Online Accounting Course Simple Studies

Accounting Exercise 4.2 (Double-entry Accounting System)

The following transactions pertain to a recently started (in 20X8) Free Life Company that performs security services:

1)

Jan. 15

Began operations when the owners contributed $20,000

2)

Jan. 31

 Paid $2,400 cash for an insurance policy; the policy contract had a 2-year term

3)

Feb. 28

 Received $3,600 cash in advance for services to be performed within a year

4)

March 14

 Purchased supplies of $3,000 on account

5)

March 25

 Received $5,000 cash for services provided

6)

April 16

 Incurred $2,500 of utility expense on account

7)

May 31

 Invested $4,000 in a certificate of deposit that carried a 1-year term and 7% annual interest

8)

June 17

 Billed clients $3,500 for services performed

9)

June 30

 Acquired a car for $3,000 cash; expected useful life of the car is 2 years with no salvage value

10)

July 28

 Collected $3,000 cash from customers against accounts receivable

11)

Aug. 23

 Paid $3,500 cash for accounts payable (see Events 4 & 6)

12)

Sep. 5

 Distributed $1,500 to the owners

Adjusting entries

a1)

Dec. 31

 Recorded the insurance expense for the accounting period (see Event 2)

a2)

Dec. 31

 Adjusted records to recognize revenue on services provided from March to December (see Event 3)

a3)

Dec. 31

 Recorded the supplies expense; at the end of the accounting period $500 of supplies remained on hand (see Event 4)

a4)

Dec. 31

 Recorded the accrual interest on the certificate of deposit (see Event 7)

a5)

Dec. 31

 Recorded depreciation expense on the car used during the year (see Event 9)

a6)

Dec. 31

 Accrued $1,000 of salaries payable

Required:

1) Record transactions in the general journal;
2) Post transaction to appropriate T-accounts and calculate the account balances;
3) Prepare the balance sheet, income statement, statement of changes in equity, and statement of cash flows;
4) Prepare the closing entries at December 31and post them to the general journal.