On December 1, Bob Waldo began an auto repair shop, Waldo's Quality Automotive.
The following transactions occurred during December:
Dec. 1 Waldo contributed $70,000 cash to the business in exchange for shares of common stock.
1 Purchased $12,000 of equipment paying cash.
1 Paid $1,750 for a five-month insurance policy starting on December 1.
9 Paid $20,000 cash to purchase land to be used in operations.
10 Purchased office supplies on account, $2,800.
19 Borrowed $15,000 from the bank for business use. Waldo signed a note payable to the bank in the name of the corporation. The note is due in five years.
22 Paid $1,300 for advertising expenses.
26 Paid $900 on account.
28 The business received a bill for utilities to be paid in January, $280.
31 Revenues earned during the month included $16,000 cash and $3,600 on account.
31 Paid employees' salaries $3,800 and building rent $1,200. Record as a compound entry.
31 The business received $1,440 for auto screening services to be performed next month.
31 Paid cash dividends of $5,500 to stockholders.
The business uses the following accounts: Cash; Accounts Receivable; Office Supplies; Prepaid Insurance; Land; Equipment; Accumulated Depreciation-Equipment; Accounts Payable; Utilities Payable; Interest Payable; Unearned Revenue; Notes Payable; Common Stock; Retained Earnings; Dividends; Income Summary; Service Revenue; Salaries Expense; Rent Expense; Utilities Expense; Advertising Expense; Supplies Expense; Insurance Expense; Interest Expense; and Depreciation Expense-Equipment.
Adjustment data:
a. Office Supplies used during the month, $1,800.
b. Depreciation for the month, $200.
c. One month insurance has expired.
d. Accrued Interest Expense, $75.
Requirements
1. Prepare the journal entries, and post to the T-accounts.
2. Prepare an unadjusted trial balance.
3. Complete the worksheet for the month ended December 31, 2018 (optional).
4. Prepare the adjusting entries, and post to the T-accounts.
5. Prepare an adjusted trial balance.
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6. Prepare the income statement, the statement of retained earnings, and the classified balance sheet in report form.
7. Prepare the closing entries, and post to the T-accounts.
8. Prepare a post-closing trial balance.
SOLUTION Requirement 1
Date Accounts and Explanation Debit Credit Dec. 1 Cash 70,000 Common Stock 70,000 1 Equipment 12,000 Cash 12,000 1 Prepaid Insurance 1,750 Cash 1,750 9 Land 20,000 Cash 20,000 10 Office Supplies 2,800 Accounts Payable 2,800 19 Cash 15,000 Notes Payable 15,000 22 Advertising Expenses 1,300 Cash 1,300 26 Accounts Payable 900 Cash 900 28 Utilities Expense 280 Utilities Payable 280 31 Cash 16,000 Accounts Receivable 3,600 Service Revenue 19,600 31 Salaries Expense 3,800 Rent Expense 1,200 Cash 5,000 31 Cash 1,440 Unearned Revenue 1,440 31 Dividends 5,500 Cash 5,500
Requirements 1, 4, and 7
Cash Cash Cash Cash Cash Dividends Dividends Dividends Dividends Dec. 1 Dec. 1 70,000 12,000 Dec. 1 Dec. 31 5,500 5,500 Clos. Dec. 19 Dec. 19 15,000 1,750 Dec. 1 Dec. 31 Dec. 31 16,000 20,000 Dec. 9 Bal. 0 Dec. 31 Dec. 31 1,440 1,300 Dec. 22 900 Dec. 26 Income Summary Income Summary Income Summary Income Summary 5,000 Dec. 31 Clos. 9,005 19,600 Clos. 5,500 Dec. 31 Clos. 10,595 10,595 Bal. Bal. Bal. 55,990 0 Bal. Accounts Receivable Accounts Receivable Accounts Receivable Accounts Receivable Accounts Receivable Service Revenue Service Revenue Service Revenue Service Revenue Dec. 31 Dec. 31 3,600 19,600 Dec. 31 Clos. 19,600 Bal. Bal. 3,600 0 Bal. Office Supplies Office Supplies Office Supplies Office Supplies Office Supplies Salaries Expense Salaries Expense Salaries Expense Salaries Expense Dec. 10 2,800 2,800 Dec. 31 3,800 1,800 Adj. 3,800 Clos. Bal. 1,000 1,000 Bal. 0 Prepaid Insurance Prepaid Insurance Prepaid Insurance Prepaid Insurance Prepaid Insurance Rent Expense Rent Expense Rent Expense Rent Expense Dec. 1 Dec. 1 1,750 350 Adj. Dec. 31 1,200 1,200 Clos. Bal. Bal. 1,400 Bal. 0 Land Land Land Land Land Utilities Expense Utilities Expense Utilities Expense Utilities Expense Dec. 9 Dec. 9 20,000 Dec. 28 280 280 Clos. Bal. Bal. 20,000 Bal. 0 Equipment Equipment Equipment Equipment Equipment Advertising Expense Advertising Expense Advertising Expense Advertising Expense Dec. 1 Dec. 1 12,000 Dec. 22 1,300 1,300 Clos. Bal. Bal. 12,000 Bal. 0
Accumulated Depreciation—Equipment Accumulated Depreciation—Equipment Accumulated Depreciation—Equipment Accumulated Depreciation—Equipment Supplies Expense Supplies Expense Supplies Expense Supplies Expense 200 Adj. Adj. 1,100 1,100 Clos. 200 Bal. Bal. 0 Accounts Payable Accounts Payable Accounts Payable Accounts Payable Insurance Expense Insurance Expense Insurance Expense Insurance Expense 2,800 Dec. 10 Adj. 350 Dec. 26 900 350 Clos. 1,900 Bal. Bal. 0 Utilities Payable Utilities Payable Utilities Payable Utilities Payable Interest Expense Interest Expense Interest Expense Interest Expense 280 Dec. 28 Adj. 75 75 Clos. 280 Bal. Bal. 0 Interest Payable Interest Payable Interest Payable Interest Payable Depreciation Expense—Equipment Depreciation Expense—Equipment Depreciation Expense—Equipment Depreciation Expense—Equipment 75 Adj. Adj. 200 200 Clos. 75 Bal. Bal. 0 Unearned Revenue Unearned Revenue Unearned Revenue Unearned Revenue 1,440 Dec. 31 1,440 Bal. Notes Payable Notes Payable Notes Payable Notes Payable 15,000 Dec. 19 15,000 Bal. Common Stock Common Stock Common Stock Common Stock 70,000 Dec. 1 70,000 Bal. Retained Earnings 0 Dec. 1 Clos. 5,500 10,595 Clos. 5,095 Bal.
Requirement 2
WALDO’S QUALITY AUTOMOTIVE Unadjusted Trial Balance December 31, 2018 Account Title Balance Balance Debit Credit Cash $ 55,990 Accounts Receivable 3,600 Office Supplies 2,800 Prepaid Insurance 1,750 Land 20,000 Equipment 12,000 Accounts Payable $ 1,900 Utilities Payable 280 Unearned Revenue 1,440 Notes Payable 15,000 Common Stock 70,000 Dividends 5,500 Service Revenue 19,600 Salaries Expense 3,800 Rent Expense 1,200 Utilities Expense 280 Advertising Expense 1,300 Total $ 108,220 $ 108,220
Requirement 3
WALDO’S QUALITY AUTOMOTIVE Worksheet
December 31, 2018
Account Names Unadjusted Trial Balance Unadjusted Trial Balance Adjustments Adjustments Adjusted Trial Balance Adjusted Trial Balance Income Statement Income Statement Balance Sheet Balance Sheet Account Names Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Cash $ 55,990 $ 55,990 $ 55,990 Accounts Receivable 3,600 3,600 3,600 Office Supplies 2,800 $ 1,800 a. 1,000 1,000 Prepaid Insurance 1,750 350 c. 1,400 1,400 Land 20,000 20,000 20,000 Equipment 12,000 12,000 12,000 Acc. Dep.—Equip. 200 b. 200 200 Accounts Payable $ 1,900 1,900 1,900 Utilities Payable 280 280 280 Interest Payable 75 d. 75 75 Unearned Revenue 1,440 1,440 1,440 Notes Payable 15,000 15,000 15,000 Common Stock 70,000 70,000 70,000 Dividends 5,500 5,500 5,500 Service Revenue 19,600 19,600 $ 19,600 Salaries Expense 3,800 3,800 $ 3,800 Rent Expense 1,200 1,200 1,200 Utilities Expense 280 280 280 Advertising Expense 1,300 1,300 1,300 Supplies Expense a. $ 1,800 1,800 1,800 Insurance Expense c. 350 350 350 Interest Expense d. 75 75 75 Dep. Exp.—Equip. b. 200 200 200 Total $ 108,220 $ 108,220 $ 2,425 $2,425 $ 108,495 $ 108,495 $ 8,305 $ 19,600 $ 99,490 $ 88,895 Net Income 10,595 10,595 Total $ 19,600 $ 19,600 $ 99,490 $ 99,490
Requirement 4
Date Accounts and Explanation Debit Credit Dec. 31 Supplies Expense 1,800 Office Supplies 1,800 To adjust supplies used. 31 Depreciation Expense—Equipment 200 Accumulated Depreciation—Equipment 200 To adjust depreciation expense 31 Insurance Expense 350 Prepaid Insurance 350 To adjust insurance. ($1,750 / 5 months) 31 Interest Expense 75 Interest Payable 75 To adjust interest.
Requirement 5
WALDO’S QUALITY AUTOMOTIVE Adjusted Trial Balance December 31, 2018 Account Title Balance Balance Debit Credit Cash $ 55,990 Accounts Receivable 3,600 Office Supplies 1,000 Prepaid Insurance 1,400 Land 20,000 Equipment 12,000 Accumulated Depreciation—Equipment $ 200 Accounts Payable 1,900 Utilities Payable 280 Interest Payable 75 Unearned Revenue 1,440 Notes Payable 15,000 Common Stock 70,000 Dividends 5,500 Service Revenue 19,600 Salaries Expense 3,800 Rent Expense 1,200 Utilities Expense 280 Advertising Expense 1,300 Supplies Expense 1,800 Insurance Expense 350 Interest Expense 75 Depreciation Expense—Equipment 200 Total $ 108,495 $ 108,495
Requirement 6
WALDO’S QUALITY AUTOMOTIVE Income Statement Month Ended December 31, 2018 Revenues: Service Revenue $ 19,600 Expenses: Salaries Expense $ 3,800 Advertising Expense 1,300 Rent Expense 1,200 Supplies Expense 1,800 Insurance Expense 350 Utilities Expense 280 Depreciation Expense—Equipment 200 Interest Expense 75 Total Expenses 9,005 Net Income $ 10,595
WALDO’S QUALITY AUTOMOTIVE Statement of Retained Earnings Month Ended December 31, 2018 Retained Earnings, December 1, 2018 $ 0 Net income for the month 10,595 10,595 Dividends (5,500) Retained Earnings, December 31, 2018 $ 5,095
WALDO’S QUALITY AUTOMOTIVE Balance Sheet December 31, 2018 Assets Current Assets: Cash $ 55,990 Accounts Receivable 3,600 Office Supplies 1,000 Prepaid Insurance 1,400 Total Current Assets $ 61,990 Property, Plant, and Equipment: Land 20,000 Equipment $ 12,000 Less: Accumulated Depreciation—Equipment (200) 11,800 Total Property, Plant, and Equipment 31,800 Total Assets $ 93,790 Liabilities Current Liabilities: Accounts Payable $ 1,900 Utilities Payable 280 Interest Payable 75 Unearned Revenue 1,440 Total Current Liabilities $ 3,695 Long-term Liabilities: Notes Payable 15,000 Total Liabilities 18,695 Stockholders’ Equity Common Stock 70,000 Retained Earnings 5,095 Total Stockholders’ Equity 75,095 Total Liabilities and Stockholders’ Equity $ 93,790
Requirement 7
Date Accounts and Explanation Debit Credit Dec. 31 Service Revenue 19,600 Income Summary 19,600 To close revenue. 31 Income Summary 9,005 Salaries Expense 3,800 Rent Expense 1,200 Utilities Expense 280 Advertising Expense 1,300 Supplies Expense 1,800 Insurance Expense 350 Interest Expense 75 Depreciation Expense—Equipment 200 To close expenses. 31 Income Summary 10,595 Retained Earnings 10,595 To close Income Summary. 31 Retained Earnings 5,500 Dividends 5,500 To close dividends.
Requirement 8
WALDO’S QUALITY AUTOMOTIVE Post-Closing Trial Balance December 31, 2018 Account Title Balance Balance Debit Credit Cash $ 55,990 Accounts Receivable 3,600 Office Supplies 1,000 Prepaid Insurance 1,400 Land 20,000 Equipment 12,000 Accumulated Depreciation—Equipment $ 200 Accounts Payable 1,900 Utilities Payable 280 Interest Payable 75 Unearned Revenue 1,440 Notes Payable 15,000 Common Stock 70,000 Retained Earnings 5,095 Total $93,990 $ 93,990