Journal Entry Preparation On January 1 Of The Current Year

Journal Entry Preparation On January 1 Of the Current Year Peter Hou

Journal entry preparation. On January 1 of the current year, Peter Houston invested $100,000 cash into his company MuniServ. Shortly thereafter, the company acquired selected assets of a bankrupt competitor. The acquisition included land ($15,000), a building ($40,000), and vehicles ($10,000). MuniServ paid $45,000 at the time of the transaction and agreed to remit the remaining balance due of $20,000 (an account payable) by February 15. During January, the company had additional cash outlays for the following items: Purchases of store equipment $4,600 Loan payment $500 Salaries expense $2,300 Advertising expense $700 The January utilities bill of $200 was received on January 31 and will be paid on February 10. MuniServ rendered services to clients on account amounting to $9,400 and $3,700 had been received in settlement. Instructions a. Present journal entries that reflect MuniServ's January transactions, starting with the $100,000 investment. b. Compute the total debits, total credits, and ending balance that would be found in the company's Cash account. (Post to “T†Accounts) c. Prepare a trial balance as of January 31.

Paper For Above instruction

Journal Entry Preparation On January 1 Of the Current Year Peter Hou

Introduction

The start of a new fiscal year marks critical accounting events that establish a company's financial position. In this analysis, we examine the transactions of MuniServ for January, focusing on journal entries, cash account movements, and preparing a trial balance to reflect its financial activities accurately. The case presents a range of standard business transactions, including capital investment, asset acquisitions, expenses, and revenues, which collectively shape the company's financial reporting at month's end.

Part A: Journal Entries for January Transactions

The initial transaction involves Peter Hou’s investment of $100,000 in cash, which is recorded as an increase in cash and owner’s equity:

  • Debit: Cash $100,000
  • Credit: Owner's Capital $100,000

Subsequently, the company acquires assets from a bankrupt competitor. The acquisition includes land, a building, and vehicles, with part of the purchase paid immediately and the remainder on credit. The journal entries are as follows:

  • Debit: Land $15,000
  • Debit: Building $40,000
  • Debit: Vehicles $10,000
  • Credit: Cash $45,000
  • Credit: Accounts Payable $20,000

Throughout January, MuniServ incurs various expenses and makes payments. Expenses include store equipment purchases, loan payments, salaries, and advertising. The related journal entries are:

  • Debit: Store Equipment $4,600
  • Credit: Cash $4,600
  • Debit: Loan Payable $500
  • Credit: Cash $500
  • Debit: Salaries Expense $2,300
  • Credit: Cash $2,300
  • Debit: Advertising Expense $700
  • Credit: Cash $700

The utilities expense is accrued but not paid immediately:

  • Debit: Utilities Expense $200
  • Credit: Utilities Payable $200

MuniServ provides services on account, recording receivables and cash receipts:

  • Debit: Accounts Receivable $9,400
  • Credit: Service Revenue $9,400
  • Debit: Cash $3,700
  • Credit: Accounts Receivable $3,700

Part B: Cash Account Analysis

Calculating the cash account involves summing all cash receipts and subtracting cash disbursements:

  • Starting Balance: $100,000
  • Inflows:
  • Initial investment: $100,000
  • Payment for assets: $45,000
  • Cash received from clients: $3,700
  • Outflows:
  • Asset purchase: $45,000
  • Store equipment: $4,600
  • Loan payment: $500
  • Salaries: $2,300
  • Advertising: $700
  • Utilities (accrued, not paid): $200

The ending cash balance is computed as the net of all inflows and outflows, which can be summarized in a T-account. The total debits and credits in Cash must match the total cash movements, and the closing balance provides the final cash position as of January 31.

Part C: Trial Balance as of January 31

The trial balance consolidates all ledger account balances after posting all January transactions. The main accounts include Cash, Accounts Receivable, Owner's Capital, Land, Building, Vehicles, Store Equipment, Utilities Payable, Accounts Payable, Loan Payable, Revenues, and Expenses. Summing these accounts should yield balanced totals, demonstrating that the accounting equation remains in equilibrium. The trial balance is essential for verifying ledger accuracy and serves as a basis for preparing financial statements.

Conclusion

This financial analysis of MuniServ’s January transactions illustrates core accounting principles, including journal entry preparation, cash flow analysis, and trial balance formulation. Accurate recording ensures reliable financial reporting, which is vital for stakeholders’ decision-making and compliance with accounting standards. The systematic approach ensures transparency and facilitates future financial planning.

References

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  • International Financial Reporting Standards (IFRS). (2023). IFRS Foundation.
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