Exercise 31-2: Transaction Analysis For Service Company Beve

Exercisese31lo2transaction Analysisservice Companybeverly Crushe

Exercisese31lo2transaction Analysisservice Companybeverly Crushe

Exercises E3.1 (LO 2 ) (Transaction Analysis—Service Company) Beverly Crusher is a licensed CPA. During the first month of operations of her business (a sole proprietorship), the following events and transactions occurred. April 2    Invested $32,000 cash and equipment valued at $14,000 in the business. 2 Hired an administrative assistant at a salary of $290 per week payable monthly. 3 Purchased supplies on account $700. (Debit an asset account.) 7 Paid office rent of $600 for the month.

11 Completed a tax assignment and billed client $1,100 for services rendered. (Use Service Revenue account.) 12 Received $3,200 advance on a management consulting engagement. 17 Received cash of $2,300 for services completed for Ferengi Co. 21 Paid insurance expense $110. 30 Paid administrative assistant $1,160 for the month. 30 A count of supplies indicated that $120 of supplies had been used.

30 Purchased a new computer for $6,100 with personal funds. (The computer will be used exclusively for business purposes.) Instructions Journalize the transactions in the general journal. (Omit explanations.) E3.2 (LO 2 ) (Corrected Trial Balance) The following trial balance of Wanda Landowska Company does not balance. Your review of the ledger reveals the following. (a) Each account had a normal balance. (b) The debit footings in Prepaid Insurance, Accounts Payable, and Property Tax Expense were each understated $100. (c) A transposition error was made in Accounts Receivable and Service Revenue; the correct balances for Accounts Receivable and Service Revenue are $2,750 and $6,690, respectively. (d) A debit posting to Advertising Expense of $300 was omitted. (e) A $1,500 cash drawing by the owner was debited to Owner’s Capital and credited to Cash.

Wanda Landowska Company Trial Balance April 30, 2020    Debit    Credit Cash $ 4,800 Accounts Receivable 2,570 Prepaid Insurance 700 Equipment $ 8,000 Accounts Payable 4,500 Property Taxes Payable 560 Owner’s Capital 11,200 Service Revenue 6,960 Salaries and Wages Expense 4,200 Advertising Expense 1,100 Property Tax Expense     800 $20,890 $24,500 Instructions Prepare a correct trial balance. E3.3 (LO 2 ) (Corrected Trial Balance) The following trial balance of Blues Traveler Corporation does not balance. Blues Traveler Corporation Trial Balance April 30, 2020    Debit    Credit Cash $ 5,912 Accounts Receivable 5,240 Supplies 2,967 Equipment 6,100 Accounts Payable $ 7,044 Common Stock 8,000 Retained Earnings 2,000 Service Revenue 5,200 Office Expense   4,320 $24,539 $22,244 An examination of the ledger shows these errors.

1. Cash received from a customer on account was recorded (both debit and credit) as $1,380 instead of $1,830. 2. The purchase on account of a computer costing $3,200 was recorded as a debit to Office Expense and a credit to Accounts Payable. 3.

Services were performed on account for a client, $2,250, for which Accounts Receivable was debited $2,250 and Service Revenue was credited $225. 4. A payment of $95 for telephone charges was entered as a debit to Office Expense and a debit to Cash. 5. The Service Revenue account was totaled at $5,200 instead of $5,280.

Instructions From this information prepare a corrected trial balance. E3.4 (LO 2 ) (Corrected Trial Balance) The following trial balance of Watteau Co. does not balance. Watteau Co. Trial Balance June 30, 2020    Debit    Credit Cash $ 2,870 Accounts Receivable $ 3,231 Supplies 800 Equipment $ 3,800 Accounts Payable $ 2,666 Unearned Service Revenue 1,200 Common Stock 6,000 Retained Earnings 3,000 Service Revenue 2,380 Salaries and Wages Expense 3,400 Office Expense    940 $13,371 $16,916 Each of the listed accounts should have a normal balance per the general ledger. An examination of the ledger and journal reveals the following errors.

1. Cash received from a customer on account was debited for $570, and Accounts Receivable was credited for the same amount. The actual collection was for $750. 2. The purchase of a computer printer on account for $500 was recorded as a debit to Supplies for $500 and a credit to Accounts Payable for $500.

3. Services were performed on account for a client for $890. Accounts Receivable was debited for $890 and Service Revenue was credited for $89. 4. A payment of $65 for telephone charges was recorded as a debit to Office Expense for $65 and a debit to Cash for $65.

5. When the Unearned Service Revenue account was reviewed, it was found that service revenue amounting to $325 was performed prior to June 30 (related to Unearned Service Revenue). 6. A debit posting to Salaries and Wages Expense of $670 was omitted. 7.

A payment on account for $206 was credited to Cash for $206 and credited to Accounts Payable for $260. 8. A dividend of $575 was debited to Salaries and Wages Expense for $575 and credited to Cash for $575. Instruction Prepare a correct trial balance. ( Note: It may be necessary to add one or more accounts to the trial balance.) E3.5 (LO 3 ) (Adjusting Entries) The ledger of Duggan Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared.    Debit    Credit Prepaid Insurance    $ 3,600    Supplies 2,800 Equipment 25,000 An analysis of the accounts shows the following.

1. The equipment depreciates $250 per month. 2. One-third of the unearned rent was recognized as revenue during the quarter. 3.

Interest of $500 is accrued on the notes payable. 4. Supplies on hand total $850. 5. Insurance expires at the rate of $300 per month.

Instructions Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are Depreciation Expense, Insurance Expense, Interest Payable, and Supplies Expense. (Omit explanations.) E3.8 (LO 3 ) (Adjusting Entries) Andy Roddick is the new owner of Ace Computer Services. At the end of August 2020, his first month of ownership, Roddick is trying to prepare monthly financial statements. Below is some information related to unrecorded expenses that the business incurred during August. 1.

At August 31, Roddick owed his employees $1,900 in wages that will be paid on September 1. 2. At the end of the month, he had not yet received the month’s utility bill. Based on past experience, he estimated the bill would be approximately $600. 3.

On August 1, Roddick borrowed $30,000 from a local bank on a 15-year mortgage. The annual interest rate is 8%. 4. A telephone bill in the amount of $117 covering August charges is unpaid at August 31. Instructions Prepare the adjusting journal entries as of August 31, 2020, suggested by the information above.

E3.9 (LO 2 , 3 ) (Adjusting Entries) Selected accounts of Urdu Company are shown below. Supplies    Accounts Receivable Beg. Bal.    /31    /17    2,400    10/,650 Salaries and Wages Expense Salaries and Wages Payable 10/15    800       10/31    / Unearned Service Revenue Supplies Expense 10/31    /20    /31    470    Service Revenue    10/17    2,400       10/,/ Instructions From an analysis of the T-accounts, reconstruct (a) the October transaction entries, and (b) the adjusting journal entries that were made on October 31, 2020. Prepare explanations for each journal entry. E3.10 (LO 3 ) (Adjusting Entries) Greco Resort opened for business on June 1 with eight air-conditioned units.

Its trial balance on August 31 is as follows. Greco Resort Trial Balance August 31, 2020    Debit    Credit Cash $ 19,600 Prepaid Insurance 4,500 Supplies 2,600 Land 20,000 Buildings 120,000 Equipment 16,000 Accounts Payable $ 4,500 Unearned Rent Revenue 4,600 Mortgage Payable 60,000 Common Stock 91,000 Retained Earnings 9,000 Dividends 5,000 Rent Revenue 76,200 Salaries and Wages Expense 44,800 Utilities Expenses 9,200 Maintenance and Repairs Expense   3,600 $245,300 $245,300 Other data: 1. The balance in prepaid insurance is a one-year premium paid on June 1, 2020. 2. An inventory count on August 31 shows $450 of supplies on hand.

3. Annual depreciation rates are buildings (4%) and equipment (10%). Salvage value is estimated to be 10% of cost. 4. Unearned Rent Revenue of $3,800 was earned prior to August 31.

5. Salaries of $375 were unpaid at August 31. 6. Rentals of $800 were due from tenants at August 31. 7.

The mortgage interest rate is 8% per year. Instructions a. Journalize the adjusting entries on August 31 for the 3-month period June 1–August 31. (Omit explanations.) b. Prepare an adjusted trial balance on August 31. P3.1 (LO 2 , 4 ) (Transactions, Financial Statements—Service Company) Listed below are the transactions of Yasunari Kawabata, D.D.S., for the month of September.

Sept. 1   Kawabata begins practice as a dentist, invests $20,000 cash, and issues 2,000 shares of $10 par stock. 2 Purchases dental equipment on account from Green Jacket Co. for $17,280. 4 Pays rent for office space, $680 for the month. 4 Employs a receptionist, Michael Bradley.

5 Purchases dental supplies for cash, $942. 8 Receives cash of $1,690 from patients for services performed. 10 Pays miscellaneous office expenses, $430. 14 Bills patients $5,820 for services performed. 18 Pays Green Jacket Co. on account, $3,600.

19 Pays a dividend of $3,000 cash. 20 Receives $980 from patients on account. 25 Bills patients $2,110 for services performed. 30 Pays the following expenses in cash: salaries and wages $1,800; miscellaneous office expenses $85. 30 Dental supplies used during September, $330.

Instructions a. Enter the transactions shown above in appropriate general ledger accounts (use T-accounts). Use the following ledger accounts: Cash, Accounts Receivable, Supplies, Equipment, Accumulated Depreciation—Equipment, Accounts Payable, Common Stock, Retained Earnings, Dividends, Service Revenue, Rent Expense, Office Expense, Salaries and Wages Expense, Supplies Expense, Depreciation Expense, and Income Summary. Allow 10 lines for the Cash and Income Summary accounts, and 5 lines for each of the other accounts needed. Record depreciation using a 5-year life on the equipment, the straight-line method, and no salvage value.

Do not use a drawing account. b. Prepare a trial balance. c. Prepare an income statement, a retained earnings statement, and an unclassified balance sheet. d. Close the ledger. e. Prepare a post-closing trial balance.

Sample Paper For Above instruction

The initial step in analyzing transactions for Beverly Crusher’s new service business involves identifying and recording each event with accurate journal entries. These entries ensure that the financial records reflect the true economic activity during the month of April. The transactions range from initial capital investment, expenses, revenue recognition, and asset acquisitions, to payments for services rendered and supplies used.

On April 2, Beverly Crusher invested $32,000 cash along with equipment valued at $14,000, establishing the initial capital and assets for the business. This transaction increases cash and equipment assets and is recorded with a debit to Cash and Equipment and a credit to Owner’s Capital, illustrating the owner’s equity stake. The entry is:

Debit: Cash $32,000

Debit: Equipment $14,000

Credit: Owner’s Capital $46,000

Subsequently, on April 2, Beverly hired an administrative assistant with a salary of $290 weekly, payable monthly. This recurring expense warrants recognizing a salary expense and a liability or accrued wage payable, depending on payment timing:

Debit: Salaries and Wages Expense $1,160 (assuming four weeks, $290 per week)

Credit: Salaries and Wages Payable $1,160

Purchases of supplies on April 3 amounting to $700 on account are recorded by debiting Supplies and crediting Accounts Payable, representing an increase in assets and liabilities:

Debit: Supplies $700

Credit: Accounts Payable $700

Rent paid on April 7 for $600 is recognized as an expense:

Debit: Rent Expense $600

Credit: Cash $600

Services billed to clients on April 11 for $1,100, representing revenue earned but not yet received, are recorded as:

Debit: Accounts Receivable $1,100

Credit: Service Revenue $1,100

On April 12, Beverly received an advance payment of $3,200 for a management consulting engagement, creating a liability until earned:

Debit: Cash $3,200

Credit: Unearned Revenue $3,200

Cash received on April 17 of $2,300 for services completed is recognized as revenue:

Debit: Cash $2,300

Credit: Service Revenue $2,300

Insurance expense recorded on April 21 for $110 involves debiting Insurance Expense and crediting Cash:

Debit: Insurance Expense $110

Credit: Cash $110

Payments made to the administrative assistant on April 30 for $1,160, covering the entire month, are recorded as:

Debit: Salaries and Wages Expense $1,160

Credit: Cash $1,160

Finally, supplies used during April are determined by a physical count, noting that $120 of supplies had been consumed. The supplies account was initially increased on April 3, and adjusting entries are made at month-end to reflect the supplies used:

Debit: Supplies Expense $580 ($700 initial minus $120 remaining)

Credit: Supplies $580

Furthermore, the purchase of a new computer for $6,100 with personal funds, intended solely for business, signifies an asset addition:

Debit: Equipment $6,100

Credit: Owner’s Capital $6,100

In summary, each transaction systematically impacts specific accounts, either increasing or decreasing resources or obligations, and thus provides a comprehensive view of the company’s activities during the period. This process facilitates preparing accurate financial statements and analyzing the company’s financial health.

References

• Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2021). Financial Accounting (13th ed.). McGraw-Hill Education.
• Revsine, L., Collins, D., Johnson, W., & Mittelstaedt, F. (2018). Financial Reporting & Analysis (7th ed.). Pearson Education.
• Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting (12th ed.). Wiley.
• Heisinger, K., & Lombardo, S. (2014). Contemporary accounting (10th ed.). Cengage Learning.
• Epstein, L., & Jermakowicz, E. (2017). IFRS: A practical approach. Wiley.