Week6.AComprehensiveIllustration

Week 6:

A Comprehensive

Illustration

Iron Mountain Consulting
For the past several years, Kareem Ismail has operated a part-time consulting business from his home. As of 1 October 2010, Kareem decided to move to rented quarters and to operate the business, which was to be known as Iron Mountain Consulting, on a full-time basis.Iron Mountain Consulting entered into the following transactions during October:

October Transactions
DateOct 1The following assets were received from Kareem Ismail:Cash, $18,000 Accounts receivable, $5,000 Supplies, $1,500Office equipment, $10,750.There were no liabilities received.Oct 1Paid 3 months rent on a lease rental contract, $4,800.Oct 2Paid the premiums on property and casualty insurance policies, $2,700.Oct 4Received cash from clients as an advance payment for services to be provided and recorded it as unearned fees, $3,150.Oct 5Purchased additional office equipment on account from Office Station Co., $1,250.Oct 6Received cash from clients on account, $2,000.

October Transactions (Contd.)
DateOct 10Paid cash for a newspaper advertisement, $325.Oct 12Paid Office Station Co. for part of the debt incurred on Oct 5, $750.Oct 12Recorded services provided on account for the period Oct 1-12, $5,750.Oct 14Paid part-time receptionist for 2 weeks salary, $900.Oct 17Recorded cash from cash clients for fees earned for the period Oct 1-17, $9,250.Oct 18Paid cash for supplies, $600.Oct 20Recorded services provided on account for the period Oct 13-20, $4,100.Oct 24 Recorded cash from cash clients for fees earned during the period Oct 17-24, $4,850.

October Transactions (Contd.)
DateOct 26Received cash from clients on account, $3,450.Oct 27Paid part-time receptionist for 2 weeks salary, $900.Oct 29Paid telephone bill for October, $250.Oct 31Paid electricity bill for October, $300.Oct 31Recorded cash from cash clients for fees earned for the period Oct 25-31, $3,975.Oct 31Recorded services provided on account for the remainder of October, $2,500.Oct 31Kareem withdrew $7,500 for personal use.

Instructions
Journalise each transaction.

Journal entries

Oct 1:

The following assets were received from Kareem Ismail:

Cash, $18,000

Accounts receivable, $5,000

Supplies, $1,500

Office equipment, $10,750.

There were no liabilities received.

Journal entry

DRCash 18,000

DRAccounts Receivable 5,000

DRSupplies 1,500

DROffice Equipment 10,750

CRKareem Ismail, Capital 35,250

Journal entries

Oct 1:

Paid 3 months rent on a lease rental contract, $4,800.

Journal entry

DRPrepaid Rent 4,800

CRCash 4,800

Journal entries

Oct 2:

Paid the premiums on property and casualty insurance policies, $2,700.

Journal entry

DRPrepaid Insurance2,700

CRCash 2,700

Journal entries

Oct 4:

Received cash from clients as an advance payment for services to be provided and recorded it as unearned fees, $3,150.

Journal entry

DRCash3,150

CRUnearned fees3,150

Journal entries

Oct 5:

Purchased additional office equipment on account from Office Station Co., $1,250.

Journal entry

DROffice equipment1,250

CRAccounts payable1,250

Journal entries

Oct 6:

Received cash from clients on account, $2,000.

Journal entry

DRCash2,000

CRAccounts receivables2,000

Journal entries

Oct 10:

Paid cash for a newspaper advertisement, $325.

Journal entry

DRMiscellaneous expense325

CRCash325

Journal entries

Oct 12:

Paid Office Station Co. for part of the debt incurred on Oct 5, $750.

Journal entry

DRAccounts payable 750

CRCash750

Journal entries

Oct 12:

Recorded services provided on account for the period Oct 1-12, $5,750.

Journal entry

DRAccounts receivable5,750

CRFees earned5,750

Journal entries

Oct 14:

Paid part-time receptionist for 2 weeks salary, $900.

Journal entry

DRSalary expense900

CRCash900

Journal entries

Oct 17:

Recorded cash from cash clients for fees earned for the period Oct 1-17, $9,250.

Journal entry

DRCash9,250

CRFees earned9,250

Journal entries

Oct 18:

Paid cash for supplies, $600.

Journal entry

DRSupplies 600

CRCash600

Journal entries

Oct 20:

Recorded services provided on account for the period Oct 13-20, $4,100.

Journal entry


CRFees earned4,100

Journal entries

Oct 24:


Journal entry

DRCash4,850

CRFees earned4,850

Journal entries

Oct 26:

Received cash from clients on account, $3,450.

Journal entry

DRCash3,450

CRAccounts receivable3,450

Journal entries

Oct 27:

Paid part-time receptionist for 2 weeks salary, $900.

Journal entry

DRSalary expense900

CRCash900

Journal entries

Oct 29:

Paid telephone bill for October, $250.

Journal entry


CRCash250

Journal entries

Oct 31:

Paid electricity bill for October, $300.

Journal entry


CRCash300

Journal entries

Oct 31:


Journal entry

DRCash3,975

CRFees earned3,975

Journal entries

Oct 31:

Recorded services provided on account for the remainder of October, $2,500.

Journal entry


CRFees earned2,500

Journal entries

Oct 31:

Kareem withdrew $7,500 for personal use.

Journal entry

DRKareem Ismail, Drawing7,500

CRCash7,500

Instructions
Post the journal to individual ledgers.

Posting journal entries to ledger accounts
CashDebitCreditOct 118,00014,80022,70043,15062,000103251275014900179,25018600244,850263,450279002925031300313,975317,500Bal c/f25,65044,67544,675Bal b/f25,650

Accounts receivableDebitCreditOct 15,00062,000125,750204,100263,450312,500Bal c/f11,90017,35017,350Bal b/f11,900

SuppliesDebitCreditOct 11,50018600Bal c/f2,1002,1002,100Bal b/f2,100

Prepaid rentDebitCreditOct 14,800Bal c/f4,8004,8004,800Bal b/f4,800

Prepaid insuranceDebitCreditOct 22,700Bal c/f2,7002,7002,700Bal b/f2,700

Office equipmentDebitCreditOct 110,75051,250Bal c/f12,00012,00012,000Bal b/f12,000

Accounts payableDebitCreditOct 51,25012750Bal c/f5001,2501,250Bal b/f500

Unearned feesDebitCreditOct 43,150Bal c/f3,1503,1503,150Bal b/f3,150

Kareem Ismail, CapitalDebitCreditOct 135,250Bal c/f35,25035,25035,250Bal b/f35,250

Kareem Ismail, DrawingDebitCreditOct 317,500Bal c/f7,5007,5007,500Bal b/f7,500

Fees earnedDebitCreditOct 125,750179,250204,100244,850313,975312,500Bal c/f30,42530,42530,425Bal b/f30,425

Salary expenseDebitCreditOct 1490027900Bal c/f1,8001,8001,800Bal b/f1,800

Miscellaneous expenseDebitCreditOct 103252925031300Bal c/f875875875Bal b/f875

Instructions
Prepare an unadjusted trial balance.

AccountsUnadjusted Trial balanceDebitCreditCash25,650Accounts receivable11,900Supplies2,100Prepaid rent4,800Prepaid insurance2,700Office equipment12,000Accumulated depreciation office equipment0Accounts payable500Salary payable0Unearned fees3,150Kareem Ismail, capital35,250Kareem Ismail, drawing7,500

AccountsUnadjusted Trial balanceDebitCreditFees earned30,425Salary expense1,800Rent expense0Supplies expense0Depreciation expense0Insurance expense0Miscellaneous expense87569,32569,325

Adjustments

At the end of October, the following adjustment data were assembled:
Insurance expired during October is $225.Supplies on hand on Oct 31 are $875.Depreciation of office equipment for October is $400.Accrued receptionist salary on Oct 31 is $200.Rent expired during October is $1,600.Unearned fees on Oct 31 are $1,150.

Journalise the adjusting entries & post them to the relevant ledger accounts.

1.Insurance expired during October is $225.

Journal entry:

Cr Prepaid insurance $225

Dr Insurance Expense $225

Posting adjusting entries to ledger accounts
Prepaid insuranceDebitCreditOct 22,70031Adjusting225

Insurance expenseDebitCredit31Adjusting225

2.Supplies on hand on Oct 31 are $875.

Supplies per unadjusted TB: $2,100

Actual balance at year end: $875

Therefore, the balance needs to be adjusted by: $2,100 - $875 = $1,225.

Journal entry:

Cr Supplies $1,225

Dr Supplies Expense $1,225

SuppliesDebitCreditOct 11,5001860031Adjusting1,225

Supplies expenseDebitCredit31Adjusting1,225

Depreciation of office equipment for October is $400.
Journal entry:

Cr Accumulated depreciation$400

Dr Depreciation Expense $400

Accumulated depreciationDebitCredit31Adjusting400

Depreciation expenseDebitCredit31Adjusting400

4.Accrued receptionist salary on Oct 31 is $200.

Journal entry:

Cr Salaries payable$200

Dr Salary expense$200

Salaries payableDebitCreditOct 31Adjusting200

Salary expenseDebitCreditOct 149002790031Adjusting200

5. Rent expired during October is $1,600.

Journal entry:

Cr Prepaid rent$1,600

Dr Rent Expense $1,600

Prepaid rentDebitCreditOct 14,80031Adjusting1,600

Rent expenseDebitCredit31Adjusting1,600

6.Unearned fees on Oct 31 are $1,150.

Unearned service revenue per unadjusted TB: $3,150

Actual balance at year end: $1,150

Therefore, the balance needs to be adjusted by: $3,150 - $1,150 = $2,000.

Journal entry:

Dr Unearned fees$2,000

Cr Fees earned$2,000

Unearned feesDebitCreditOct 43,15031Adjusting2,000

Fees earnedDebitCreditOct 125,750179,250204,100244,850313,975312,50031Adjusting2,000

Instructions
Prepare an adjusted trial balance, using an end-of-period worksheet.

AccountsTrial balanceAdjustmentsAdjd TBDebitCreditDebitCreditDebitCreditCash25,650Accounts receivable11,900Supplies2,100Prepaid rent4,800Prepaid insurance2,700225Office equipment12,000Accumulated depreciation office equipment0Accounts payable500Salary payable0Unearned fees3,150Kareem Ismail, capital35,250Kareem Ismail, drawing7,500Fees earned30,425Salary expense1,800Rent expense0Supplies expense0Depreciation expense0Insurance expense0225Miscellaneous expense87569,32569,325

AccountsTrial balanceAdjustmentsAdjd TBDebitCreditDebitCreditDebitCreditCash25,650Accounts receivable11,900Supplies2,1001,225Prepaid rent4,800Prepaid insurance2,700225Office equipment12,000Accumulated depreciation office equipment0Accounts payable500Salary payable0Unearned fees3,150Kareem Ismail, capital35,250Kareem Ismail, drawing7,500Fees earned30,425Salary expense1,800Rent expense0Supplies expense01,225Depreciation expense0Insurance expense0225Miscellaneous expense87569,32569,325

AccountsTrial balanceAdjustmentsAdjd TBDebitCreditDebitCreditDebitCreditCash25,650Accounts receivable11,900Supplies2,1001,225Prepaid rent4,8001,600Prepaid insurance2,700225Office equipment12,000Accumulated depreciation office equipment0400Accounts payable500Salary payable0200Unearned fees3,150Kareem Ismail, capital35,250Kareem Ismail, drawing7,500Fees earned30,425Salary expense1,800200Rent expense01,600Supplies expense01,225Depreciation expense0400Insurance expense0225Miscellaneous expense87569,32569,325

AccountsTrial balanceAdjustmentsAdjd TBDebitCreditDebitCreditDebitCreditCash25,650Accounts receivable11,900Supplies2,1001,225Prepaid rent4,8001,600Prepaid insurance2,700225Office equipment12,000Accumulated depreciation office equipment0400Accounts payable500Salary payable0200Unearned fees3,1502,000Kareem Ismail, capital35,250Kareem Ismail, drawing7,500Fees earned30,4252,000Salary expense1,800200Rent expense01,600Supplies expense01,225Depreciation expense0400Insurance expense0225Miscellaneous expense87569,32569,325

AccountsTrial balanceAdjustmentsAdjd TBDebitCreditDebitCreditDebitCreditCash25,65025,650Accounts receivable11,90011,900Supplies2,1001,225875Prepaid rent4,8001,6003,200Prepaid insurance2,7002252,475Office equipment12,00012,000Accumulated depreciation office equipment0400400Accounts payable500500Salary payable0200200Unearned fees3,1502,0001,150Kareem Ismail, capital35,25035,250Kareem Ismail, drawing7,5007,500Fees earned30,4252,00032,425Salary expense1,8002002,000Rent expense01,6001,600Supplies expense01,2251,225Depreciation expense0400400Insurance expense0225225Miscellaneous expense87587569,32569,32569,92569,925

Instructions
Prepare an income statement, a statement of owners equity and a balance sheet.

Income Statement

For the month ended 31 October 2010

Fees earned ........................................................................ $ 32,425

Expenses:

Salary expense ............................................... $2,000

Rent expense .................................................. 1,600

Supplies expense ............................................. 1,225

Depreciation expense ..................................... 400

Insurance expense ............................................. 225

Miscellaneous expense ..................................... 875

Total expenses ................................................... 6,325

Net income .......................................................................... $ 26,100

Statement of Owners Equity

For the month ended 31 Oct 2010

Kareem Ismail, capital, October 1, 2010 ........................... $ 0

Additional investments during the month ....................... 35,250

Total .................................................................................. $ 35,250

Net income for the month ..............................$ 26,100

Less withdrawals ................................................ (7,500)

Increase in owners equity ................................................ 18,600

Kareem Ismail, capital, October 31, 2010 .....................$ 53,850

Balance Sheet

31 Oct 2010
AssetsLiabilitiesCurrent assets:Current liabilities:Cash25,650Accounts payable500Accounts receivable11,900Salaries payable200Supplies875Unearned fees1,150Prepaid rent3,200Total liabilities1,850Prepaid insurance2,475Total current assets44,100Property, plant & equipment:Owners equityOffice equipment12,000Kareem Ismail, capital53,850Less: Acc. Depreciation(400)11,600Total assets55,700Total liabilities & owners equity55,700

Instructions
Prepare & post the closing entries.

Closing entries
OctDebitCredit1.31Fees earned32,425Income summary32,4252.31Income summary6,325Salary expense2,000Rent expense1,600Supplies expense1,225Depreciation expense400Insurance expense225Miscellaneous expense875

Closing entries
OctDebitCredit3.31Income summary26,100Kareem Ismail, capital26,1004.31Kareem Ismail, capital7,500Kareem Ismail, drawing7,500

Posting closing entries to ledger accounts
Kareem Ismail, CapitalDebitCreditOct 135,250Oct 31Closing (Ref 3)26,100Oct 31Closing (Ref 4)7,500Balance c/f53,850

Kareem Ismail, DrawingDebitCreditOct 317,500Closing (Ref 4)7,500Balance c/f0

Income SummaryDebitCreditOct 31Closing (Ref 1)32,425Closing (Ref 2)6,325Closing (Ref 3)26,100Balance c/f0

Fees earnedDebitCreditOct 31Adjusted balance32,425Closing (Ref 1)32,425Balance c/f0Salary expenseOct 31Adjusted balance2,000Closing (Ref 2)2,000Balance c/f0Rent expenseOct 31Adjusted balance1,600Closing (Ref 2)1,600Balance c/f0

DebitCreditSupplies expenseOct 31Adjusted balance855Closing (Ref 2)855Balance c/f0Depreciation expenseOct 31Adjusted balance400Closing (Ref 2)400Balance c/f0

DebitCreditInsurance expenseOct 31 Adjusted balance225Closing (Ref 2)225Balance c/f0Miscellaneous expenseOct 31 Adjusted balance875Closing (Ref 2)875Balance c/f0

Instructions
Prepare a post-closing trial balance.

AccountsPost closing TBDebitCreditCash25,650Accounts receivable11,900Supplies875Prepaid rent3,200Prepaid insurance2,475Office equipment12,000Accumulated depreciation office equipment400Accounts payable500Salary payable200Unearned fees1,150Kareem Ismail, capital53,85056,10056,100

Week6.AComprehensiveIllustration

Documents

paid cash

cash clients

recorded cash

journal entriesoct

journal entrydrcash3

journal entrydrcash2

paid office station

journal entrydrprepaid