Comprehensive Problem
Hamilton Company, which began operations on May 1, had the following transactions:
May 1
1
4
11
15
21
24
25
26
29 30 31
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.
Paid $240 for a four-month insurance policy
Received $660 from a client to render services over the next four weeks. Paid $400 for various computer runs.
Billed clients for services rendered, $6,800.
Received $5,200 from clients on account.
Borrowed $7,000 from the bank.
Received the May electric bill of $100 to be paid on June 4.
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. Paid wages of the office staff, $4,700.
Processed a $2,500 cash withdrawal for the owner.
Recorded $1,000 of miscellaneous expenses that were incurred in May but will be paid during June.
Hamilton’s chart of accounts follows.
| Cash | 110 | Unearned service revenue | 250 |
| Accounts receivable | 120 | Loan payable | 260 |
| Prepaid insurance | 130 | Marc Nichols, capital | 310 |
| Office supplies | 135 | Marc Nichols, drawing | 320 |
| Office equipment | 140 | Income summary | 330 |
| Accumulated depreciation: Office equipment | 141 | Service revenue | 410 |
| Building | 150 | Computer service expense | 510 |
| Accumulated depreciation: Building | 151 | Wage expense | 520 |
| Accounts payable | 210 | Insurance expense | 530 |
| Wages payable | 220 | Office supplies expense | 540 |
| Interest payable | 230 | Depreciation expense | 550 |
| Utilities payable | 240 | Utilities expense | 560 |
| Interest expense | 570 | ||
| Miscellaneous expense | 580 |
Additional information:
- As of May 31, accrued interest on the loan amounted to $40, while accrued wages totaled $300.
- Since the last billing to clients on May 15, the firm had rendered $2,480 of services.
- Hamilton has earned three weeks of revenue from the prepayment on May 4.
- Office supplies on hand at month-end amounted to $200.
- Hamilton must pay $1,000 of the bank loan within the next year.
Instructions
- Record the transactions of May in the general journal.
- Post the journal entries to the proper ledger accounts.
- Complete a work sheet for the month ended May 31. Be certain to analyze all data presented to correctly determine Hamilton’s adjustments.
- Prepare an income statement, a statement of owner’s equity, and a classified balance sheet in good form.
- Record Hamilton’s adjusting entries in the journal and post to the proper ledger accounts.
- Record Hamilton’s closing in the journal and post to the proper ledger accounts.
- Prepare a port-closing trial balance.
SOLUTION TO THE PROBLEM
| Name | Cash | A/C No. | 110.00 | ||
| Date | Description | Post Ref. | Debit | Credit | Balance |
| 20X1 | |||||
| 1-May | Opening Balance | – | – | ||
| 1-May | Marc Nichols, capital | CR | 9,000.00 | 9,000.00 | |
| 1-May | Insurance Cash payment Journal | CP | 240.00 | 8,760.00 | |
| 4-May | Unearned service revenue | CR | 660.00 | 9,420.00 | |
| 11-May | Computer service expense | CP | 400.00 | 9,020.00 | |
| 21-May | Accounts receivable | CR | 5,200.00 | 14,220.00 | |
| 24-May | Loan payable | CR | 7,000.00 | 21,220.00 | |
| 26-May | office equipment | CP | 7,000.00 | 14,220.00 | |
| 29-May | Wage expense | CP | 4,700.00 | 9,520.00 | |
| 30-May | Marc Nichols, drawing | CP | 2,500.00 | 7,020.00 | |
| 31-May | Closing Balance | 7,020.00 | |||
| Name | Accounts receivable | A/C No. | 120.00 | ||
| Date | Description | Post Ref. | Debit | Credit | Balance |
| 20X1 | |||||
| 1-May | Opening Balance | – | – | ||
| 15-May | Accounts receivable | JV | 6,800.00 | 6,800.00 | |
| 21-May | Accounts receivable | JV | 5,200.00 | 1,600.00 | |
| 24-May | Service revenue | JV | 2,480.00 | 4,080.00 | |
| 31-May | Closing Balance | 4,080.00 | |||
| Name | Prepaid insurance | A/C No. | 130.00 | ||
| Date | Description | Post Ref. | Debit | Credit | Balance |
| 20X1 | |||||
| 1-May | Opening Balance | – | – | ||
| 1-May | CASH | CP | 180.00 | 180.00 | |
| 31-May | Closing Balance | 180.00 | |||
| Name | Office supplies | A/C No. | 135.00 | ||
| Date | Description | Post Ref. | Debit | Credit | Balance |
| 20X1 | |||||
| 1-May | Opening Balance | – | – | ||
| – | |||||
| – | |||||
| 31-May | Closing Balance | – | |||
| Name | Office equipment | A/C No. | 140.00 | ||
| Date | Description | Post Ref. | Debit | Credit | Balance |
| 20X1 | |||||
| 1-May | Opening Balance | – | – | ||
| 1-May | Marc Nichols, capital | JV | 12,000.00 | – | 12,000.00 |
| 26-May | CASH & ACCOUNTS PAYABLE | 12,000.00 | – | 24,000.00 | |
| 31-May | Closing Balance | 24,000.00 | |||
| Name | Accumulated depreciation: Office equipment | A/C No. | 141.00 | ||
| Date | Description | Post Ref. | Debit | Credit | Balance |
| 20X1 | |||||
| 1-May | Opening Balance | – | – | ||
| 31-May | Depreciation expense | JV | 200.00 | (200.00) | |
| 31-May | Closing Balance | – | (200.00) | ||
| Name | Building | A/C No. | 150.00 | ||
| Date | Description | Post Ref. | Debit | Credit | Balance |
| 20X1 | |||||
| 1-May | Opening Balance | – | – | ||
| 1-May | Marc Nichols, capital | JV | 75,000.00 | 75,000.00 | |
| 30-Sep | Closing Balance | 75,000.00 | |||
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