FINANCIAL ACCOUNTING
ASSIGNMENT#2; MARKS: 25; DUE DATE: 25-5-21
QUESTION:
Island Hoper is an airline providing passenger and freight service among some pacific
islands. The accounts are adjusted and closed each month. At June 30 the trial balance shown below
was prepared from the edger.
ISLAND HOPPER
Trial Balance
June 30, 1994
Cash (CA; BS)
Accounts receivable (CA; BS)
Prepaid rent (CA; BS)
Unexpired insurance (CA; BS)
Aircraft (FA; BS)
Accumulated depreciation-Aircraft (Contra Asset; BS)
Notes Payable (CL; BS)
Unearned passenger revenue (CL; BS)
Mary Earhart Capital (Owner’s equity; BS)
Mary Earhart Drawing (Contra capital; BS)
Freight revenue (Revenue; IS)
Fuel expense (Expense; BS)
Salaries expense (Expense; IS)
Maintenance expense (Expense; IS)
$ 23600
7200
9600
21000
1200000
$ 380000
600000
60000
230850
7000
130950
53800
66700
12900
1401800
1401800
OTHER DATA:
a. The aircraft is being depreciated over a period of 10 years (120 months)
b. The amount shown as unearned passenger revenue represents tickets sold to customers in
advance of flights. During June $ 38650 of this amount was earned by the airline. (Credit
passenger revenue)
c. Salaries earned by employees but not yet paid amount to $ 3300 at June 30
d. Accrued interest on notes payable amount to $ 5000 at June 30 and has not yet been recorded.
e. No entry has yet been made to record $ 4600 earned in June carrying freight for a customer
Pacific Trading Company.
f. Three month’s rent ($ 14400) had been prepaid on May 1.
g. On April 1, a 12 month insurance policy had been purchased for $ 25200
INSTRUCTIONS: Prepare the following;
a. Adjusting journal entries
b. Post to ledger accounts
c. Adjusted trial balance
d. Income statement for the month of June
e. Statement of owner’s equity as at June 30, 1994
f. Balance sheet as at June 30, 1994
g. Closing journal entries
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NOTE: TO SOLVE THIS QUESTION IN A PROPER WAY YOU CAN REFER THE FOLLOWING SOLVED
QUESTION, THIS QUESTION WAS EXPLAINED IN ONLINE CLASS DATED 26-MARCH-21
THE COMPLETION OFACCOUNTING CYCLE:
QUESTION:
Reed Geophysical Company adjusts and closes its accounts t the end of the year. At
December 31, 19-, the balances in the ledger accounts prior to managing adjusting entries were as
follows:
REED GEOPHYSICAL COMPANY
Trial Balance
December 31, 19-
Cash (Current Asset; BS)
Prepaid office rent (Current Asset; BS)
Prepaid subscription (Current Asset; BS)
Supplies (Current Asset; BS)
Equipment (Fixed Asset; BS)
Accumulated depreciation-Equipment (Contra Asset; BS)
Notes Payable (Current Liability; BS)
Unearned consulting fees (Current Liability; BS)
Glen Reed Capital (Owner’s Equity; STATEMENT OF OWNER’S EQUITY)
Glenn Reed Drawings (STATEMENT OF OWNER’S EQUITY)
Consulting Fee earned (Revenue; IS)
Salaries expense (IS)
Telephone expense (IS)
Rent expense (IS)
Miscellaneous expenses (IS)
DEBIT $
12540
3300
960
1300
20000
CREDIT $
1200
5000
35650
17040
27000
90860
66900
2550
11000
4200
149750
149750
OTHER DATA:
a) For the first 11 months of the year, office rent had been charged the Rent expense account a
rate of $ 1000 per month. On December 1, the company signed a new rental agreement at a
rate of $ 1100 per month, and paid three months’ rent in advance. This advance payment was
debited to the Prepaid Rent account.
b) Subscription expired during the year in the total amount of $ 710.
c) An estimate of supplies on hand was made at December 31, the estimated cost of the unused
supplies was $ 450.
d) The useful life of the equipment has been estimated at 10 years from date of acquisition. No
depreciation expense has been recorded for the current year.
e) Accrued interest on notes payable mounted to $ 100 at year end. (Set up accounts for Interest
Expense and Interest Payable.
f)
Consulting series valued at $ 32550 were rendered during the year for clients who had made
payment in advance.
g) It is the custom of the firm to bill clients only when consulting work is completed or, in the case
of prolonged engagement, at six-month intervals. At December 31, engineering services valued
at $ 3000 had been rendered to clients but not yet billed. Nod advance payments had been
received from these clients.
h) Salaries earned by employees but not yet paid amounted to $ 2200 at December 31.
INSTRURCTIONS:
i.
Record the necessary adjusting entries at the year end, December 31,19 -ii.
Prepare an adjusted trial balance at December 31, 19--iii.
Prepare an Income Statement for the year ended Dec. 31. 19__
iv.
Prepare a Statement of Owner’s Equity for the year ended December 31,19--v.
Prepare a Balance Sheet at December 31, 19—
vi.
Journalize closing entries
_____________________________________________________________________________________
i.
ADJUSTING ENTRIES:
a.
For the first 11 months of the year, office rent had been charged the Rent expense account at a
rate of $ 1000 per month. On December 1, the company signed a new rental agreement at a rate of $
1100 per month, and paid three months’ rent in advance. This advance payment was debited to the
Prepaid Rent account.
DATE
Dec. 31
b.
ACCOUNT TITLE AND EXPLANATION
Rent expense
Prepaid office rent
To record rent expense for the month of December.
DEBIT
$
CREDIT
1100
$
1100
Subscription expired during the year in the total amount of $ 710.
DATE
Dec. 31
ACCOUNT TITLE AND EXPLANATION
Subscription expense
Prepaid subscription
Subscription expense for the year
DEBIT
$
CREDIT
710
$
710
c.
An estimate of supplies on hand was made at December 31, the estimated cost of the unused
supplies was $ 450.
DATE
Dec. 31
ACCOUNT TITLE AND EXPLANATION
Supplies expense
DEBIT
$
CREDIT
850
$
Supplies (1300-450=850
Supplies used for the year
850
d.
The useful life of the equipment has been estimated at 10 years from date of acquisition. No
depreciation expense has been recorded for the current year.
DATE
Dec. 31
ACCOUNT TITLE AND EXPLANATION
Depreciation expense (20000/10)
Accumulated Depreciation-equipment
Depreciation expense for the year
DEBIT
$
CREDIT
2000
$
2000
e.
Accrued interest on notes payable mounted to $ 100 at year end. (Set up accounts for Interest
Expense and Interest Payable.
DATE
Dec. 31
ACCOUNT TITLE AND EXPLANATION
Interest expense
Interest payable
Accrued interest on notes payable
DEBIT
$
CREDIT
100
$
100
f.
Consulting series valued at $ 32550 were rendered during the year for clients who had made
payment in advance.
DATE
Dec. 31
ACCOUNT TITLE AND EXPLANATION
Unearned consulting fees
Consulting fees earned
Service performed for clients who had paid in
advance
DEBIT
$
CREDIT
32550
$
32550
g.
It is the custom of the firm to bill clients only when consulting work is completed or, in the case
of prolonged engagement, at six-month intervals. At December 31, engineering services valued at $
3000 had been rendered to clients but not yet billed. Nod advance payments had been received from
these clients.
DATE
Dec. 31
h.
ACCOUNT TITLE AND EXPLANATION
Consulting fees receivable
Consulting fees earned
Services rendered but not billed
DEBIT
$
CREDIT
3000
$
3000
Salaries earned by employees but not yet paid amounted to $ 2200 at December 31.
DATE
Dec. 31
ACCOUNT TITLE AND EXPLANATION
Salaried expense
Salaries payable
Salaried due but not paid
DEBIT
$
CREDIT
2200
$
2200
POSTING TO LEDGER ACCOUNTS:
CASH (CA)
DATE
DEBIT
CREDIT
BALANCE
12540 DR
a.
For the first 11 months of the year, office rent had been charged the Rent expense account at a
rate of $ 1000 per month. On December 1, the company signed a new rental agreement at a rate of $
1100 per month, and paid three months’ rent in advance. This advance payment was debited to the
Prepaid Rent account.
DATE
DEBIT
PREPAID OFFICE RENT (CA)
CREDIT
1100
b.
BALANCE
3300 DR
2200 DR
Subscription expired during the year in the total amount of $ 710.
DATE
DEBIT
PREPAID SUBSCRIPTION (CA)
CREDIT
BALANCE
710
960 DR
250 DR
C.
An estimate of supplies on hand was made at December 31, the estimated cost of the unused
supplies was $ 450.
SUPPLIES (CA)
DATE
DEBIT
CREDIT
850
BALANCE
1300 DR
450 DR
EQUIPMENT (FA)
DATE
BALANCE
20000 DR
d.
The useful life of the equipment has been estimated at 10 years from date of acquisition. No
depreciation expense has been recorded for the current year.
DATE
DEBIT
CREDIT
ACCUMULATED DEPRECIATION-EQUIPMENT (CONTRA ASSET)
DEBIT
CREDIT
BALANCE
1200 CR
2000
3200 CR
e.
Accrued interest on notes payable mounted to $ 100 at year end. (Set up accounts for Interest
Expense and Interest Payable.
NOTES PAYABLE (CL)
DATE
DEBIT
CREDIT
BALANCE
5000 CR
f.
Consulting series valued at $ 32550 were rendered during the year for clients who had made
payment in advance.
DATE
UNEARNED CONSULTING FEES (CL)
DEBIT
CREDIT
BALANCE
35650 CR
3100 CR
32550
g.
It is the custom of the firm to bill clients only when consulting work is completed or, in the case
of prolonged engagement, at six-month intervals. At December 31, engineering services valued at $
3000 had been rendered to clients but not yet billed. Nod advance payments had been received from
these clients.
GLENN REED CAPITAL
CREDIT
DATE
DEBIT
BALANCE
17040 CR
DATE
GLENN REED DRAWINGS (CONTRA CAPITAL)
DEBIT
CREDIT
DATE
CONSULTING FEES EARNED (REVENUE)
DEBIT
CREDIT
32550
3000
h.
BALANCE
27000 DR
BALANCE
90860 CR
123410 CR
126410 CR
Salaries earned by employees but not yet paid amounted to $ 2200 at December 31.
DATE
DEBIT
SALARIES EXPENSE
CREDIT
2200
DATE
DEBIT
DATE
DEBIT
TELEPHONE EXPENSE
CREDIT
BALANCE
66900 DR
69100 DR
BALANCE
2550 DR
RENT EXPENSE
CREDIT
1100
BALANCE
11000 DR
12100 DR
DATE
DEBIT
MISCELLANEOUS EXPENSE
CREDIT
BALANCE
4200 DR
DEBIT
SUBSCRIPTION EXPENSE
CREDIT
710
BALANCE
710 DR
DATE
DEBIT
SIUPPLIES EXPENSE
CREDIT
850
BALANCE
850 DR
DATE
DEBIT
DEPRECIATION EXPENSE
CREDIT
2000
BALANCE
2000 DR
DATE
DEBIT
INTEREST EXPENSE
CREDIT
100
BALANCE
100 DR
DATE
DEBIT
DATE
CONSULTING FEES RECEIVABLE (CA)
DEBIT
CREDIT
3000
DATE
INTEREST PAYABLE (CL)
CREDIT
BALANCE
100
DATE
DEBIT
100 CR
BALANCE
3000 DR
SALARIES PAYABLE (CL)
CREDIT
2200
BALANCE
2200 CR
PREPARE AN ADJUSTED TRIAL BALANCE:
REED GEOPHYSICAL COMPANY
Adjusted Trial Balance
As at December 31, 19-
Cash (Current Asset; BS)
Prepaid office rent (Current Asset; BS) (3300-1100)
Prepaid Subscription (Current Asset; BS) (960-710)
Supplies (Current Asset; BS) (1300-850)
Equipment at cost (Fixed Asset; BS)
Accumulated depreciation-Equipment (Contra Asset; BS); (1200+2000)
Notes Payable (Current Liability; BS)
Unearned consulting fees (Current Liability; BS); (35650-32550)
Glen Reed Capital (Owner’s Equity; STATEMENT OF OWNER’S EQUITY)
Glenn Reed Drawings (Contra equity; STATEMENT OF OWNER’S EQUITY
Interest payable (CL; BS)
Consulting fees receivable (CA);
Consulting Fee earned (Revenue; IS) (90680+35730)
Salaries payables (CL; BS)
Salaries expense (Exp. ;IS); (66900+2200)
Telephone expense (Exp. IS)
Rent expense (Exp.;IS) (11000+1100)
Miscellaneous expenses (Exp.;IS)
Subscription expense. (EXp. ;IS)
Supplies expense (Exp. ;IS)
Depreciation expense-Equipment (Exp.; IS)
Interest expense (Exp.; IS)
DEBIT $
$ 12540
2200
250
450
20000
CREDIT $
$ 3200
5000
3100
17040
27000
100
3000
126410
2200
69100
2550
12100
4200
710
850
2000
100
157050
157050
PREPARE FINANCIAL STATEMENTS:
REED GEOPHYSICAL COMPANY
Income Statement
For the year ended, December 31, 19Revenue:
Consulting Fees earned
Expenses:
Salaries expense
Telephone expense
Rent expense
Miscellaneous expense
Subscription expense
Supplies expense
$
$ 69100
2550
12100
4200
710
850
$
$ 126410
Depreciation expense-equipment
2000
100
Net Income
(91610)
34800
REED GEOPHYSICAL COMPANY
Statement of Owner’s Equity
For the year ended December 31, 19$
17040
34800
51840
(27000)
24840
Glenn Reed Capital at start of the year
Add Net Income
Less Drawings
Glenn Reed Capital at the end of the year
REED GEOPHYSICAL COMPANY
Balance Sheet
As at December 31, 19Assets:
$
Liabilities and Owner’s Equity
$
Cash
12540
Notes Payable
5000
Prepaid Office rent
2200
Unearned consulting fees
3100
Prepaid subscriptions
250
Salaries Payable
2200
Supplies
450
Interest Payable
100
Consulting Fees receivable
3000
Glenn Reed Capital
24840
Equipment
20000
Accumulated Depreciation: equipment. (3200) 16800
______
35240
35240
CLOSING OF REVENUE, EXPENSES, DRAWING; INCOME SUMMARY (JOURNAL ENTRIES):
DATE
ACCOUNTS TITS AND EXPLANATION
DEBT
$
CREDIT
$
Dec. 31
Consulting fees earned (Revenue)
126410
Income Summary
126410
To close the revenue accounts
Income Summary
91610
Salaries Expense
69100
Telephone expense
2550
Rent expense
12100
Miscellaneous expense
4200
Subscription expense
710
Supplies expense
850
Depreciation expense-equipment
2000
Interest expense
100
To close expenses accounts
Income Summary
34800
Capital
34800
To close Income Summary account
Capital
27000
Drawings
To close the owner’s drawings account
27000
CLOSING ENTRIES POSTED TO LEDGER ACCOUNTS
DATE
DEBIT
CONSULTING FEES EARNED
CREDIT
BALANCE
126410 CR
0
126410
DATE
DATE
DEBIT
DEBIT
SALARIES EXPENSE
CREDIT
69100
BALANCE
69100 DR
0
2550
BALANCE
2550 DR
0
12100
BALANCE
12100 DR
0
4200
BALANCE
4200 DR
0
710
BALANCE
710 DR
0
750
BALANCE
750 DR
0
2000
BALANCE
2000 DR
0
TELEPHONE EXPENSE
CREDIT
RENT EXPENSE
DATE
DATE
DATE
DATE
DATE
DEBIT
DEBIT
DEBIT
DEBIT
CREDIT
MISCELLANEOUS EXPENSE
CREDIT
SUBSCRIPTION EXPENSE
CREDIT
SUPPLIES EXPENSE
CREDIT
DEPRECIATION EXPENSE-EQUIPMENT
DEBIT
CREDIT
INTEREST EXPENSE
DATE
DEBIT
CREDIT
BALANCE
100 DR
0
100
DATE
DEBIT
INCOME SUMMARY
CREDIT
BALANCE
126410 CR
34800 CR
0
91610
34800
DRAWINGS
DATE
DEBIT
CREDIT
BALANCE
27000 DR
0
27000
CAPITAL
DATE
DEBIT
CREDIT
BALANCE
17040 CR
51840 CR
24840 CR
34800
27000
AFTER CLOSING TRIAL BALANCE:
REED GEOPHYSICAL COMPANY
After closing Trial Balance
As at December 31, 19TITLE OF ACCOUNT
Cash
Prepaid office rent
Prepaid subscription
Supplies
Consulting fees receivable
Equipment at cost
Accumulated depreciation-Equipment (Contra concept)
Notes Payable
Unearned consulting fees
Salaries Payable
Interest Payable
Glenn Reed Capital
DEBIT
$
CREDIT
12540
2200
250
450
3000
20000
38440
$
3200
5000
3100
2200
100
24840
38440