On June 1, 2014, Ellie Hopkins established an interior decorating business, First Class Designs

On June 1, 2014, Ellie Hopkins established an interior decorating business, First Class Designs. During the month, Ellie completed the following transactions related to the business:

June 1. Ellie transferred cash from a personal bank account to an account to be used for the business, $21,500.

1. Paid rent for period of June 1 to end of month, $4,200.
6. Purchased office equipment on account, $8,500.
8. Purchased a used truck for $28,000, paying $3,000 cash and giving a note payable for the remainder.
10. Purchased supplies for cash, $1,800.
12. Received cash for job completed, $9,000.

June 15. Paid annual premiums on property and casualty insurance, $2,700.
23. Recorded jobs completed on account and sent invoices to customers, $13,650.
24. Received an invoice for truck expenses, to be paid in July, $975.
Enter the following transactions on Page 2 of the two-column journal.
29. Paid utilities expense, $2,480.
29. Paid miscellaneous expenses, $750.
30. Received cash from customers on account, $7,800.
30. Paid wages of employees, $5,100.
30. Paid creditor a portion of the amount owed for equipment purchased on June 6, $4,250.
30. Withdrew cash for personal use, $3,000.



Instructions

1. Journalize each transaction in a two-column journal beginning on Page 1, referring to the following chart of accounts in selecting the accounts to be debited and credited. (Do not insert the account numbers in the journal at this time.) Explanations may be omitted.


11 Cash 31 Ellie Hopkins, Capital
12 Accounts Receivable 32 Ellie Hopkins, Drawing
13 Supplies 41 Fees Earned
14 Prepaid Insurance 51 Wages Expense
16 Equipment 53 Rent Expense
18 Truck 54 Utilities Expense
21 Notes Payable 55 Truck Expense
22 Accounts Payable 59 Miscellaneous Expense


2. Post the journal to a ledger of four-column accounts, inserting appropriate posting references 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 First-Class Designs as of June 30, 2014.

4. Determine the excess of revenues over expenses for June.

5. Can you think of any reason why the amount determined in (4) might not be the net income for June?


Answer:






1.
JOURNAL Page 1
Date Description
Post.
Ref. Debit Credit
2014
June 1 Cash 11 21,500
Ellie Hopkins, Capital 31 21,500
1 Rent Expense 53 4,200
Cash 11 4,200
6 Equipment 16 8,500
Accounts Payable 22 8,500
8 Truck 18 28,000
Cash 11 3,000
Notes Payable 21 25,000
10 Supplies 13 1,800
Cash 11 1,800
12 Cash 11 9,000
Fees Earned 41 9,000
15 Prepaid Insurance 14 2,700
Cash 11 2,700
23 Accounts Receivable 12 13,650
Fees Earned 41 13,650
24 Truck Expense 55 975
Accounts Payable 22 975
JOURNAL Page 2
Date Description
Post.
Ref. Debit Credit
2014
June 29 Utilities Expense 54 2,480
Cash 11 2,480
29 Miscellaneous Expense 59 750
Cash 11 750

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
30 Cash 11 7,800
Accounts Receivable 12 7,800
30 Wages Expense 51 5,100
Cash 11 5,100
30 Accounts Payable 22 4,250
Cash 11 4,250
30 Ellie Hopkins, Drawing 32 3,000
Cash 11 3,000
2.
Account: Cash
GENERAL LEDGER
Account No. 11
Date Item
Post.
Ref. Debit Credit
Balance
Debit Credit
2014
June 1 1 21,500 21,500
1 1 4,200 17,300
8 1 3,000 14,300
10 1 1,800 12,500
12 1 9,000 21,500
15 1 2,700 18,800
29 2 2,480 16,320
29 2 750 15,570
30 2 7,800 23,370
30 2 5,100 18,270
30 2 4,250 14,020
30 2 3,000 11,020
Account: Accounts Receivable Account No. 12
Date Item
Post.
Ref. Debit Credit
Balance
Debit Credit
2014
June 23 1 13,650 13,650
30 2 7,800 5,850

Account: Supplies
Account: Prepaid Insurance
Account: Equipment
Account No. 13
Account No. 14
Account No. 16
Date Item
Post.
Ref. Debit Credit
Balance
Debit Credit
2014
June 6 1 8,500 8,500
Account: Truck Account No. 18
Date Item
Post.
Ref. Debit Credit
Balance
Debit Credit
2014
June 8 1 28,000 28,000
Account: Notes Payable
Account: Accounts Payable
Account No. 21
Account No. 22
Date Item
Post.
Ref. Debit Credit
Balance
Debit Credit
2014
June 6 1 8,500 8,500
24 1 975 9,475
30 2 4,250 5,225
Account: Ellie Hopkins, Capital Account No. 31
Date Item
Post.
Ref. Debit Credit
Balance
Debit Credit
2014
June 30 2 3,000 3,000
Date Item
Post.
Ref. Debit Credit
Balance
Debit Credit
2014
June 1 1 21,500 21,500
Account: Ellie Hopkins, Drawing
Account: Fees Earned
Account No. 32
Account No. 41
Date Item
Post.
Ref. Debit Credit
Balance
Debit Credit
2014
June 12 1 9,000 9,000
23 1 13,650 22,650
Account: Wages Expense Account No. 51
Date Item
Post.
Ref. Debit Credit
Balance
Debit Credit
2014
June 30 2 5,100 5,100
Account: Rent Expense Account No. 53
Date Item
Post.
Ref. Debit Credit
Balance
Debit Credit
2014
June 1 1 4,200 4,200
Account: Utilities Expense Account No. 54
Date Item
Post.
Ref. Debit Credit
Balance
Debit Credit
2014
June 29 2 2,480 2,480

Date Item
Post.
Ref. Debit Credit
Balance
Debit Credit
2014
June 24 1 975 975
Prob. 2–3A (Continued)
Account: Truck Expense
Account: Miscellaneous Expense
Account No. 55
Account No. 59
Date Item
Post.
Ref. Debit Credit
Balance
Debit Credit
2014
June 29 2 750 750
3. FIRST-CLASS DESIGNS
Unadjusted Trial Balance
June 30, 2014
Debit
Balances
Credit
Balances
Cash 11,020
Accounts Receivable 5,850
Supplies 1,800
Prepaid Insurance 2,700
Equipment 8,500
Truck 28,000
Notes Payable 25,000
Accounts Payable 5,225
Ellie Hopkins, Capital 21,500
Ellie Hopkins, Drawing 3,000
Fees Earned 22,650
Wages Expense 5,100
Rent Expense 4,200
Utilities Expense 2,480
Truck Expense 975
Miscellaneous Expense 750
74,375 74,375


4. $9,145 ($22,650 – $5,100 – $4,200 – $2,480 – $975 – $750)

5. As will be discussed in Chapter 3, various adjustments are normally required at the end of the accounting period. For example, adjustments for supplies used, insurance expired, and depreciation would probably be required.