On November 1, 2018, Kris Lehman established an interior decorating business, Mo
ID: 341750 • Letter: O
Question
On November 1, 2018, Kris Lehman established an interior decorating business, Modern Designs. During the month, Kris completed the following transactions related to the business:
Nov.
1
Kris transferred cash from a personal bank account to an account to be used for the business in exchange for common stock, $26,000.
1
Paid rent for period of November 1 to end of month, $3,800.
6
Purchased office equipment on account, $12,710.
8
Purchased a truck for $30,400 paying $6,100 cash and giving a note payable for the remainder.
10
Purchased supplies for cash, $1,920.
12
Received cash for job completed, $8,300.
15
Paid annual premiums on property and casualty insurance, $2,200.
23
Recorded jobs completed on account and sent invoices to customers, $12,220.
24
Received an invoice for truck expenses, to be paid in November, $1,010.
Enter the following transactions on Page 2 of the two-column journal:
Nov.
29
Paid utilities expense, $3,510.
29
Paid miscellaneous expenses, $1,650.
30
Received cash from customers on account, $7,300.
30
Paid wages of employees, $4,550.
30
Paid creditor a portion of the amount owed for equipment purchased on November 6, $6,200.
30
Paid dividends, $2,400.
Required:
1.
Journalize each transaction in a two-column journal beginning on Page 1, referring to the chart of accounts in selecting the accounts to be debited and credited. (Do not insert the post reference numbers until you have posted the entry to the general ledger in part 2.) Refer to the Chart of Accounts for exact wording of account titles.
2.
Post (in chronological order) the journal to a ledger of four-column accounts, inserting appropriate posting references in both the journal and the ledger as each item is posted. Extend the balances to the appropriate balance columns after each transaction is posted.
3.
Prepare an unadjusted trial balance for Modern Designs as of November 30, 2018.
4.
Determine the excess of revenues over expenses for November.
5.
Can you think of any reason why the amount determined in (4) might not be the net income for November?
CHART OF ACCOUNTSModern DesignsGeneral Ledger
ASSETS
11
Cash
12
Accounts Receivable
13
Supplies
14
Prepaid Insurance
16
Equipment
18
Truck
LIABILITIES
21
Notes Payable
22
Accounts Payable
EQUITY
31
Common Stock
33
Dividends
REVENUE
41
Fees Earned
EXPENSES
51
Wages Expense
53
Rent Expense
54
Utilities Expense
55
Truck Expense
59
Miscellaneous Expense
JOURNAL
ACCOUNTING EQUATION
DATE
DESCRIPTION
POST. REF.
DEBIT
CREDIT
ASSETS
LIABILITIES
EQUITY
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
2. Post (in chronological order) the journal to a ledger of four-column accounts, inserting appropriate posting references in both the journal and the ledger as each item is posted. Extend the balances to the appropriate balance columns after each transaction is posted.
LEDGER
Account: Cash11Account No.
Account: Accounts Receivable12Account No.
Account: Supplies13Account No.
Account: Prepaid Insurance14Account No.
Account: Equipment16Account No.
Account: Truck18Account No.
Account: Notes Payable21Account No.
Account: Accounts Payable22Account No.
Account: Common Stock31Account No.
Account: Dividends33Account No.
Account: Fees Earned41Account No.
Account: Wages Expense51Account No.
Account: Rent Expense53Account No.
Account: Utilities Expense54Account No.
Account: Truck Expense55Account No.
Account: Miscellaneous Expense59Account No.
DATE
ITEM
POST. REF.
DEBIT
CREDIT
BALANCE
DEBIT
CREDIT
1
3. Prepare an unadjusted trial balance for Modern Designs as of November 30, 2018.
Modern Designs
UNADJUSTED TRIAL BALANCE
November 30, 2018
ACCOUNT TITLE
DEBIT
CREDIT
1
Cash
2
Accounts Receivable
3
Supplies
4
Prepaid Insurance
5
Equipment
6
Truck
7
Notes Payable
8
Accounts Payable
9
Common Stock
10
Dividends
11
Fees Earned
12
Wages Expense
13
Rent Expense
14
Utilities Expense
15
Truck Expense
16
Miscellaneous Expense
17
Totals
Nov.
1
Kris transferred cash from a personal bank account to an account to be used for the business in exchange for common stock, $26,000.
1
Paid rent for period of November 1 to end of month, $3,800.
6
Purchased office equipment on account, $12,710.
8
Purchased a truck for $30,400 paying $6,100 cash and giving a note payable for the remainder.
10
Purchased supplies for cash, $1,920.
12
Received cash for job completed, $8,300.
15
Paid annual premiums on property and casualty insurance, $2,200.
23
Recorded jobs completed on account and sent invoices to customers, $12,220.
24
Received an invoice for truck expenses, to be paid in November, $1,010.
Explanation / Answer
Answer 1. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1-Nov Cash 26,000.00 Common Stock 26,000.00 (Record the common Stock issued) 1-Nov Rent Expense 3,800.00 Cash 3,800.00 (Record the rent paid) 6-Nov Equipment 12,710.00 Accounts Payable 12,710.00 (Record the purchase of equipment) 8-Nov Truck 30,400.00 Cash 6,100.00 Notes Payable 24,300.00 (record the purcahse of truck) 10-Nov Supplies 1,920.00 Cash 1,920.00 (record the supplies purcahsed) 12-Nov Cash 8,300.00 Fees Earned 8,300.00 (record the fees earned) 15-Nov Prepaid Insurance 2,200.00 Cash 2,200.00 (Record the insurance paid) 23-Nov Accounts Receivable 12,220.00 Fees Earned 12,220.00 (record the fees earned) 24-Nov Truck Expense 1,010.00 Accounts Payable 1,010.00 (record the truck expense) 29-Nov Miscellaneous Expense 1,650.00 Cash 1,650.00 (record the Misc. expense) 30-Nov Cash 7,300.00 Accounts Receivable 7,300.00 (record the cash recd) 30-Nov Wages Expense 4,550.00 Cash 4,550.00 (record the wages expense) 30-Nov Dividends 2,400.00 Cash 2,400.00 (record the dividends paid) 30-Nov Accounts Payable 6,200.00 Cash 6,200.00 (record the amount paid) Answer 2. Cash Accounts Receivable Supplies Date Debit Credit Balance Date Debit Credit Balance Date Debit Credit Balance 1-Nov 26,000.00 26,000.00 Dr. 23-Nov 12,220.00 12,220.00 Dr. 10-Nov 1,920.00 1,920.00 Dr. 1-Nov 3,800.00 22,200.00 Dr. 30-Nov 7,300.00 4,920.00 Dr. 8-Nov 6,100.00 16,100.00 Dr. 10-Nov 1,920.00 14,180.00 Dr. 12-Nov 8,300.00 22,480.00 Dr. 15-Nov 2,200.00 20,280.00 Dr. 29-Nov 1,650.00 18,630.00 Dr. 30-Nov 7,300.00 25,930.00 Dr. 30-Nov 4,550.00 21,380.00 Dr. 30-Nov 2,400.00 18,980.00 Dr. 30-Nov 6,200.00 12,780.00 Dr. Prepaid Insurance Date Debit Credit Balance 15-Nov 2,200.00 2,200.00 Dr. Equipment Truck Date Debit Credit Balance Date Debit Credit Balance 6-Nov 12,710.00 12,710.00 Dr. 8-Nov 30,400.00 30,400.00 Dr. Notes Payable Date Debit Credit Balance 8-Nov 24,300.00 24,300.00 Cr. Accounts Payable Common Stock 24,300.00 Cr. Date Debit Credit Balance Date Debit Credit Balance 24,300.00 Cr. 6-Nov 12,710.00 12,710.00 Cr. 1-Nov 26,000.00 26,000.00 Cr. 24-Nov 1,010.00 13,720.00 Cr. 26,000.00 Cr. Dividends 30-Nov 6,200.00 7,520.00 Cr. 26,000.00 Cr. Date Debit Credit Balance 30-Nov 2,400.00 2,400.00 Dr. Fees Earned Wages Expense 2,400.00 Dr. Date Debit Credit Balance Date Debit Credit Balance 12-Nov 8,300.00 8,300.00 Cr. 30-Nov 4,550.00 4,550.00 Dr. 23-Nov 12,220.00 20,520.00 Cr. 4,550.00 Dr. Rent Expense Date Debit Credit Balance 1-Nov 3,800.00 3,800.00 Dr. Truck Expense Date Debit Credit Balance 24-Nov 1,010.00 1,010.00 Dr. Miscellaneous Expense Date Debit Credit Balance 29-Nov 1,650.00 1,650.00 Dr. Answer 3. Modern Designs Unadjusted Trial Balance As of Nov 3o, 2018 Debit Credit Cash 12,780.00 Accounts Receivable 4,920.00 Supplies 1,920.00 Prepaid Insurance 2,200.00 Equipment 12,710.00 Truck 30,400.00 Notes Payable 24,300.00 Accounts Payable 7,520.00 Common Stock 26,000.00 Dividends 2,400.00 Fees Earned 20,520.00 Wages Expense 4,550.00 Rent Expense 3,800.00 Truck Expense 1,010.00 Miscellaneous Expense 1,650.00 Totals 78,340.00 78,340.00 - Answer 4. Income Statement For the Month Ended Nov 30, 2018 Revenue Fees Earned 20,520.00 Expense Wages Expense 4,550.00 Rent Expense 3,800.00 Truck Expense 1,010.00 Miscellaneous Expense 1,650.00 11,010.00 Net Operating Income 9,510.00 Answer 5. Reasons the above might not be Net Income for october are: 1. Insurnace Expense for the November month is not recognized. 2. Depreciation Expense is not recognized on Truck & Equipment. 3. Some Supplies must be consumed or used. Supplies Expenses are not recognized. 4. Some Fees are earned and the bills are not raised in the month of November. Such revenues should be Recognized.
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