Answer:
Grand Finale Fireworks
1. General Journal (FIFO perpetual inventory system):
January 2:
Debit Cash Account $40,000
Credit Common Stock $2,000
Credit Additional Paid-in Capital $38,000
To record the issue of 2,000 shares, $1 par value for $40,000.
January 9:
Debit Accounts Receivable $14,300
Credit Service Revenue $14,300
To record services on account.
January 10:
Debit Supplies Account $4,900
Credit Accounts Payable $4,900
To record supplies bought on account.
January 12:
Debit Treasury Stock $1,000
Debit Additional Paid-in Capital $17,000
Credit Cash Account $18,000
To record 1,000 treasury stock repurchased for $18/share.
January 15:
Debit Accounts Payable $16,500
Credit Cash Account $16,500
To record payment on accounts payable.
January 21:
Debit Cash Account $49,100
Credit Service Revenue $49,100
To record services to customers for cash.
January 22:
Debit Cash Account $16,600
Credit Accounts Receivable $16,600
To record cash from accounts receivable.
January 29:
Debit Dividend Account $3,300
Credit Dividend Payable $3,300
To record dividend declared, $0.30/share.
January 30:
Debit Cash Account $12,000
Credit Treasury Stock $600
Credit Additional Paid-in Capital $11,400
To record 600 treasury stock reissued for $20 per share.
January 31:
Debit Salaries Account $42,000
Credit Cash Account $42,000
To record January salaries paid.
2. Adjusting Entries (General Journal):
January 31:
a) Debit Utilities Account $6,200
Credit Accrued Utilities $6,200
To record unpaid utilities for January.
b) Debit Cost of Services $7,300
Credit Supplies Account $7,300
Being cost of services
c) Debit Depreciation Expense $1,500
Credit Accumulated Depreciation $1,500
To depreciate equipment for January.
d) Debit Income Tax Expense $2,000
Credit Income Tax Payable $2,000
To accrue income taxes for January.
3. Trial Balance as at January 31, 2018
Debit Credit
Cash: $83,900
($42,700+40,000-18,000-16,500+49,100+16,600+12,000-42,000)
Accounts Receivable: $42,200
($44,500 + 14,300 - 16,600)
Supplies: $5,100
($7,500 +4,900 - 5,100)
Salaries $42,000
Utilities $6,200
Accrued Utilities $6,200
Depreciation Expense $1,500
Income Tax Expense $2,000
Income Tax Payable $2,000
Dividend $3,300
Dividend Payable $3,300
Cost of Service $7,300
Service Revenue ($14,300 +49,100) $63,400
Equipment: $64,000
Accumulated Depreciation: ($9,000 + 1,500) $10,500
Accounts Payable: $3,000
($14,600 + 4,900 - 16,500)
Common Stock, $1 par value (10,000 + 2,000) $12,000
Treasury Stock, $1 par value $400
Additional Paid-in Capital: $112,400
($80,000 + 38,000 - 17,000 + 11,400)
Retained Earnings: $45,100
Total $257,900 $257,900
4. Multiple-step Income Statement for the period ended January 31, 2018:
Service Revenue $63,400
Less Cost of Service $7,300
Gross Profit $56,100
Expenses:
Salaries $42,000
Utilities $6,200
Depreciation $1,500 <u>$49,700</u>
Income before taxes $6,400
Income Taxes <u>$2,000</u>
Income after taxes $4,400
Retained Earnings b/f $45,100
Dividend <u> ($3,300)</u>
Retained Earnings c/f $46,200
5. Classified Balance Sheet as at January 31, 2018:
Current Assets:
Cash $83,900
Accounts Receivable $42,200
Supplies <u> $5,100</u> $131,200
Equipment $64,000
Accumulated Depreciation <u> ($10,500)</u> <u>$53,500</u>
Total Assets <u>$184,700</u>
Current Liabilities:
Accounts Payable $3,000
Accrued Utilities $6,200
Income Taxes Payable $2,000
Dividends Payable <u>$3,300</u> $14,500
Common Stock $12,000
Treasury Stock ($400)
Additional Paid-in Capital $112,400
Retained Earnings <u> $46,200</u> <u>$170,200</u>
Total Liabilities + Equity <u>$184,700</u>
6. Closing Entries in the General Journal:
a) Debit Income Statement $42,000
Credit Salaries Account $42,000
Transfer to the income statement.
b) Debit Income Statement $6,200
Credit Utilities Account $6,200
Transfer to the income statement.
c) Debit Income Statement $2,000
Credit Income Taxes Expense $2,000
Transfer to the income statement.
d) Debit Retained Earnings $3,300
Credit Dividends Account $3,300
Transfer to the Retained Earnings Account.
e) Debit Service Revenue $63,400
Credit Income Statement $63,400
Transfer to the income statement.
f) Debit Income Statement $7,300
Credit Cost of Service $7,300
Transfer to the income statement.
g) Debit Net Income $4,400
Credit Retained Earnings $4,400
Transfer of net income to Retained Earnings.
Explanation:
a) Adjusting entries are changes to the journal, which match up with the reporting period, in accordance with the accrual concept and the matching principle of GAAP. The adjusting entries include Accrued Revenue and Expenses, Deferred Revenue, Prepaid Expenses, and Depreciation Expenses.
b) Closing entries are entries made to close temporary accounts to the financial statements. They enable all the revenue and expense accounts to end with a $0 balance.
Temporary accounts record accounting activities during a specific period, e.g. a month, i.e. for defined periods. They are not are not carried over into the future like those reported in the balance sheet as opening balances. They are also called permanent accounts.
