Question

On October 1, 20Y6, Jay Crowley established Affordable Realty, which completed the following transactions during the month: Oct. 1 Jay Crowley transferred cash from a personal bank account to an account to be used for the business in exchange for common stock, $40,000. 2 Paid rent on office and equipment for the month, $4,800. 3 Purchased supplies on account, $2,150. 4 Paid creditor on account, $1,100. 5 Earned sales commissions, receiving cash, $18,750. 6 Paid automobile expenses (including rental charge) for month, $1,580, and miscellaneous expenses, $800. 7 Paid office salaries, $3,500. 8 Determined that the cost of supplies used was $1,300. 9 Paid dividends, $1,500. 1. Journalize entries for transactions Oct. 1 through 9. Refer to the Chart of Accounts for exact wording of account titles. 2. Post the journal entries to the T accounts, selecting the appropriate date to the left of each amount to identify the transactions. Determine the account balances, after all posting is complete. Accounts containing only a single entry do not need a balance. 3. Prepare an unadjusted trial balance as of October 31, 20Y6. 4. Determine the following: a. Amount of total revenue recorded in the ledger. b. Amount of total expenses recorded in the ledger. c. Amount of net income for October. 5. Determine the increase or decrease in retained earnings for October.

Answer 1

Answer and Explanation:

1. According to the scenario, the journal entries are shown below:

Journal Entry

October 1 Cash A/c    Dr. $40,000

               To Common stock A/c    $40,000

(Being the exchange for the common stock is recorded)

October 2 Rent expenses A/c   Dr. $4,800

                     To Cash A/c     $4,800

(Being the paid rent on office and equipment is recorded)

October 3 Supplies A/c    Dr. $2,150

                    To Accounts payable A/c    $2,150

(Being the purchase of supplies is recorded)

October 4 Accounts payable A/c  Dr. $1,100

                     To Cash A/c     $1,100

(Being the cash paid is recorded)

October 5 Cash A/c   Dr. $18,750

                  To Sales commission A/c   $18,750

(Being the earned sales commission is recorded)

October 6 Automobile expense A/c  Dr. $1,580

     Miscellaneous expense A/c  Dr. $800

                 To Cash A/c     $2,380

(Being the automobile and miscellaneous expenses paid is recorded)

October 7 Office salaries expense A/c  Dr. $3,500

                   To Cash A/c     $3,500

(Being the office salaries paid is recorded)

October 8 Supplies expense A/c  Dr. $1,300

                        To Supplies A/c     $1,300

(Being the cost of supplies is recorded)

October 9 Dividend A/c    Dr. $1,500

                        To Cash A/c     $1,500

(Being the dividend paid is recorded)

2. Now the posting of various accounts are as follows

T Accounts

                                           Cash A/c

Particular  Amount ($) Particular             Amount ($)  

Common stock 40,000 Rent expenses        4,800

Sales commission 18,750 Account payable          1,100

                                Automobile expense  1,580

                                Miscellaneous expense   800

                                Office salaries expense    3,500

                                Dividend expense             1,500

                                          Supplies Account

Particular  Amount ($) Particular              Amount ($)

Accounts payable 2,150 Supplies expenses 1,300

                                         Accounts Payable

Particular  Amount ($) Particular  Amount ($)

Cash            1,100           Supplies  2,150

                                                  Common Stock  

Particular  Amount ($) Particular  Amount ($)

                                    Cash          40,000

                                                  Dividends  

Particular  Amount ($) Particular  Amount ($)

Cash         1,500  

                                             Sales Commission

Particular  Amount ($) Particular  Amount ($)

                                    Cash           18,750

                                             Rent expense

Particular  Amount ($) Particular  Amount ($)

Cash           4,800    

                                Office Salaries expense

Particular  Amount ($) Particular  Amount ($)

Cash          3,500  

                                    Supplies Expenses

Particular  Amount ($) Particular  Amount ($)

Supplies   1,300  

                                    Automobile Expense

Particular  Amount ($) Particular  Amount ($)

Cash           1,580  

                                      Miscellaneous expense

Particular  Amount ($) Particular  Amount ($)

Cash          800  

3. Now unadjusted trail balance is presented below:

                               Unadjusted Trial Balance

Particular  Debit Amount ($) Particular         Credit Amount ($)

Cash            45,470                  Accounts payable 1,050

Supplies     850                   Common stock 40,000

Dividends     1,500                   Sales Commission 18,750

Rent expense   4,800  

Office salaries expense 3,500  

Automobile expense 1,580  

Supplies expense 1,300  

Miscellaneous expense 800  

Total                   59,800                Total                      59,800

4

a).Amount of total revenue recorded in the ledger

Sales commissions = $18,750

b). Amount of total expenses recorded in the ledger  

Particular                       Amount ($)

Rent expense                           4,800

Office salaries expense 3,500

Automobile expense          1,580

Supplies expense                  1,300

Miscellaneous expense 800

Amount of total expenses

recorded in the ledger           11,980

c).Amount of Net income for October is

= Total Revenue - Total Expenses

= $18,750 - $11,980

= $6,770

d) Increase or decrease in retained earnings for October is

= Net Income - Dividends

= $6,770 - $1,500

= $5,270  

All assets, expenses and dividend contains normal debit balance while the liabilities, revenues, and the stockholder equity contains normal credit balance