On January 1, 2018, Red Flash Photography had the following balances: Cash, $21,
ID: 2333865 • Letter: O
Question
On January 1, 2018, Red Flash Photography had the following balances: Cash, $21,000; Supplies, $8,900; Land, $69,000; Deferred Revenue, $5,900; Common Stock $59,000; Retained Earnings, $34,000. During 2018, the company had the following transactions: February 15 Issue additional shares of common stock, $29,000. May 20 Provide services to customers for cash, $44,000, and on account, $39,000. August 31 Pay salaries to employees for work in 2018, $32,000. October 1 Purchase rental space for one year, $21,000. November 17 Purchase supplies on account, $31,000. December 30 Pay dividends, $2,900. The following information is available on December 31, 2018: Employees are owed an additional $4,900 in salaries. Three months of the rental space has expired. Supplies of $5,900 remain on hand. All of the services associated with the beginning deferred revenue have been performed.
1. Record the transactions that occurred during the year
2. Record the adjusting entries at the end of the year.
3. Prepare an adjusted trial balance.
4. Prepare an income statement, statement of stockholders’ equity, and classified balance sheet.
5.Prepare closing entries.
(journal entries)
Explanation / Answer
Red Flash Photography
Date
Account Tiles and Explanations
Ref. No.
Debit
Credit
15-Feb
Cash
$29,000
Common Stock
$29,000
(To record the issue of common stock)
20-May
Cash
$44,000
Accounts Receivable
$39,000
Service Revenue
$83,000
(To record service revenue)
31-Aug
Salaries Expense
$32,000
Cash
$32,000
(To record salaries paid)
1-Oct
Prepaid Rent
$21,000
Cash
$21,000
(To record payment towards rental space for one year)
17-Nov
Supplies
$31,000
Accounts Payable
$31,000
(To record supplies purchased on account)
30-Dec
Dividends
$2,900
Cash
$2,900
(To record payment of dividends)
Date
Account Tiles and Explanations
Ref. No.
Debit
Credit
31-Dec
Supplies Expense
$34,000
Supplies
$34,000
(To record cost of supplies used, beginning balance + supplies purchased - ending balance = 8,900 + 31,000 -5,900 = $34,000)
31-Dec
Deferred Revenue
$5,900
Service Revenue
$5,900
(To record all deferred revenue services being performed)
31-Dec
Rent Expense
$5,250
Prepaid Rent
$5,250
(To record expired portion of prepaid rent, 21,000 x 1/12 x 3 months (Oct - Dec) = $5,250)
31-Dec
Salaries Expense
$4,900
Salaries Payable
$4,900
(To record unpaid salaries)
Red Flash Photography
Adjusted Trial Balance
For the year ended December 31, 2018
Account Titles
Debit
Credit
Cash
$38,100
Supplies
$5,900
Accounts Receivable
$39,000
Prepaid Rent
15,750
Land
$69,000
Accounts Payable
$31,000
Salaries Payable
$4,900
Common Stock
$88,000
Service Revenue
$88,900
Retained Earnings
$34,000
Salaries Expense
$36,900
Rent Expense
$5,250
Supplies Expense
$34,000
Dividends
$2,900
Totals
$246,800
$246,800
Workings –
Cash
Debit
Credit
Date
Description
Amount
Date
Description
Amount
1-Jan
Beginning Balance
$21,000
15-Feb
Common Stock
$29,000
31-Aug
Salaries Expense
$32,000
20-May
Service Revenue
$44,000
1-Oct
Prepaid Rent
$21,000
30-Dec
Dividends
$2,900
31-Dec
Ending Balance
$38,100
Total
$94,000
Total
$94,000
Salaries Expense
Debit
Credit
Date
Description
Amount
Date
Description
Amount
31-Aug
Cash
$32,000
31-Dec
Salaries Payable
$4,900
31-Dec
Ending Balance
$36,900
$36,900
$36,900
Service Revenue
Debit
Credit
Date
Description
Amount
Date
Description
Amount
20-May
Cash
$44,000
20-May
Accounts Receivable
$39,000
31-Dec
Ending balance
$88,900
31-Dec
Deferred Revenue
$5,900
Total
$88,900
Total
$88,900
4a. Income Statement
Red Flash Photography
Income Statement
For the year ended December 31, 2018
Service Revenue
$88,900
Expenses:
Salaries Expense
$36,900
Supplies Expense
$34,000
Rent Expense
$5,250
Total Expense
$76,150
Net Income
$12,750
4b. Statement of Stockholders’ Equity
Red Flash Photography
Statement of Changes in Stockholders' Equity for the year ended December 31, 2018
Common Stock
Beginning
$59,000
Add: New issues
$29,000
Ending Balance
$88,000
Retained Earnings
Beginning
$34,000
Add: Net Income
$12,750
Less: Dividends paid
($2,900)
$9,850
Ending Balance
$43,850
Total Stockholders' Equity
$131,850
4c. Classified Balance Sheet
Red Flash Photography
Classified Balance as on December 31, 2018
Assets
Cash
$38,100
Accounts Receivable
$39,000
Supplies
$5,900
Prepaid Rent
$15,750
Land
$69,000
Total Assets
$167,750
Liabilities and Stockholders' Equity
Liabilities
Accounts Payable
$31,000
Salaries Payable
$4,900
Total Liabilities
$35,900
Stockholders' Equity
Common Stock
$88,000
Retained Earnings
$43,850
Total Stockholders' Equity
$131,850
Total Liabilities and Stockholders' Equity
$167,750
5a. Closing Entries:
Date
Account Tiles and Explanations
Ref. No.
Debit
Credit
31-Dec
Income Summary
$76,150
Salaries Expense
$36,900
Supplies Expense
$34,000
Rent Expense
$5,250
(To close expenses account to income summary)
31-Dec
Retained Earnings
$2,900
Dividends
$2,900
(To close dividends account to retained earnings)
31-Dec
Service Revenue
$88,900
Income Summary
$88,900
(To close revenue account to income summary)
31-Dec
Income Summary
$12,750
Retained Earnings
$12,750
(To close income summary account to retained earnings)
Date
Account Tiles and Explanations
Ref. No.
Debit
Credit
15-Feb
Cash
$29,000
Common Stock
$29,000
(To record the issue of common stock)
20-May
Cash
$44,000
Accounts Receivable
$39,000
Service Revenue
$83,000
(To record service revenue)
31-Aug
Salaries Expense
$32,000
Cash
$32,000
(To record salaries paid)
1-Oct
Prepaid Rent
$21,000
Cash
$21,000
(To record payment towards rental space for one year)
17-Nov
Supplies
$31,000
Accounts Payable
$31,000
(To record supplies purchased on account)
30-Dec
Dividends
$2,900
Cash
$2,900
(To record payment of dividends)
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