Q1CP - Horngren'S Financial And Managerial Accounting

Question

Murphy Delivery Service completed the following transactions during December 2018: Dec. 1 Murphy Delivery Service began operations by receiving \(13,000 cash and a truck with a fair value of \)9,000 from Russ Murphy. The business issued Murphy shares of common stock in exchange for this contribution. 1 Paid \(600 cash for a six-month insurance policy. The policy begins December 1. 4 Paid \)750 cash for office supplies. 12 Performed delivery services for a customer and received \(2,200 cash. 15 Completed a large delivery job, billed the customer, \)3,300, and received a promise to collect the \(3,300 within one week. 18 Paid employee salary, \)800. 20 Received \(7,000 cash for performing delivery services. 22 Collected \)2,200 in advance for delivery service to be performed later. 25 Collected \(3,300 cash from customer on account. 27 Purchased fuel for the truck, paying \)150 on account. (Credit Accounts Payable) 28 Performed delivery services on account, \(1,400. 29 Paid office rent, \)1,400, for the month of December. 30 Paid \(150 on account. 31 Cash dividends of \)2,500 were paid to stockholders. Requirements 

1. Record each transaction in the journal using the following chart of accounts. Explanations are not required. Cash Retained Earnings Accounts Receivable Dividends Office Supplies Income Summary Prepaid Insurance Service Revenue Truck Salaries Expense Accumulated Depreciation—Truck Depreciation Expense—Truck Accounts Payable Insurance Expense Salaries Payable Fuel Expense Unearned Revenue Rent Expense Common Stock Supplies Expense 

2. Post the transactions in the T-accounts. 

3. Prepare an unadjusted trial balance as of December 31, 2018. 

4. Prepare a worksheet as of December 31, 2018 (optional). 

5. Journalize the adjusting entries using the following adjustment data and also by reviewing the journal entries prepared in Requirement 1. Post adjusting entries to the T-accounts. CHAPTER 4 Completing the Accounting Cycle 245 Adjustment data: a. Accrued Salaries Expense, \(800. b. Depreciation was recorded on the truck using the straight-line method. Assume a useful life of five years and a salvage value of \)3,000. c. Prepaid Insurance for the month has expired. d. Office Supplies on hand, \(450. e. Unearned Revenue earned during the month, \)700. f. Accrued Service Revenue, $450. 

6. Prepare an adjusted trial balance as of December 31, 2018.

 7. Prepare Murphy Delivery Service’s income statement and statement of retained earnings for the month ended December 31, 2018, and the classified balance sheet on that date. On the income statement, list expenses in decreasing order by amount—that is, the largest expense first, the smallest expense last. 

8. Journalize the closing entries, and post to the T-accounts. 

9. Prepare a post-closing trial balance as of December 31, 2018.

Step-by-Step Solution

Answer

(1) Journal entries are mentioned in Step 1. 

(2) T accounts are mentioned in Step 2.

(3) Under unadjusted trial balance, total debits and credits equals $38,100.

(4) Worksheet is mentioned in Step 4. 

(5) Adjusting entries and T accounts are mentioned in Step 5.

(6) Under adjusted trial balance, total debits and credits equals $39,450.

(7) Net income is $11,400, ending balance of retained earnings equals $8,900  and total assets and total liabilities & stockholders’ equity equals $33,200.

(8) Closing entries are recorded and posted in Step 8.

(9) Under post-closing trial balance, total debits and credits equals $33,300.

Step 1: Journal entries and T accounts

(1) Journal entries are as follows:

Date	Accounts and Explanation	Debit	Credit
Dec. 1	Cash	$13,000
	Truck	$9,000
	Common Stock		$22,000
Dec. 1	Prepaid Insurance	$600
	Cash		$600
Dec. 4	Office Supplies	$750
	Cash		$750
Dec. 12	Cash	$2,200
	Service Revenue		$2,200
Dec. 15	Accounts Receivable	$3,300
	Service Revenue		$3,300
Dec. 18	Salaries Expense	$800
	Cash		$800
Dec. 20	Cash	$7,000
	Service Revenue		$7,000
Dec. 22	Cash	$2,200
	Unearned Revenue		$2,200
Dec. 25	Cash	$3,300
	Accounts Receivable		$3,300
Dec.27	Fuel Expense	$150
	Accounts Payable		$150
Dec. 28	Accounts Receivable	$1,400
	Service Revenue		$1,400
Dec. 29	Rent Expense	$1,400
	Cash		$1,400
Dec. 30	Accounts Payable	$150
	Cash		$150
Dec.31	Dividends	$5,500
	Cash		$5,500

Step 2: T accounts

T accounts are as follows: 

Cash
Dec.1	$13,000	$600	Dec.1
Dec.12	$2,200	$750	Dec.4
Dec.20	$7,000	$800	Dec.18
Dec.22	$2,200	$1,400	Dec.29
Dec.25	$3,300	$150	Dec.30
		$2,500	Dec.31
Bal.	$21,500

Accounts Receivable
Dec.15	$3,300	$3,300	Dec.25
Dec.28	$1,400
Bal.	$1,400

Prepaid Insurance
Dec.1	$600
Bal.	$600

Truck
Dec. 1	$9,000
Bal.	$9,000

Office Supplies
Dec.4	$750
Bal.	$750

Accounts Payable
Dec.30	$150	$150	Dec.27
			Bal.

Common Stock
		$22,000	Dec.1
		$22,000	Bal.

Service Revenue
		$2,200	Dec.12
		$3,300	Dec.15
		$7,000	Dec.20
		$1,400	Dec.28
		$13,900	Bal

Salaries Expense
Dec.18	$800
Bal.	$800

Fuel Expense
Dec.27	$150
Bal.	$150

Rent Expense
Dec.29	$1,400
Bal.	$1,400

Unearned Revenue
		$2,200	Dec.22
		$2,200	Bal.

Dividends
Dec.31	$2,500
Bal.	$2,500

Step 3: Una djusted Trial Balance

Murphy Delivery Service
Unadjusted Trial Balance
December 31, 2018
Account Names	Debit	Credit
Cash	$21,500
Accounts Receivable	1,400
Prepaid Insurance	600
Office Supplies	750
Truck	9,000
Accounts Payable		$0
Unearned Revenue		2,200
Common Stock		22,000
Dividends	2,500
Service Revenue		13,900
Salaries Expense	800
Rent Expense	1,400
Fuel Expense	150
Total	$38,100	$38,100

Step 4: Worksheet

(4) Worksheet is shown as follows:

Murphy Delivery Service
Worksheet
December 31, 2018
	Unadjusted Trial Balance			Adjustments			Adjusted Trial Balance		Income Statement		Balance Sheet
Account Names	Debit	Credit		Debit	Credit		Debit	Credit	Debit	Credit	Debit	Credit
Cash	$21,500						$21,500				$21,500
Accounts Receivable	1,400		(f)	450			1,850				1,850
Prepaid Insurance	600				100	(c)	500				500
Office Supplies	750				300	(d)	450				450
Truck	9,000						9,000				9,000
Accumulated Depreciation-Truck					100	(b)		100				100
Accounts Payable		$0						0				0
Unearned Revenue		2,200	(e)	700				1,500				1,500
Salaries Payable					$800	(a)		800				800
Common Stock		22,000						22,000				22,000
Dividends	2,500						2,500				2,500
Service Revenue		13,900			1,150	(e,f)		15,050		15,050
Salaries Expense	800		(a)	800			1,600		1,600
Rent Expense	1,400						1,400		1,400
Fuel Expense	$150						150		150
Insurance Expense			(c)	100			100		100
Depreciation Expense-Truck			(b)	100			100		100
Supplies Expense			(d)	$300			300		300
Total	$38,100	$38,100		$2,450	$2,450		$39,450	$39,450	3,650	$15,050	$35,800	$24,400
								Net Income	$11,400			11,400
Total									$15,050	$15,050	$35,800	$35,800

Step 5: Adjusting Entries Recording and Posting

(5) Adjusting entries are as follows:

	Date	Accounts and Explanation	Debit	Credit
(a)	Dec. 31	Salaries Expense	$800
		Salaries Payable		$800
(b)	Dec. 31	Depreciation Expense-Truck	$100
		Accumulated Depreciation—Truck		$100
		((9000-3000)/5) * 1/12
(c)	Dec. 31	Insurance Expense	$100
		Prepaid Insurance		$100
		($600/6)
(d)	Dec. 31	Supplies Expense	$300
		Office Supplies		$300
		($750-$450)
(e)	Dec.31	Unearned Revenue	$700
		Service Revenue		$700
(f)	Dec. 31	Accounts Receivable	$450
		Service Revenue		$450

T accounts are as follows:

Salaries Expense
Dec.18	$800
Dec.31	$800
Bal.	$1,600

Salaries Payable
		$800	Dec.31
		$800	Bal.

Depreciation Expense—Truck
Dec.31	$100
Bal.	$100

Accumulated Depreciation—Truck
		$100	Dec.31
		$100	Bal.

Insurance Expense
Dec.31	$100
Bal.	$100

Prepaid Insurance
Dec.1	$600	$100	Dec.31
Bal.	$500

Supplies Expense
Dec.31	$300
Bal.	$300

Office Supplies
Dec.4	$750	$300	Dec.31
Bal.	$450

Unearned Revenue
Dec.31	$700	$2,200	Dec.22
		$1,500	Bal.

Accounts Receivable
Dec.15	$3,300	$3,300	Dec.25
Dec.28	$1,400
Dec.31	$450
Bal.	$1,850

Service Revenue
		$2,200	Dec.12
		$3,300	Dec.15
		$7,000	Dec.20
		$1,400	Dec.28
		$700	Dec.31
		$450	Dec.31
		$15,050	Bal

Step 6: Adjusting Trial Balance

(6) Adjusted trial balance is shown as follows:

Murphy Delivery Service
Unadjusted Trial Balance
December 31, 2018
Account Names	Debit	Credit
Cash	$21,500
Accounts Receivable	1,850
Prepaid Insurance	500
Office Supplies	450
Truck	9,000
Accumulated Depreciation—Truck		100
Accounts Payable		$0
Unearned Revenue		1,500
Salaries Payable		800
Common Stock		22,000
Dividends	2,500
Service Revenue		15,050
Salaries Expense	1,600
Rent Expense	1,400
Fuel Expense	150
Insurance Expense	100
Depreciation Expense-Truck	100
Supplies Expense	300
Total	$39,450	$39,450

Step 7: I ncome statement, Statement of retained earnings, and the classified balance sheet

(7) Income statement is shown as follows: 

Murphy Delivery Service
Income Statement
Year Ended  December 31, 2018
Revenues
Service Revenue		$15,050
Expenses
Salaries Expense	$1,600
Rent Expense	1,400
Supplies Expense	300
Fuel Expense	150
Depreciation Expense-Truck	100
Insurance Expense	100
Total Expenses		3,650
Net Income		$11,400

Statement of retained earnings is shown as follows: 

Murphy Delivery Service
Statement of Retained Earnings
Year Ended  December 31, 2018
Retained Earnings, Beginning Balance	$0
Net Income for the year	11,400
	11,400
Dividends	(2,500)
Retained Earnings,  Ending Balance	$8,900

Balance Sheet is shown as follows:

Murphy Delivery Service
Balance Sheet
December 31, 2018
Assets
Current Assets:
Cash		$21,500
Accounts Receivable		1,850
Prepaid Insurance		500
Office Supplies		450
Total Current Assets			$24,300
Property, Plant, and Equipment:
Truck	$9,000
Less: Accumulated Depreciation- Truck	(100)	8,900
Total Property, Plant, and Equipment:			8,900
Total Assets			$33,200
Liabilities
Current Liabilities:
Unearned Revenue		$1,500
Salaries Payable		800
Total Current Liabilities:			$2,300
Total Liabilities			$2,300
Stockholders’ Equity
Common Stock			22,000
Retained Earnings			8,900
Total Stockholders’ Equity			30,900
Total Liabilities and Stockholders’ Equity			$33,200

Step 8: Closing entries and posting

(8) Closing entries are as follows:

Date	Accounts and Explanation	Debit	Credit
Dec. 31	Service Revenue	$15,050
	Income Summary		$15,050
	To close revenue.
Dec. 31	Income Summary	$3,650
	Salaries Expense		$1,600
	Rent Expense		1,400
	Supplies Expense		300
	Fuel Expense		150
	Insurance Expense		100
	Depreciation Expense-Truck		100
	To close expenses.
Dec. 31	Income Summary	$11,400
	Retained Earnings		$11,400
	To close Income Summary
Dec. 31	Retained Earnings	$2,500
	Dividends		$2,500
	To close Dividends

Retained Earnings
Clos.4	$2,500	$0	Adj. Bal.
		$11,400	Clos.3
		$8,900	Bal.

Income Summary
Clos.2	$3,650	$15,050	Clos.1
		$11,400	Bal.
Clos.3	$11,400
		$0	Bal.

Dividends
Adj. Bal.	$2,500	$2,500	Clos. 4
Bal.	$0

Service Revenue
Clos.1	$19,600	$19,600	Dec.31
		$0	Bal.

Salaries Expense
Dec.18	$800	$1,600	Clos. 2
Dec.31	$800
Bal.	$0

Rent Expense
Dec.31	$1,400	$1,400	Clos. 2
Bal.	$0

Depreciation Expense-Truck
Dec. 31	$100	$100	Clos.2
Bal.	$0

Supplies Expense
Dec.31	$300	$300	Clos.2
Bal.	$0

Fuel Expense
Dec.31	$150	$150	Clos.2
Bal.	$0

Insurance Expense
Dec.31	$100	$100	Clos.2
Bal.	$0

Step 9: Post-closing Trial Balance

(9) Post-closing trial balance is shown as follows:

Murphy Delivery Service
Post Closing Trial Balance
December 31, 2018
Account Names	Debit	Credit
Cash	$21,500
Accounts Receivable	1,850
Prepaid Insurance	500
Office Supplies	450
Truck	9,000
Accumulated Depreciation-Truck		$100
Unearned Revenue		1,500
Salaries Payable		800
Common Stock		22,000
Retained Earnings		8,900
Total	$33,300	$33,300