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Comprehensive Problem

Comprehensive Problem
Hamilton Company, which began operations on May 1, had the following transactions:

May 1 Marc Nichols, the owner, invested $9,000 cash, $12,000 of office equipment, and a building valued at $75,000 in the business. The office equipment has a service life of 5 years and the building has a service life of 25 years.
May 1 Paid $240 for a four-month insurance policy

May 4 Received $660 from a client to render services over the next four weeks.

May 11Paid $400 for various computer runs.
May 15 – Billed clients for services rendered, $6,800.
May 21 – Received $5,200 from clients on account.

May 24 – Borrowed $7,000 from the bank.
May 25 – Received the May electric bill of $100 to be paid on June 4.
May 26 – Purchased $12,000 of new office equipment; paid $7,000 down and agreed to pay the balance in June. This office equipment will not be depreciated until June.

May 29 – Paid wages of the office staff, $4,700.
May 30 – Processed a $2,500 cash withdrawal for the owner.
May 31 – Recorded $1,000 of miscellaneous expenses that were incurred in May but will be paid during June.

Hamilton’s chart of accounts follows.

Cash110Unearned service revenue250
Accounts receivable120Loan payable260
Prepaid insurance130Marc Nichols, capital310
Office supplies135Marc Nichols, drawing320
Office equipment140Income summary330
Accumulated depreciation: Office equipment141Service revenue410
Building150Computer service expense510
Accumulated depreciation: Building151Wage expense520
Accounts payable210Insurance expense530
Wages payable220Office supplies expense540
Interest payable230Depreciation expense550
Utilities payable240Utilities expense560
Interest expense570
Miscellaneous expense580

Additional information:

  1. As of May 31, accrued interest on the loan amounted to $40, while accrued wages totaled $300.
  2. Since the last billing to clients on May 15, the firm had rendered $2,480 of services.
  3. Hamilton has earned three weeks of revenue from the prepayment on May 4.
  4. Office supplies on hand at month-end amounted to $200.
  5. Hamilton must pay $1,000 of the bank loan within the next year.

Instructions

  1. Record the transactions of May in the general journal.
  2. Post the journal entries to the proper ledger accounts.
  3. Complete a work sheet for the month ended May 31. Be certain to analyze all data presented to correctly determine Hamilton’s adjustments.
  4. Prepare an income statement, a statement of owner’s equity, and a classified balance sheet in good form.
  5. Record Hamilton’s adjusting entries in the journal and post to the proper ledger accounts.
  6. Record Hamilton’s closing in the journal and post to the proper ledger accounts.
  7. Prepare a port-closing trial balance.

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