Joe’s Snow Plowing Company has the following transactions for the year: December
ID: 2493776 • Letter: J
Question
Joe’s Snow Plowing Company has the following transactions for the year:
December 1 – Issued 10,000 shares of capital stock for $100,000 to start a snow plowing business.
December 1 - Paid a one year insurance premium costing $7,200.
December 1 - Purchased a snow plow costing $42,000. Paid cash of $22,000 and signed a 3 year, 6% note for the balance. Interest is to be paid annually. The balance of the note will be paid at the end of its term. It is estimated that the snow plow last 4 years and will have a $6,000 value after 4 years.
December 3 – Purchased $8,000 of supplies on credit. Picked up the supplies on the same day.
December 10 - Paid gas expense of $2,000.
December 12 - Purchased supplies costing $1,800 on credit. Picked up the supplies on the same day.
December 18 – Plowed 18 driveways totaling $32,000 and billed customers.
December 23 – Plowed 3 driveways and billed customers $1,800.
December 28 - Received $22,000 from customers for driveways plowed in #7..
December 28 – Ordered supplies costing $8,000 to be delivered in January.
December 31 - Paid for supplies purchased in #6.
Paid employees $6,000 wages.
December 31 - Received $5,000 for a snow plowing job to be done in January next year.
December 31 - Paid a $0.25 per share dividend.
Required:
1. Prepare journal entries for the above transactions.
2. Post the above transactions to the ledger (use T Accounts).
3. Prepare a Trial Balance.
4. Prepare adjusting entries in journal format and post to the ledger (T Accounts). Following additional information is provided:
Supplies on Hand December 31 was $4,000.
Wages owed but not paid on December 31 was $2,000.
Hint: Plus adjusting entries for depreciation, insurance and interest.
5. Prepare an Adjusted Trial Balance.
6. Prepare an Income Statement, Statement of Retained Earnings and a Balance Sheet.
7. Prepare closing entries in journal format and post to the ledger (T Accounts).
8. Prepare a Post-Closing Trial Balance.
Explanation / Answer
Date
Account titles & explanations
Debit
Credit
December 1
Cash
Common Stock
(being the issue of 10,000 shares of common stock)
100,000
100,000
December 1
Insurance Expense
Prepaid Insurance
Cash
(being the insurance premium paid for 1 year)
600
6,600
7,200
December 1
Equipment-Snow Plow
Cash
Long term notes
(purchase of snow plow )
42,000
22,000
20,000
December 3
Supplies-stock
Accounts Payable
(purchase of supplies on credit)
8,000
8000
December 10
Utilities Expense
Cash
(paid for gas expense)
2,000
2,000
December 12
Supplies-stock
Accounts payable
(purchase on credit)
1,800
1,800
December 18
Accounts Receivable
Income from plow
(plow services rendered and billed)
22,000
22,000
December 23
Accounts Receivable
Income from plow
(plow services rendered and billed)
1,800
1,800
December 28
Cash
Accounts Receivable
(cash received from customers)
22,000
22,000
December 31
Accounts payable
Cash
(payment of cash fo supplier)
1,800
1,800
“ “
Wages Expense
Cash
(payment of wages to employees)
6,000
6,000
“ “
Cash
Unearned Revenue
(amount received for job to be done in January)
5,000
5,000
“ “
Dividend
Cash
(dividend of $0.25 per share paid)
2,500
2,500
2. TRIAL BALANCE
TRIAL BALANCE AS ON 31ST DECEMBER
Account Title
Debit
Credit
Common Stock
100,000
Long Term Notes
20,000
Accounts Payable
8,000
Unearned Revenue
5,000
Equipment-Snow plow
42,000
Supplies-Stock
9,800
Accounts Receivable
1,800
Prepaid Insurance
6,600
Cash
85,500
Utilities Expense
2,000
Income from plow
23,800
Wages Expense
6,000
Insurance Expense
600
Dividend
2,500
TOTAL
156,800
156,800
4. ADJUSTMENT JOURNAL ENTRIES:
Date
Account titles & explanations
Debit
Credit
December 31
Supplies Expense
Supplies Stock
(accounting of supplies consumed)
5,800
5,800
December 31
Wages Expense
Wages outstanding
(wages not paid)
2,000
2,000
December 31
Interest Expense
Interest Accrued
(interest on note for one month)
100
100
December 31
Depreciation Expense
Depreciation Provision
(depreciation for one month)
750
750
December 31
Insurance no entry required as prepaid has been accounted while making the entry for cash
Payment.
5. ADJUSTED TRIAL BALANCE :
ADJUSTED TRIAL BALANCE AS ON 31ST DECEMBER
Account Title
Debit
Credit
Common Stock
100,000
Long Term Notes
20,000
Accounts Payable
8,000
Unearned Revenue
5,000
Interest Accrued
100
Wages Outstanding
2,000
Equipment-Snow plow
42,000
Depreciation Provision
750
Supplies-Stock
4,000
Accounts Receivable
1,800
Prepaid Insurance
6,600
Cash
85,500
Utilities Expense
2,000
Income from plow
23,800
Wages Expense
8,000
Supplies Expense
5,800
Insurance Expense
600
Interest Expense
100
Depreciation Expense
750
Dividend
2,500
TOTAL
159,650
159,650
6. INCOME STATEMENT :
INCOME:
Income from plow 23,800 23,800
EXPENSES:
Supplies Expense 5,800
Utilities 2,000
Wages 8,000
Depreciation 750
Insurance 600
Interest 100 17,250
Total Expense
Net Income 6,550
STATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, XX
Opening Balance -----
Add: Net Income 6,550
6,550
Less: Dividend 2,500
Balance as on December 31, XX 4,050
BALANCE SHEET AS ON DECEMBER 31, XX
ASSETS
Current Assets
Cash 85,500
Accounts Receivable 1,800
Supplies-stock 4,000
Prepaid insurance 6,600 97,900
Long Term Assets
Equipment-Snow plow 42,000
Less: Accumulated
Depreciation 750 41,250
TOTAL ASSETS 1,39,150
LIABILITIES
Current Liabilities
Accounts Payable 8,000
Wages Payable 2,000
Interest Accrued 100
Unearned Revenue 5,000 15,100
Long Term Liabilities
Notes Payable 20,000 20,000
TOTAL LIABILITIES 35,100
OWNER’S EQUITY
Retained Earnings 4,050
Common Stock 1,00,000 1,04,050
TOTAL LIABILITIES & 1,39,150
OWNER’S EQUITY
7. CLOSING ENTRIES IN JOURNAL FORMAT:
Date
Account titles & explanations
Debit
Credit
December 31
Income from plow
Income Summary
(to close revenue to income summary)
23,800
23,800
December 31
Income Summary
Wages expense
Supplies expense
Utilities expense
Insurance expense
Depreciation expense
Interest expense
(to close expenses to income summary)
17,250
8,000
5,800
2,000
600
750
100
December 31
Income Summary
Retained Earnings
(to close income summary to retained earnings)
6,550
6,550
December 31
Retained Earnings
Dividends
(to close dividend)
2,500
2,500
8. POST CLOSING TRIAL BALANCE:
Account Title
Debit
Credit
Common Stock
100,000
Retained Earnings
4,050
Long Term Notes
20,000
Accounts Payable
8,000
Unearned Revenue
5,000
Interest Accrued
100
Wages Outstanding
2,000
Equipment-Snow plow
42,000
Depreciation Provision
750
Supplies-Stock
4,000
Accounts Receivable
1,800
Prepaid Insurance
6,600
Cash
85,500
TOTAL
139,900
139,900
T ACCOUNTS MAY BE MADE AT YOUR END
Date
Account titles & explanations
Debit
Credit
December 1
Cash
Common Stock
(being the issue of 10,000 shares of common stock)
100,000
100,000
December 1
Insurance Expense
Prepaid Insurance
Cash
(being the insurance premium paid for 1 year)
600
6,600
7,200
December 1
Equipment-Snow Plow
Cash
Long term notes
(purchase of snow plow )
42,000
22,000
20,000
December 3
Supplies-stock
Accounts Payable
(purchase of supplies on credit)
8,000
8000
December 10
Utilities Expense
Cash
(paid for gas expense)
2,000
2,000
December 12
Supplies-stock
Accounts payable
(purchase on credit)
1,800
1,800
December 18
Accounts Receivable
Income from plow
(plow services rendered and billed)
22,000
22,000
December 23
Accounts Receivable
Income from plow
(plow services rendered and billed)
1,800
1,800
December 28
Cash
Accounts Receivable
(cash received from customers)
22,000
22,000
December 31
Accounts payable
Cash
(payment of cash fo supplier)
1,800
1,800
“ “
Wages Expense
Cash
(payment of wages to employees)
6,000
6,000
“ “
Cash
Unearned Revenue
(amount received for job to be done in January)
5,000
5,000
“ “
Dividend
Cash
(dividend of $0.25 per share paid)
2,500
2,500
2. TRIAL BALANCE
TRIAL BALANCE AS ON 31ST DECEMBER
Account Title
Debit
Credit
Common Stock
100,000
Long Term Notes
20,000
Accounts Payable
8,000
Unearned Revenue
5,000
Equipment-Snow plow
42,000
Supplies-Stock
9,800
Accounts Receivable
1,800
Prepaid Insurance
6,600
Cash
85,500
Utilities Expense
2,000
Income from plow
23,800
Wages Expense
6,000
Insurance Expense
600
Dividend
2,500
TOTAL
156,800
156,800
4. ADJUSTMENT JOURNAL ENTRIES:
Date
Account titles & explanations
Debit
Credit
December 31
Supplies Expense
Supplies Stock
(accounting of supplies consumed)
5,800
5,800
December 31
Wages Expense
Wages outstanding
(wages not paid)
2,000
2,000
December 31
Interest Expense
Interest Accrued
(interest on note for one month)
100
100
December 31
Depreciation Expense
Depreciation Provision
(depreciation for one month)
750
750
December 31
Insurance no entry required as prepaid has been accounted while making the entry for cash
Payment.
5. ADJUSTED TRIAL BALANCE :
ADJUSTED TRIAL BALANCE AS ON 31ST DECEMBER
Account Title
Debit
Credit
Common Stock
100,000
Long Term Notes
20,000
Accounts Payable
8,000
Unearned Revenue
5,000
Interest Accrued
100
Wages Outstanding
2,000
Equipment-Snow plow
42,000
Depreciation Provision
750
Supplies-Stock
4,000
Accounts Receivable
1,800
Prepaid Insurance
6,600
Cash
85,500
Utilities Expense
2,000
Income from plow
23,800
Wages Expense
8,000
Supplies Expense
5,800
Insurance Expense
600
Interest Expense
100
Depreciation Expense
750
Dividend
2,500
TOTAL
159,650
159,650
6. INCOME STATEMENT :
INCOME:
Income from plow 23,800 23,800
EXPENSES:
Supplies Expense 5,800
Utilities 2,000
Wages 8,000
Depreciation 750
Insurance 600
Interest 100 17,250
Total Expense
Net Income 6,550
STATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, XX
Opening Balance -----
Add: Net Income 6,550
6,550
Less: Dividend 2,500
Balance as on December 31, XX 4,050
BALANCE SHEET AS ON DECEMBER 31, XX
ASSETS
Current Assets
Cash 85,500
Accounts Receivable 1,800
Supplies-stock 4,000
Prepaid insurance 6,600 97,900
Long Term Assets
Equipment-Snow plow 42,000
Less: Accumulated
Depreciation 750 41,250
TOTAL ASSETS 1,39,150
LIABILITIES
Current Liabilities
Accounts Payable 8,000
Wages Payable 2,000
Interest Accrued 100
Unearned Revenue 5,000 15,100
Long Term Liabilities
Notes Payable 20,000 20,000
TOTAL LIABILITIES 35,100
OWNER’S EQUITY
Retained Earnings 4,050
Common Stock 1,00,000 1,04,050
TOTAL LIABILITIES & 1,39,150
OWNER’S EQUITY
7. CLOSING ENTRIES IN JOURNAL FORMAT:
Date
Account titles & explanations
Debit
Credit
December 31
Income from plow
Income Summary
(to close revenue to income summary)
23,800
23,800
December 31
Income Summary
Wages expense
Supplies expense
Utilities expense
Insurance expense
Depreciation expense
Interest expense
(to close expenses to income summary)
17,250
8,000
5,800
2,000
600
750
100
December 31
Income Summary
Retained Earnings
(to close income summary to retained earnings)
6,550
6,550
December 31
Retained Earnings
Dividends
(to close dividend)
2,500
2,500
8. POST CLOSING TRIAL BALANCE:
Account Title
Debit
Credit
Common Stock
100,000
Retained Earnings
4,050
Long Term Notes
20,000
Accounts Payable
8,000
Unearned Revenue
5,000
Interest Accrued
100
Wages Outstanding
2,000
Equipment-Snow plow
42,000
Depreciation Provision
750
Supplies-Stock
4,000
Accounts Receivable
1,800
Prepaid Insurance
6,600
Cash
85,500
TOTAL
139,900
139,900
T ACCOUNTS MAY BE MADE AT YOUR END
Date
Account titles & explanations
Debit
Credit
December 1
Cash
Common Stock
(being the issue of 10,000 shares of common stock)
100,000
100,000
December 1
Insurance Expense
Prepaid Insurance
Cash
(being the insurance premium paid for 1 year)
600
6,600
7,200
December 1
Equipment-Snow Plow
Cash
Long term notes
(purchase of snow plow )
42,000
22,000
20,000
December 3
Supplies-stock
Accounts Payable
(purchase of supplies on credit)
8,000
8000
December 10
Utilities Expense
Cash
(paid for gas expense)
2,000
2,000
December 12
Supplies-stock
Accounts payable
(purchase on credit)
1,800
1,800
December 18
Accounts Receivable
Income from plow
(plow services rendered and billed)
22,000
22,000
December 23
Accounts Receivable
Income from plow
(plow services rendered and billed)
1,800
1,800
December 28
Cash
Accounts Receivable
(cash received from customers)
22,000
22,000
December 31
Accounts payable
Cash
(payment of cash fo supplier)
1,800
1,800
“ “
Wages Expense
Cash
(payment of wages to employees)
6,000
6,000
“ “
Cash
Unearned Revenue
(amount received for job to be done in January)
5,000
5,000
“ “
Dividend
Cash
(dividend of $0.25 per share paid)
2,500
2,500
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