The Victorian Inn, an inn incorporated on May 1, 2015 by three college friends,
ID: 2448551 • Letter: T
Question
The Victorian Inn, an inn incorporated on May 1, 2015 by three college friends, started operations and entered the following transactions in their SAP system in the month of May.
May 1: $60,000 cash were contributed by the owners ($20,000 each) in exchange for shares of stock.
May 2: The Juno Inn was purchased for $50,000 in cash. An appraisal performed on this date indicates that the land is worth $15,000, and the remaining balance of the purchase price is attributable to the house. The owners estimate that the house will have an estimated useful life of 25 years and an estimated salvage value of $5,000.
May 3: A two-year, 12%, $30,000 promissory note was signed at Independence Bank. Interest and principal will be repaid on the maturity date of May 3, 2017.
May 4: New furniture for the inn is purchased at a cost of $15,000 in cash. The furniture has an estimated useful life of ten years and no salvage value.
May 5: A 24-month property insurance policy is purchased for $6,000 in cash.
May 6: An advertisement for the inn is placed in The Quaker Post, a local newspaper. The Victorian pays $450 cash for the ad, which will run in the paper throughout May.
May 7: Cleaning supplies are purchased on account for $950. The bill is payable within 30 days.
May 15: Wages of $4,230 for the first half of the month are paid in cash.
May 16: A guest mails the business $980 in cash as a deposit for a room to be rented for two weeks. The guest plans to stay at the inn during the last week of May and the first week of June.
May 31: Cash receipts from rentals of rooms for the month amount to $8,300.
May 31: Cash receipts from operation of the restaurant for the month amount to $6,600.
May 31: Each stockholder is paid $200 in cash dividends.
Instructions:
1) Prepare journal entries to record each of the preceding transactions in a general journal. Use the correct format for journal entries, including written explanations. Number the journal entries accordingly.
The Victorian Inc. makes adjusting entries monthly. Prepare all adjusting entries on May 31. Additional information related to the adjustments is provided as follows:
Wages earned during the second half of May amount to $5,120 and will be paid on June 3.
Cleaning supplies on hand on May 31 amount to $230.
A utility bill that is received from the city amounts to $740 and is payable by June 5.
Income taxes are to be accrued at a rate of 30% of income before taxes.
2) Post each of the journal entries to T accounts. Identify each entry in a “T” account with the number or letter shown for the transaction as a reference.
3) Prepare trial balance listing all of the ending balances.
4) Prepare in good form the following financial statements:
a. Income statement for the month ended May 31, 2015
b. Statement of retained earnings for the month ended May 31, 2015
c. Balance sheet at May 31, 2015
Explanation / Answer
The Victorian Inn, an inn incorporated on May 1, 2015 by three college friends,
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