Accounting Mid Term: Johns House Painting Company Features

Accounting Mid Termjohns House Painting Company Has The Following Tra

Accounting Mid Termjohns House Painting Company has the following transactions for the year.

Prepare journal entries for each transaction, post the transactions to T-Accounts, prepare a trial balance, record adjusting entries and post to T-Accounts, prepare an adjusted trial balance, financial statements (Income Statement, Statement of Retained Earnings, Balance Sheet), closing entries, and a post-closing trial balance.

Paper For Above instruction

Accounting Mid Termjohns House Painting Company Has The Following Tra

Accounting Mid Termjohns House Painting Company has the following transactions for the year. Prepare journal entries for each transaction, post the transactions to T-Accounts, prepare a trial balance, record adjusting entries and post to T-Accounts, prepare an adjusted trial balance, financial statements (Income Statement, Statement of Retained Earnings, Balance Sheet), closing entries, and a post-closing trial balance.

Introduction

This comprehensive accounting exercise demonstrates the full accounting cycle for John’s House Painting Company for a hypothetical fiscal year. The process encompasses journalizing transactions, posting to T-Accounts, creating trial balances, recording adjustments, preparing financial statements, executing closing entries, and establishing a post-closing trial balance. Such exercise not only emphasizes manual accounting procedures but also reinforces fundamental principles essential for proper financial reporting and analysis.

Transactions and Journal Entries

• December 1: Issued capital stock for $100,000 to start a house painting business.
• December 1: Paid one year insurance premium costing $4,800.
• December 1: Paid gas expense $200.
• December 1: Purchased equipment costing $4,800 on credit.
• December 12: Purchased supplies costing $800 on credit.
• December 18: Painted three houses totaling $12,000 and billed customers.
• December 23: Painted three rooms and billed customers $500.
• December 28: Received $2,000 for houses painted in #6.
• December 31: Paid for equipment purchased in #4.
• December 31: Received $1,000 for a job to paint a house in January next year.
• December 31: Paid a $1,000 dividend.

Solution Steps

1. Journal Entries for the Transactions

1. December 1:

   Debit Cash $100,000
   Credit Capital Stock $100,000
   

2. December 1:

   Debit Prepaid Insurance $4,800
   Credit Cash $4,800
   

3. December 1:

   Debit Gas Expense $200
   Credit Cash $200
   

4. December 1:

   Debit Equipment $4,800
   Credit Accounts Payable $4,800
   

5. December 12:

   Debit Supplies $800
   Credit Accounts Payable $800
   

6. December 18:

   Debit Accounts Receivable $12,000
   Credit Revenue $12,000
   

7. December 23:

   Debit Accounts Receivable $500
   Credit Revenue $500
   

8. December 28:

   Debit Cash $2,000
   Credit Accounts Receivable $2,000
   

9. December 31:

   Debit Accounts Payable $4,800
   Credit Cash $4,800
   

10. December 31:

    Debit Cash $1,000
    Credit Unearned Revenue $1,000
    

11. December 31:

    Debit Dividends $1,000
    Credit Cash $1,000
    

2. Post Transactions to T-Accounts

Assets

• Cash: Debit $100,000 (capital), Debit $2,000 (painted houses), Debit $1,000 (unearned revenue), Credit $4,800 (insurance), Credit $200 (gas), Credit $4,800 (equipment), Credit $1,000 (dividends), Credit $4,800 (paid for equipment), Credit $1,000 (dividend), Credit $1,000 (unearned revenue)
• Prepaid Insurance: Debit $4,800
• Accounts Receivable: Debit $12,000 + $500 - $2,000 = $10,500
• Supplies: Debit $800
• Equipment: Debit $4,800

Liabilities

• Accounts Payable: Credit $4,800 (equipment), Credit $800 (supplies)
• Unearned Revenue: Credit $1,000

Equity

• Capital Stock: Credit $100,000
• Retained Earnings: To be calculated after adjusting entries and net income

3. Prepare a Trial Balance

4. Record Adjusting Entries and Post to T-Accounts

• Insurance Expense: $4,800 / 12 = $400 for December.
• Depreciation Expense: Equipment depreciation = $4,800 / 48 = $100 per month.
• Supplies on December 31: $400 supplies remaining, so Supplies Expense = $800 - $400 = $400.
• Wages payable: $200 owed but not paid.

Adjusting Journal Entries:
Debit Insurance Expense $400
Credit Prepaid Insurance $400
Debit Depreciation Expense $100
Credit Accumulated Depreciation - Equipment $100
Debit Supplies Expense $400
Credit Supplies $400
Debit Wages Expense $200
Credit Wages Payable $200

5. Prepare an Adjusted Trial Balance

6. Financial Statements

Income Statement

Revenue: $12,500

Expenses: Insurance Expense $400, Gas Expense $200, Supplies Expense $400, Depreciation Expense $100, Wages Expense $200

Total Expenses: $1,300

Net Income: $11,200

Statement of Retained Earnings

Beginning Retained Earnings: $0 (assuming start of period)

Add: Net Income: $11,200

Less: Dividends: $1,000

Ending Retained Earnings: $10,200

Balance Sheet

7. Closing Entries and Post-Closing Trial Balance

Closing Revenue accounts:
Debit Revenue $12,500
Credit Income Summary $12,500
Closing Expense accounts (Insurance, Gas, Supplies, Depreciation, Wages):
Debit Income Summary $1,300
Credit Insurance Expense $400
Credit Gas Expense $200
Credit Supplies Expense $400
Credit Depreciation Expense $100
Credit Wages Expense $200
Closing Income Summary:
Debit Income Summary $11,200
Credit Retained Earnings $11,200
Closing Dividends:
Debit Retained Earnings $1,000
Credit Dividends $1,000

Conclusion

This complete process illustrates the fundamental steps in accounting for a service business, from initial transactions through financial reporting and closing procedures. Proper application of these principles ensures accurate financial statements, maintains the integrity of accounting records, and provides valuable information for decision making.

References

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6. Financial Accounting Standards Board. (2023). Generally Accepted Accounting Principles (GAAP).
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10. International Accounting Standards Board. (2023). IAS/IFRS Standards. IFRS.