ACC 131 Lecture Notes - Lecture 2: Accounts Payable, Accounting Equation, Kauai
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1.) Record February and March transactions in the General Journal and post to the General Ledger.
2.) Record adjusting entries for February and March in the General Journal and post to the General Ledger.
3.) Prepare the adjusted trial balance as of February 28 and March 31.
4.) Prepare the following February and March financial statements:
a) Income Statement for month ended February 28 and March 31
b) Statement of Stockholders Equity for month ended February 28 and March 31
c) Balance Sheet as of February 28 and March 31
d) Statement of Cash Flows for month ended February 28 and March 31
e) Record February and March closing transactions in the General Journal and post to the General Ledger.
f) Prepare a post-closing trial balance as of February 28 and March 31.
| February Transactions | ||
| 1-Feb | Paid six months of rent in advance, $6,000. | |
| 4-Feb | Paid wages and salaries for $2,335, part of which was accrued in January. | |
| 7-Feb | Purchased supplies on account, $930 | |
| 11-Feb | Performed car repair services on account, $3,910. | |
| 17-Feb | Collected cash from credit sales made in January and February, $4,200. | |
| 20-Feb | Made a monthly payment on the equipment note, $80. | |
| 23-Feb | Performed car repair services and received cash at the time of sale, $4,390. | |
| 25-Feb | Accrued for the bonus earned by the shop manager that will be paid in April, $950. | |
| February Adjusting Entries | ||
| 28-Feb | The estimated depreciation on building and equipment is $700. | |
| 28-Feb | One month of rent has expired, $1,000. | |
| 28-Feb | The annual interest rate is 4% on all notes and paid quarterly. Round to nearest dollar. | |
| 28-Feb | The supplies remaining at the end of the month was $750. | |
| 28-Feb | Accrued wages and salaries worked in February that will be paid 3-4, $1,900. | |
| 28-Feb | The estimated income taxes for the month is $815. | |
| March Transactions | ||
| 1-Mar | Performed car repair services and received cash at the time of sale, $3,950. | |
| 4-Mar | Paid wages and salaries for $2,100, part of which was accrued in February. | |
| 10-Mar | Issued stock to new investors, $10,000. | |
| 15-Mar | Made the interest payment on all notes, all is accrued in interest payable. | |
| 15-Mar | Paid annual income taxes that was accrued in income taxes payable. | |
| 20-Mar | Made a monthly payment on the equipment note, $80. | |
| 22-Mar | Paid cash for advertising, $150. | |
| 27-Mar | Performed car repair services on account, $4,020. | |
| 30-Mar | Paid dividends to owners, $360. | |
| March Adjusting Entries | ||
| 31-Mar | The estimated depreciation on building and equipment is $700. | |
| 31-Mar | One month of rent has expired, $1,000. | |
| 31-Mar | The annual interest rate is 4% on all notes and paid quarterly. Round to nearest dollar. | |
| 31-Mar | Accrued wages and salaries worked in March that will be paid 4-4, $1,890. | |
| 31-Mar | The estimated income taxes for the month is $720. | |
| Thunderduck Car Repair | ||
| Post-Closing Trial Balance | ||
| As of January 31, 20X1 | ||
| Debit | Credit | |
| Cash | $ 7,330 | |
| Accounts Recievable | $ 4,960 | |
| Supplies | $ 675 | |
| Prepaid Rent | $ - | |
| Building | $ 87,000 | |
| Equipment | $ 109,000 | |
| Wages and Salaries Payable | $ 1,940 | |
| Income tax payable | $ 9,340 | |
| Utilities payable | $ - | |
| Accumulated Depreciation | $ 41,900 | |
| Accounts Payable | $ 5,290 | |
| Note payable | $ 30,500 | |
| Interest payable | $ 102 | |
| Common stock | $ 88,200 | |
| Retained Earnings | $ 31,693 | |
| TOTAL | $ 208,965 | $ 208,965 |
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**
| Wallyâs Widget Company (WWC) incorporated near the end of 2011. Operations began in January of 2012. WWC prepares adjusting entries and financial statements at the end of each month. Balances in the accounts at the end of January are as follows: |
| Cash | $ | 21,620 | Unearned Revenue (30 units) | $ | 5,350 | ||
| Accounts Receivable | $ | 12,650 | Accounts Payable (Jan Rent) | $ | 3,300 | ||
| Allowance for Doubtful Accounts | $ | (1,900) | Notes Payable | $ | 16,000 | ||
| Inventory (35 units) | $ | 2,800 | Contributed Capital | $ | 7,000 | ||
| Retained Earnings â Feb 1, 2012 | $ | 3,520 | |||||
| ⢠| WWC establishes a policy that it will sell inventory at $180 per unit. |
| ⢠| In January, WWC received a $5,350 advance for 30 units, as reflected in Unearned Revenue. |
| ⢠| WWCâs February 1 inventory balance consisted of 35 units at a total cost of $2,800. |
| ⢠| WWCâs note payable accrues interest at a 12% annual rate. |
| ⢠| WWC will use the FIFO inventory method and record COGS on a perpetual basis. |
| February Transactions | |
| 02/01 | Included in WWCâs February 1 Accounts Receivable balance is a $1,400 account due from Kit Kat, a WWC customer. Kit Kat is having cash flow problems and cannot pay its balance at this time. WWC arranges with Kit Kat to convert the $1,400 balance to a note, and Kit Kat signs a 6-month note, at 12% annual interest. The principal and all interest will be due and payable to WWC on August 1, 2012. |
| 02/02 | WWC paid a $650 insurance premium covering the month of February. The amount paid is recorded directly as an expense. |
| 02/05 | An additional 180 units of inventory are purchased on account by WWC for $13,500 â terms 2/15, n30. |
| 02/05 | WWC paid Federal Express $360 to have the 180 units of inventory delivered overnight. Delivery occurred on 02/06. |
| 02/10 | Sales of 150 units of inventory occurred during the period of 02/07 â 02/10. The sales terms are 2/10, net 30. |
| 02/15 | The 30 units that were paid for in advance and recorded in January are delivered to the customer. |
| 02/15 | 25 units of the inventory that had been sold on 2/10 are returned to WWC. The units are not damaged and can be resold. Therefore, they are returned to inventory. Assume the units returned are from the 2/05 purchase. |
| 02/16 | WWC pays the first 2 weeks wages to the employees. The total paid is $2,800. |
| 02/17 | Paid in full the amount owed for the 2/05 purchase of inventory. WWC records purchase discounts in the current period rather than as a reduction of inventory costs. |
| 02/18 | Wrote off a customerâs account in the amount of $2,000. |
| 02/19 | $6,600 of rent for January and February was paid. Because all of the rent will soon expire, the February portion of the payment is charged directly to expense. |
| 02/19 | Collected $10,000 of customersâ Accounts Receivable. Of the $10,000, the discount was taken by customers on $8,000 of account balances; therefore WWC received less than $10,000. |
| 02/26 | WWC recovered $600 cash from the customer whose account had previously been written off (see 02/18). |
| 02/27 | A $950 utility bill for February arrived. It is due on March 15 and will be paid then. |
| 02/28 | WWC declared and paid a $950 cash dividend. |
| Adjusting Entries: |
| 02/29 | Record the $2,800 employee salary that is owed but will be paid March 1. | ||
| 02/29 | WWC decides to use the aging method to estimate uncollectible accounts. WWC determines 8% of the ending balance is the appropriate end of February estimate of uncollectible accounts. | ||
| 02/29 | Record February interest expense accrued on the note payable. | ||
| 02/29 | Record one monthâs interest earned Kit Katâs note (see 02/01).
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