Question

Andy’s Autobody Shop has the following balances at the beginning of September: Cash, $9,800; Accounts Receivable, $1,300; Equipment, $44,900; Accounts Payable, $2,100; Common Stock, $20,000; and Retained Earnings, $33,900. Signed a long-term note and received a $123,800 loan from a local bank. Billed a customer $2,300 for repair services just completed. Payment is expected in 45 days. Wrote a check for $740 of rent for the current month. Received $360 cash on account from a customer for work done last month. The company incurred $350 in advertising costs for the current month and is planning to pay these costs next month. Required: Prepare journal entries for the above transactions, which occurred during a recent month. Prepare an income statement. Prepare a statement of retained earnings. Prepare a classified balance sheet.

Answer 1

Answer:

Andy's Autobody Shop

1. Journal Entries:

Debit Cash Account $123,800

Credit Long-term Note Payable $123,800

To record the receipt of bank loan.

Debit Accounts Receivable $2,300

Credit Service Revenue $2,300

To record repair services completed.

Debit Rent Expense $740

Credit Cash Account $740

To record rent expense for the month.

Debit Cash Account $360

Credit Accounts Receivable $360

To record cash received from a customer.

Debit Advertising Expense $350

Credit Advertising Payable $350

To record advertising expense for the month.

2. Income Statement:

Service Revenue               $2,300

Expenses:

Rent                     $740

Advertising            350        1,090

Net Income                           1,210

3. Statement of Retained Earnings:

Net Income                          $1,210

Retained Earnings,            33,900

Dividends                                0

Retained Earnings,           $35,110

4. Classified Balance Sheet:

Assets:

Cash                                $133,220

Accounts Receivable           3,240

Total current assets       $136,460

Equipment,                         44,900

Total assets                     $181,360

Accounts Payable,             $2,100

Advertising Payable               350

Total current liabilities      $2,450

Long-term Note               123,800

Total Liabilities              $126,250

Common Stock,                20,000

Retained Earnings,             35,110

Total Liabilities + Equity $181,360

Explanation:

a) Data:

Andy's Autobody Shop

Trial balance, September 1:

Accounts                   Debit         Credit

Cash,                          $9,800

Accounts Receivable, $1,300

Equipment,              $44,900

Accounts Payable,                    $2,100

Common Stock,                     $20,000

Retained Earnings,                $33,900

Total                       $56,000 $56,000

b) Cash Account

Description                  Debit       Credit

Balance                      $9,800

Long-term Note       123,800

Rent                                                $740

Accounts Receivable     360

Balance                                      133,220

c) Accounts Receivable

Description                  Debit       Credit

Balance                      $1,300

Service Revenue         2,300

Cash                                              $360

Balance                                         3,240