AC1220 ACCOUNTING I
Lab 2.1
AC1220 Lab 2.1
Introduction
Jake’s Computer Repair Service earned a small profit for the month ended January 20x1. Jones expects the business to continue operating into the foreseeable
future. In fact, he expects the business to grow so long as it continues to provide customers with excellent service.
The following transactions take place in February 20x1:
a.
Feb. 1, 20x1. Jones pays off the accounts payable balance of $410 in cash.
b.
Feb. 2, 20x1. Jones contacts a local advertising agency, Hype! Inc. The agency offers to provide six months of customized advertising and
promotional services for a fee of $1,200. Jones agrees and mails a check to Hype! Inc. for the full amount. Hint: Record a prepaid expense.
c.
Feb. 24, 20x1. Jones receives a utility bill for the month of February, $490. This amount is due on March 6, 20x1, and is still payable at month end.
d.
Feb. 28, 20x1. Service revenues for the month total $5,300: $3,900 cash and $1,400 on account.
e.
Feb. 28, 20x1. A customer brings in a laptop for repair and a software upgrade. The customer writes a check for $120 to cover the service. Jones
begins work on the laptop on March 2, 20x1.
f.
Feb. 28, 20x1. Jones pays rent of $500 in cash.
g.
Feb. 28, 20x1. Jones withdraws $1,000 in cash.
h.
Feb. 28, 20x1. Wages are paid during the month, amounting to $900 in cash.
Requirement 1
Make the necessary entries to journalize these transactions for the month of February.
DATE
2/1/x1
REF
a
a
DATE
2/2/x1
REF
b
b
DEBIT
1
CREDIT
AC1220 ACCOUNTING I
Lab 2.1
DATE
REF
DATE
2/24/x1
REF
c
c
DATE
2/28/x1
REF
d
d
d
DATE
2/28/x1
REF
e
e
DATE
2/28/x1
REF
f
f
DATE
2/28/x1
REF
f
f
DATE
2/28/x1
REF
f
f
DEBIT
CREDIT
On February 28, Jones takes the following facts into account:
i.
Feb. 28, 20x1. The supplies account had a balance of $910 on Feb. 1, 20x1. Some supplies were used during the month. Jones determines that the
original cost of the remaining supplies is $260.
j.
Jones accrues an additional $30 in wages for the hours that Dave worked on Monday, February 28, 20x1; Dave’s wage for that pay period is
scheduled for payment on Friday, March 4, 20x1.
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AC1220 ACCOUNTING I
k.
Lab 2.1
Feb. 28, 20x1. Jones considers the prepayment made for advertising services on February 2, 20x1, and makes an entry to account for advertising
expense for the month of February, 20x1.
l.
Feb. 28, 20x1. Interest of $120 has accrued on the note payable. The interest is scheduled for payment early in March.
Requirement 2
Make the necessary adjustment entries for the facts described:
DATE
2/28/x1
REF
i
i
DATE
2/28/x1
REF
j
j
DATE
2/28/x1
REF
k
k
DATE
2/28/x1
REF
l
l
DEBIT
3
CREDIT
AC1220 ACCOUNTING I
Lab 2.1
Requirement 3
Using an accounting worksheet, Jones prepares a trial balance before making adjustments. Complete the worksheet, showing the adjustments, and compute
the ending (adjusted) balance amounts. Label each adjustment in parentheses, (i)-(l).
Account
Cash
Accounts Receivable
Supplies
Prepaid Advertising
Equipment
Trial Balance
Debit
$7,760
$1,630
$910
$1,200
$6,200
Accounts Payable
Wages Payable
Interest Payable
Note Payable
Unearned Revenue
Capital, Jones
Withdrawal, Jones
Service Revenue
Wage Expense
Rent Expense
Utilities Expense
Advertising Expense
Interest Expense
Supplies Expense
Total
Adjustments
Adjusted Balance
Credit
$490
$10,000
$120
$4,680
Total debits must equal total credits
$5,300
adjusted trial balance columns!
for the trial balance, adjustments, and
$1,000
$900
$500
$490
-
Ensure that the debit and credit
columns are equal before
proceeding to Requirement 4!
$20,590
$20,590
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AC1220 ACCOUNTING I
Lab 2.1
Requirement 4
Prepare an income statement, a statement of owner’s equity, and a balance sheet for Jake’s Computer Repair Service for the month ended February 28, 20x1.
Use the adjusted trial balance amounts you computed in Requirement 3, and the template below.
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AC1220 ACCOUNTING I
Lab 2.1
JAKE’S COMPUTER REPAIR SERVICE
INCOME STATEMENT
FOR THE MONTH ENDED FEBRUARY 28, 20x1
Service Revenue:
Less Expenses:
Wage Expense
Supplies Expense
Rent Expense
Utilities Expense
Advertising Expense
Interest Expense
Total Expenses
Net Income
JAKE’S COMPUTER REPAIR SERVICE
STATEMENT OF OWNER’S EQUITY
FOR THE MONTH ENDED FEBRUARY 28, 20x1
Capital, Jones, February 1, 20x1
Plus: Additional Owner Investment During Month
Plus: Net Income, February, 20x1
Less: Drawings, Jones
Capital, Jones, February 28, 20x1
$4,680
JAKE’S COMPUTER REPAIR SERVICE
BALANCE SHEET
FEBRUARY 28, 20x1
ASSETS
Cash
Accounts Receivable
Supplies
Prepaid Advertising
Equipment
Total Assets
LIABILITIES
Accounts Payable
Wages Payable
Interest Payable
Unearned Revenue
Note Payable
Total Liabilities
OWNER’S EQUITY
Capital, Jones
Total Liabilities & Owner’s Equity
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AC1220 ACCOUNTING I
Lab 2.1
Requirement 5
Jones recognizes utilities expense as soon as the utilities bill arrives, and recognizes service revenues only when the related service is performed (refer back to
transactions c and e in Requirement 4). Which basis of accounting is Jones correctly applying?
a)
Cash basis
b)
Accrual basis
c)
Historical cost basis
d)
Transactional basis
Requirement 6
Jones makes adjustments at month end to assign revenues to the period in which they are earned and to assign expenses to the period in which they are
incurred. As a result, revenues earned in February are reported together with the expenses incurred to generate those revenues. Which accounting principle
or concept is Jones correctly applying?
a)
Accounting period concept
b)
Time period concept
c)
Matching principle
d)
Faithful representation principle
Requirement 7
Adjustment entries involve revenue or expense accounts but never affect the cash account.
a)
True
b)
False
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AC1220 ACCOUNTING I
Lab 2.1
Requirement 8
Jones accrues interest on the note payable with an adjusting entry. Explain the effect on the income statement if Jones had failed to make this entry.
Requirement 9
True or false? The cash basis of accounting is required under Generally Accepted Accounting Principles (GAAP) when preparing financial statements. Explain, if
necessary.
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