Problem 1
Part A
The following transactions are from the records of Laflair Services Corp. during the month of January 19X1. The company started operations with $15,000 cash and $15,000 worth of common shares.
a. Purchased a truck for $15,000 cash
b. Collected cash for sales amounting to $12,000. Half of the sale value represented items yet to be delivered.
c. Paid $600 for a one-year insurance policy, effective January 1
d. Received two months of interest amounting to $150 (recorded as revenue)
e. Purchased $500 worth of supplies on account (recorded as an expense)
f. Received three months of commissions amounting to $900 (recorded as revenue)
g. Invested $5,000 temporarily idle cash in a term deposit (debited temporary investments)
h. Paid $5,000 for equipment
i. Received $900 for a three month sublet of some office space
j. Paid $300 worth of wages during the month
Required:
1. Open ledger accounts for the following: cash, temporary investments, prepaid insurance, equipment, truck, accounts payable, unearned sales, unearned commissions, unearned rent, supplies expense, wages expense, common stock.
2. Prepare journal entries to record the January transactions. Post the entries to the ledger accounts
Part B
At the end of the month, the following information is made available for the preparation of any required adjusting entries.
k. The truck purchased in transaction (a) on January 1 has a useful life of five years and an estimated salvage value of $1,500
l. The January portion of the insurance policy has expired
m. Half of the two months of interest has been earned
n. A physical count indicates $200 worth of supplies are still on hand
o. The January component of the commissions has been earned
p. An amount of $50 interest is accrued on the term deposit; this amount will be included with the interest payment to be received at the end of February
q. The equipment purchased in transaction (h) on January 1, is expected to have a useful life of four years with an estimated salvage value of $200
r. One-third of the three month sub-let has been earned
s. Three days of wages amounting to $150 remain unpaid; the amount will be included in the first Friday payment in February
Required:
3. Open additional ledger accounts for the following: supplies, accumulated depreciation-equipment, accumulated depreciation-truck, wages payable, depreciation expense-equipment, depreciation expense-truck, insurance expense, interest receivable, unearned interest, unearned rent, unearned commissions, unearned revenue and supplies.
4. Prepare all necessary adjusting entries. Post the entries to the ledger accounts
5. Prepare a trial balance, income statement and balance sheet as at January 31.