Assignment #3-The Accounting Cycle in Review This assignment is out of 101 marks
ID: 2555814 • Letter: A
Question
Assignment #3-The Accounting Cycle in Review This assignment is out of 101 marks and is weighted 15% of your final grade. Comprehensive Question- Jerry's Mobile Car Wash Jerry Fish opened Jerry's Mobile Car Wash on Sept 1, 2017. In Sept, the following transactions were completed. Sept 1 Invested $14,000 cash in the business Purchased a used truck for $26,400, paying $6,400 cash and signing a note payable for the balance Collected $3,000 from XYZ for their car cleaning needs for Sept, Oct, and Nov Purchased cleaning supplies on account for $850 12 18 20 21 25 30 30 Paid $1.800 on a one-year insurance policy, effective Sept 1 Billed customers $3,800 for cleaning services Paid $400 of amount owed on cle Paid $1,600 for employee's salaries Collected $1,400 from customers billed on Sept 12 Billed customers for $3,000 for cleaning services Paid gas and oil for the month on the truck $350 Withdrew $1.600 to taxes 1. Annual payments of $2,000 are required on the note. Required 1. Journalize and post the Sept transactions. Jerry s Mobile Car Wash records all prepaid expenses and unearned revenues as assets and liabilities 2. Prepare an unadjusted trial balance at Sept 30, 2017 3. Journalize and post the following adjustments a. Earned and unbilled fees at Sept 30, 2017 were $1,500. b. The truck has an estimated useful life of four years and no residual value c. The insurance policy is effective Sept 1, 2017 and expires on August 31 2018 d. An inventory count shows $375 of cleaning supplies on hand at Sept 30 2017 e. At Sept 30, 2017, $1,000 of the fees collected in advance have been earned f. Accrued but unpaid employee salaries were $400 g. The note payable has a 6% annual interest rate 4. Prepare an adjusted trial balance at Sept 30, 2017Explanation / Answer
Sep 1 Cash account Dr 14,000
To Capital Accounts 14,000
(To record cash introduced to start the business)
Sep 1 Truck Account Dr 26,400
To Cash account 6,400
To Note Payable 20,000
(To record new truck purchased by paying partly in cash and balance as note payable)
Sep 1 Cash Account dr 3,000
To Unearned revenue 3,000
(To record cash collected from XYZ for car cleaning in Sep, Oct and Nov)
Sep 3 Cleaning supplies Dr 850
To Accounts Payable 850
(To record cleaning supplies purchased on credit)
Sep 5 Prepaid Insurance Dr 1,800
To Cash 1,800
(To record Insurance policy purchased, coverage period 1 year effective Sep 1)
Sep 12 Accounts Receivable Dr 3,800
To Car cleaning Income 3,800
(To record car cleaning billed to the customers for the month)
Sep 18 Accounts Payable a/c Dr 400
To Cash account 400
(To record payment made to cleaning supplies vendors)
Sep 20 Salaries account Dr 1,600
To Cash account 1,600
(To record salaries paid)
Sep 21 Cash account Dr 1,400
To Accounts receivable 1,400
(To record cash collected from customers against prior billings)
Sep 25 Accounts receivable Dr 3,000
To Car cleaning Income 3,000
(To record billings to customers for cleaning services)
Sep 30 Automobile expense Dr 350
To Cash account 350
(To record payment made for Gas and oil for the truck)
Sep 30 Personal property taxes account Dr 1,600
To Cash account 1,600
(To record amount withdrawn to pay personal property taxes)
Note: Personal property taxes can be treated as an expense for the business, conversely if treated as drawings, it would affect the net profit, however the Equity will not be changed
Adjusting Journal Entries:
Sep 30 Unbilled revenue 1,500
To Car cleaning Income 1,500
(To record earned and unbilled revenue for the month)
Sep 30 Depreciation account Dr 550
To Accumulated Depreciation 550
(To record depreciation for the month on Truck)
Working Note: Cost = 26,400, Life - 4 years
26,400 / 4 / 12 = $550
Sep 30 Insurance Expense Account Dr 150
To Prepaid Insurance 150
(To charge insurance expense account for the month)
Sep 30 Cleaning supplies expense account dr 475
To cleaning supplies 475
(To charge cleaning supplies used to expense)
Note : Cleaning supplies - 850
Less: Invenory at hand 375
Supplies used 475
Sep 30 Unearned revenue Dr 1,000
To Car Cleaning Income 1,000
(To record revenue earned for the month)
Sep 30 Salaries Dr 400
To Accrued Salaries 400
(To accrue salaries incurrent yet unpaid during the month)
Sep 30 Interest expense Dr 100
To Accrued Interest 100
(To accrue interest @6% p.a on note payable)
Note: Note Payable - 20,000, Interest p.a = 20,000*6% = 1,200, interest per month = 1,200/12 = 100
Sep 30 Note Payable Dr 2,000
To Current portion of Note payable 2,000
(To re-classify current portion if note payable to current liabilities)
Reversal Entries: Accrual entries are reversed, if we know that the expense is paid for sure. In this case, Salaries and Interest were accrued. Salaries will be paid, however Interest is probably not paid until year end, hence reversing the salaries accrual. In case of Income, we should reverse the unbilled revenue
Accrued Salaries Dr 400
To Salaries 400
(To reverse salaries accrued in Sep)
Car cleaning income Dr 1,500
To Unbilled Revenue 1,500
(To reverse unbilled revenue)
Jerry's Mobile Car Wash Unadjusted Trial Balance as of Sep 30, 2017 Account Debit Credit Cash 6250 Accounts receivable 5400 Prepaid Insurance 1800 Truck 26400 Cleaning supplies 850 Salaries 1600 Automobile expenses 350 Personal property taxes 1600 Car cleaning income 6800 Accounts Payable 450 Unearned revenue 3000 Note Payable 20000 Capital 14000 44250 44250