At June 30, 2017, the end of its most recent fiscal year, Primrose Comp Consulta
ID: 2573912 • Letter: A
Question
At June 30, 2017, the end of its most recent fiscal year, Primrose Comp Consultants’ post-closing trial balance was as follows:
Debit
Credit
Cash
$5,860
Accounts receivable
1,340
Supplies
770
Accounts payable
$450
Unearned service revenue
1,250
Common stock
4,000
Retained earnings
2,270
$7,970
$7,970
The company underwent a major expansion in July. New staff was hired and more financing was obtained. Culver conducted the following transactions during July 2017, and adjusts its accounts monthly.
July
1
Purchased equipment, paying $4,000 cash and signing a 2-year note payable for $22,400. The equipment has a 4-year useful life. The note has a 6% interest rate which is payable on the first day of each following month.
2
Issued 22,400 shares of common stock for $56,000 cash.
3
Paid $4,200 cash for a 12-month insurance policy effective July 1.
3
Paid the first 2 (July and August 2017) months’ rent for an annual lease of office space for $4,500 per month.
6
Paid $4,300 for supplies.
9
Visited client offices and agreed on the terms of a consulting project. Culver will bill the client, Connor Productions, on the 20th of each month for services performed.
10
Collected $1,340 cash on account from Milani Brothers. This client was billed in June when Culver performed the service.
13
Performed services for Fitzgerald Enterprises. This client paid $1,250 in advance last month. All services relating to this payment are now completed.
14
Paid $450 cash for a utility bill. This related to June utilities that were accrued at the end of June.
16
Met with a new client, Thunder Bay Technologies. Received $13,400 cash in advance for future services to be performed.
18
Paid semi-monthly salaries for $12,300.
20
Performed services worth $31,400 on account and billed customers.
20
Received a bill for $2,500 for advertising services received during July. The amount is not due until August 15.
23
Performed the first phase of the project for Thunder Bay Technologies. Recognized $11,200 of revenue from the cash advance received July 16.
27
Received $16,800 cash from customers billed on July 20.
Adjustment data:
1.
Adjustment of prepaid insurance.
2.
Adjustment of prepaid rent.
3.
Supplies used, $1,400.
4.
Equipment depreciation, $550 per month.
5.
Accrual of interest on note payable.
6.
Salaries for the second half of July, $12,300, to be paid on August 1.
7.
Estimated utilities expense for July, $900 (invoice will be received in August).
8.
Income tax for July, $1,340, will be paid in August
*Journalize July Transactions**
Debit
Credit
Cash
$5,860
Accounts receivable
1,340
Supplies
770
Accounts payable
$450
Unearned service revenue
1,250
Common stock
4,000
Retained earnings
2,270
$7,970
$7,970
Explanation / Answer
Date Accounts Debit$ Credit$ July 1 Equipment $ 26,400 Cash $ 4,000 6% Notes payable $ 22,400 (Recording purchase of equipment) 2 Cash $ 56,000 Common Stock $ 56,000 (Issuance of 22,400 shares of common stock for $56,000 cash 3 Insurance Expense (4200/12) $ 350 Prepaid Insurance ((4200/12 *11) $ 3,850 Cash $ 4,200 3 Rent Expenses $ 4,500 Prepaid Rent $ 4,500 Cash $ 9,000 4 Supplies $ 4,300 Cash $ 4,300 9 No Entry required 10 Cash $ 1,340 Accounts receivable (Milani Brothers) $ 1,340 13 Unearned service revenue(Fitzgerald Enterprises) $ 1,250 Service revenue $ 1,250 14 Accounts payable (utilities) $ 450 Cash $ 450 16 Cash $ 13,400 Unearned service revenue(Thunder Bay Technologies) $ 13,400 18 Salary Expenses $ 12,300 Cash $ 12,300 20 Account Receivables $ 31,400 Service revenue $ 31,400 20 Advertising Expenses $ 2,500 Accounts payable $ 2,500 23 Unearned service revenue(Thunder Bay Technologies) $ 11,200 Service revenue $ 11,200 27 Cash $ 16,800 Account Receivables $ 16,800 Adjustment Entries 1 & 2 Already done above 3 Supplies Expenses $ 1,400 Supplies $ 1,400 4 Depreciation Expenses $ 550 Equipment $ 550 5 Interest expenses($22400*6%/12) $ 112 6% Notes payable $ 112 6 Salary Expense $ 12,300 Salary payable $ 12,300 7 Utilities expense $ 900 Accounts payable(utilities) $ 900 8 Income tax expenses $ 1,340 Income tax payable $ 1,340
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