University of West Indies Problem & Solution
Hamilton Company, which began operations on May 1, had the following transactions:
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|
- 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.
- 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
|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|
|30-May||Marc Nichols, drawing||CP||2,500.00||7,020.00|
|Name||Accounts receivable||A/C No.||120.00|
|Name||Prepaid insurance||A/C No.||130.00|
|Name||Office supplies||A/C No.||135.00|
|Name||Office equipment||A/C No.||140.00|
|1-May||Marc Nichols, capital||JV||12,000.00||–||12,000.00|
|26-May||CASH & ACCOUNTS PAYABLE||12,000.00||–||24,000.00|
|1-May||Marc Nichols, capital||JV||75,000.00||75,000.00|
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