Monthly Transactions, Adjustments, and Financial Statements Moonlight Bay Inn is
ID: 2775611 • Letter: M
Question
Monthly Transactions, Adjustments, and Financial Statements
Moonlight Bay Inn is incorporated on January 2, 2010, by its three owners, each of whom contributes $20,000 in cash in exchange for shares of stock in the business. In addition to the sale of stock, the following transactions are entered into during the month of January:
January 2: A Victorian inn is 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.
January 3: A two-year, 12%, $30,000 promissory note was signed at the Second State Bank. Interest and principal will be repaid on the maturity date of January 3, 2012.
January 4: New furniture for the inn is purchased at a cost of $15,000 in cash. The furniture has an estimated useful life of 10 years and no salvage value.
January 5: A 24-month property insurance policy is purchased for $6,000 in cash.
January 6: An advertisement for the inn is placed in the local newspaper. Moonlight Bay pays $450 cash for the ad, which will run in the paper throughout January.
January 7: Cleaning supplies are purchased on account for $950. The bill is payable within 30 days.
January 15: Wages of $4,230 for the first half of the month are paid in cash.
January 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 January and the first week of February.
January 31: Cash receipts from rentals of rooms for the month amount to $8,300.
January 31: Cash receipts from operation of the restaurant for the month amount to $6,600.
January 31: Each stockholder is paid $200 in cash dividends.
1. Prepare journal entries to record each of the preceding transactions.
2. Enter the appropriate adjustments (entries):
a. Depreciation of the house.
b. Depreciation of the furniture.
c. Interest on the promissory note.
d. Recognition of the expired portion of the insurance.
e. Recognition of the earned portion of the guest's deposit.
f. Wages earned during the second half of January amount to $5,120 and will be paid on February 3.
g. Cleaning supplies on hand on January 31 amount to $230.
h. A gas and electric bill that is received from the city amounts to $740 and is payable by February 5.
i. Income taxes are to be accrued at a rate of 30% of income before taxes.
3. Prepare the closing entries
4. Prepare in good form the following financial statements:
a. Income statement for the month ended January 31, 2010
b. Statement of retained earnings for the month ended January31, 2010
c. Balance sheet at January 31, 2010.
Explanation / Answer
Question 1 Journal Entries Date Account title Debit Credit 2.Jan Cash $ 60,000.00 Common Stock $ 60,000.00 2.Jan Land $ 15,000.00 Building $ 35,000.00 Cash $ 50,000.00 3.Jan Cash $ 30,000.00 12% 2 year Notes Payable $ 30,000.00 4.Jan Furniture $ 15,000.00 Cash $ 15,000.00 5.Jan Prepaid Insurance $ 6,000.00 Cash $ 6,000.00 6.Jan Advertising Expenses $ 450.00 Cash $ 450.00 7.Jan Supplies $ 950.00 Accounts Payable $ 950.00 15.Jan Wages Expenses $ 4,230.00 Cash $ 4,230.00 16.Jan Cash $ 980.00 Unearned Rent Revenue $ 980.00 31.Jan Cash $ 8,300.00 Rent Revenues $ 8,300.00 31.Jan Cash $ 6,600.00 Services Revenue $ 6,600.00 31.Jan Dividend Expenses $ 600.00 Cash $ 600.00 Question 2a. Value of House $ 35,000.00 Solvage Value $ 5,000.00 Depreciable Value $ 30,000.00 Life in years 25 years Annual Depreciation $ 1,200.00 Depreciation for for January(1200/12) $ 100.00 Jurnal entries Date Account title Debit Credit 31.Jan Depreciation expenses-House $ 100.00 Accumulated depreciation-House $ 100.00 Question 2b. Value of Furniture $ 15,000.00 Year of Life 10years Annual Depreciation $ 1,500.00 Depreciation for for January(1500/12) $ 125.00 Jurnal entries Date Account title Debit Credit 31.Jan Depreciation expenses-Furniture $ 125.00 Accumulated depreciation-Furniture $ 125.00 Question 2c. Promissory note $ 30,000.00 Interest for 1 month @12% $ 300.00 Jurnal entries Date Account title Debit Credit 31.Jan Interest Expenses $ 300.00 Interest Payable $ 300.00 Question 2d. Prepaid insurance $ 6,000.00 No of month 24 Monthly insurance expired for january $ 250.00 Jurnal entries Date Account title Debit Credit 31.Jan Insurance Expenses $ 250.00 Prepaid insurance $ 250.00 Question 2e. 31.Jan Unearned Rent Revenue $ 490.00 Rent Revenues $ 490.00 Question 2f. 31.Jan Wages Expenses $ 5,120.00 Wages Payable $ 5,120.00 Question 2g. 31.Jan Supplies expenses $ 720.00 Supplies $ 720.00 Question 2h. 31.Jan Gas and Electricity Expenses $ 740.00 Accrued Gas and Electricity Expenses $ 740.00 Question 2i. 31.Jan Income Tax $ 826.50 $ 826.50 Question 3. 31.Jan Rent Revenues $ 8,790.00 Service Revenue $ 6,600.00 Income Summary 31.Jan Income Summary $ 13,461.50 Advertising Expenses $ 450.00 Wages Expenses $ 9,350.00 Dividend Expenses $ 600.00 Depreciation expenses-House $ 100.00 Depreciation expenses-Furniture $ 125.00 Interest Expenses $ 300.00 Insurance Expenses $ 250.00 Supplies expenses $ 720.00 Gas and Electricity Expenses $ 740.00 Income Tax $ 826.50 31.Jan Income Summary $ 1,928.50 Retained Earnings $ 1,928.50
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