on the equipment. The equipmenthas a useful life of 10 years |
Adj-4 | May 31 | Provide 10 hours of services that were paid in advance on May23rd. |
Adj-5 | May 31 | Record the receipt of a $300 utilities bill due on June5th. |
Adj-6 | May 31 | Record accrued interest on the $20,000 â 5 year note payable.The annual interest rate is 10%. |
Part 3 cont. âGeneral Ledger - Post the adjusting entries to the GeneralLedger.
Part 5 â AdjustedTrial Balance â Post the ending balances from the General Ledger tothe Adjusted Trial Balance. Debits should equal credits if you havedone the prior steps correctly.
Part 6 â Prepare theend of month Income Statement.
Part 7 â Prepare theend of month Retained Earnings Statement .
Part 8 â Prepare theend of month Balance Sheet .
Part 1 cont. - Addthe following closing entries to the general journal:
Clo-1 | May 31 | Close out revenues/income |
Clo-2 | May 31 | Close out expenses/losses |
Clo-3 | May 31 | Close out dividends |
Part 2 cont. - Postthe above closing entries to the general ledger.
Part 9 â Prepare apost-closing trial balance.
The following transactions occurover the remainder of the year. |
Aug. | 1 | Great Adventures obtains a $42,000 low-interest loan for thecompany from the city council, which has recently passed aninitiative encouraging business development related to outdooractivities. The loan is due in three years, and 6% annual interestis due each year on July 31. |
Aug. | 4 | The company purchases 14 kayaks,costing $23,400. |
Aug. | 10 | Twenty additional kayakers pay $3,400 ($170 each), in additionto the $8,400 that was paid in advance on July 30, on the day ofthe clinic. Tony conducts the first kayak clinic. |
Aug. | 17 | Tony conducts a second kayakclinic, and the company receives $12,200 cash. |
Aug. | 24 | Office supplies of $1,600purchased on July 4 are paid in full. |
Sep. | 1 | To provide better storage of mountain bikes and kayaks when notin use, the company rents a storage shed, purchasing a one-yearrental policy for $3,240 ($270 per month). |
Sep. | 21 | Tony conducts a rock-climbingclinic. The company receives $14,300 cash. |
Oct. | 17 | Tony conducts an orienteering clinic. Participants practice howto understand a topographical map, read an altimeter, use acompass, and orient through heavily wooded areas. Clinic fees total$19,800. |
Dec. | 1 | Tony decides to hold the companyâs first adventure race onDecember 15. Four-person teams will race from checkpoint tocheckpoint using a combination of mountain biking, kayaking,orienteering, trail running, and rock-climbing skills. The firstteam in each category to complete all checkpoints in order wins.The entry fee for each team is $640. |
Dec. | 5 | To help organize and promote the race, Tony hires his collegeroommate, Victor. Victor will be paid $60 in salary for each teamthat competes in the race. His salary will be paid after therace. |
Dec. | 8 | The company pays $1,400 topurchase a permit from a state park where the race will be held.The amount is recorded as a miscellaneous expense. |
Dec. | 12 | The company purchases racing supplies for $2,600 on account duein 30 days. Supplies include trophies for the top-finishing teamsin each category, promotional shirts, snack foods and drinks forparticipants, and field markers to prepare the racecourse. |
Dec. | 15 | Forty teams pay a total of$25,600 to race. The race is held. |
Dec. | 16 | The company pays Victorâs salaryof $2,400. |
Dec. | 31 | The company pays a dividend of$3,800 ($1,900 to Tony and $1,900 to Suzie). |
Dec. | 31 | Using his personal money, Tony purchases a diamond ring for$4,100. Tony surprises Suzie by proposing that they get married.Suzie accepts! |
The following informationrelates to year-end adjusting entries as of December 31, 2015. |
a. | Depreciation of the mountain bikes purchased on July 8 andkayaks purchased on August 4 totals $8,700. |
b. | Six monthsâ worth of insurancehas expired. |
c. | Four monthsâ worth of rent hasexpired. |
d. | Of the $1,600 of office suppliespurchased on July 4, $330 remains. |
e. | Interest expense on the $42,000loan obtained from the city council on August 1 should berecorded. |
f. | Of the $2,600 of racing suppliespurchased on December 12, $210 remains. |
g. | Suzie calculates that thecompany owes $13,300 in income taxes. |
Assume the following endingbalances for the month of July. |
Balance | ||
Cash | $ | 23,320 |
Prepaidinsurance | 4,680 | |
Supplies(Office) | 1,600 | |
Equipment(Bikes) | 16,900 | |
Accountspayable | 1,600 | |
Unearnedrevenue | 8,400 | |
Common stock | 32,000 | |
Service revenue(Clinic) | 7,400 | |
Advertisingexpense | 1,000 | |
Legal feesexpense | 1,900 | |
1. Record transactions from August 1 through December 31 2. Record adjusting entries as of December 31, 2015 |