Accounting cycle

Accounting Cycle Problem

On January 1, 2023, Mr. Wild formed a corporation to provide services to clients. Information about the first year of operation follows:

Jan. 1
Investors provided $1,000,000 in cash in exchange for stock of The Wild Corporation.

Jan. 1
Purchased equipment in exchange for $200,000 cash and a $1,000,000 note payable at an annual rate of 5%, payable every 6 months.

Jan. 1
Purchased $33,000 of insurance that will cover the next 3 years. This was recorded as prepaid insurance.

Feb. 1
Purchased $20,000 of office supplies on account that will be needed during the upcoming year.

Mar. 15
Paid Salaries of $30,000.

Mar. 31
Billed customers for services in the amount of $200,000.

Apr. 15
Paid the vendor who sold Wild the office supplies on Feb. 1.

Apr. 30
Collected $100,000 on accounts receivable.

June 15
Paid salaries of $50,000.

June 30
Paid $20,000 for employee travel costs.

June 30
Paid $10,000 for a company party.

June 30
Paid the interest due and $100,000 to reduce the balance of the note payable.

July 1
Billed customers for services provided in the amount of $200,000.

Aug 1
Collected $200,000 on accounts receivable.

Aug. 15
Purchased $15,000 of office supplies on account.

Sept. 15
Paid salaries of $40,000.

Sept. 30
Paid $20,000 for a customer appreciation event.

Sept. 30
Paid $30,000 for employee travel costs incurred by staff.

Dec. 1
Collected $50,000 as deposits from customers who contracted for 2024.

Dec. 31
Declared and paid a $20,000 dividend to shareholders.

The Wild Corporation uses the following accounts in it’s Chart of Accounts:

Cash

Accounts Receivable

Office Supplies

Prepaid Insurance

Equipment

Accumulated Depreciation

Accounts Payable

Interest Payable

Unearned Revenue

Notes Payable

Capital Stock

Retained Earnings

Dividends

Service Revenue

Salaries Expense

Meals & Entertainment Expense

Travel Expense

Insurance Expense

Office Supplies Expense

Interest Expense

Depreciation Expense

Income Summary

COMPLETE THE FOLLOWING:

(a)
Journalize the listed transactions.

(b)
Post the transactions to the appropriate general ledger accounts.

(c)
Prepare a trial balance as of December 31.

(d)
Journalize and post adjusting entries based on the following additional information.

There was $8,000 of Office Supplies on hand at year.
Purchased $25,000 of supplies on account.

The equipment had 20-year life, with $100,000 salvage value.

At year end, Wild Corp. had provided $85,000 of unbilled services to customers. These services will be billed in early 2023.
Declared and paid a $25,000 dividend to shareholders.

(e)
Prepare an adjusted trial balance as of December 31.

(f)
Prepare an income statement and Statement of Retained Earnings for this fiscal year, and a classified Balance Sheet as of December 31.

(g)
Journalize and post closing entries.

(h)
Prepare a post-closing trial balance as of December 31.

General Journal

GENERAL JOURNAL                                                                   Page 1

Date

Accounts

Debit

Credit

Jan. 1

Cash

1,000,000

Capital Stock

1,000,000

Investors provided $1,000,000 in cash in exchange for stock of The Wild Corporation.

Jan. 1

Equipment

1,200,000

Cash

200,000

Notes Payable

1,000,000

Purchased equipment in exchange for $200,000 cash and a $1,000,000 note payable at an annual rate of 5%, payable every 6 months.

Jan. 1

Prepaid Insurance

33,000

Cash

33,000

Purchased $33,000 of insurance that will cover the next 3 years. This was recorded as prepaid insurance.

Feb. 1

Office Supplies

20,000

Accounts Payable

20,000

Purchased $20,000 of office supplies on account that will be needed during the upcoming year.

Mar. 15

Salaries Expense

30,000

Cash

30,000

Paid Salaries of $30,000.

GENERAL JOURNAL                                                                   Page 2

Date

Accounts

Debit

Credit

Mar. 31

Accounts Receivable

200,000

Service Revenue

200,000

Billed customers for services in the amount of $200,000.

Apr. 15

Accounts Payable

20,000

Cash

20,000

Paid the vendor who sold Wild the office supplies on Feb. 1.

Apr. 30

Cash

100,000

Accounts Receivable

100,000

Collected $100,000 on accounts receivable.

June 15

Salaries Expense

50,000

Cash

50,000

Paid salaries of $50,000.

June 30

Travel Expense

20,000

Cash

20,000

Paid $20,000 for employee travel costs.

GENERAL JOURNAL                                                                   Page 3

Date

Accounts

Debit

Credit

June 30

Meals & Entertainment Expense

10,000

Cash

10,000

Paid $10,000 for a company party.

June 30

Notes Payable

100,000

Interest Expense

250,000

Cash

350,000

Paid the interest due and $100,000 to reduce the balance of the note payable.

July 1

Accounts Receivable

200,000

Service Revenue

200,000

Billed customers for services provided in the amount of $200,000.

Aug 1

Cash

200,000

Accounts Receivable

200,000

Collected $200,000 on accounts receivable.

Aug. 15

Office Supplies

15,000

Accounts Payable

15,000

Purchased $15,000 of office supplies on account.

GENERAL JOURNAL                                                                   Page 4

Date

Accounts

Debit

Credit

Sept. 15

Salaries Expense

40,000

Cash

40,000

Paid salaries of $40,000.

Sept. 30

Meals & Entertainment Expense

20,000

Cash

20,000

Paid $20,000 for a customer appreciation event.

Sept. 30

Travel Expense

30,000

Cash

30,000

Paid $30,000 for employee travel costs incurred by staff.

Dec. 1

Cash

50,000

Unearned Revenue

50,000

Collected $50,000 as deposits from customers who contracted for 2024.

Dec. 31

Dividends

20,000

Cash

20,000

Collected $50,000 as deposits from customers who contracted for 2024.

General Ledger

CASH

Date
Description
Debit
Credit
Balance

Jan. 1
Balance forward
–

–

Jan. 1
capital stock
1,000,000

1,000,000

Jan. 1
equipment

200,000
800,000

Jan. 1
prepaid insurance

33,000
767,000

Mar. 15
salaries expenses

30,000
737,000

Apr. 15
account payable

20,000
717,000

Apr. 30
account receivable
100,000

817,000

June 15
salaries expenses

50,000
767,000

June 30
travel expense

20,000
747,000

June 30
meal and entertainment

10,000
737,000

June 30
Note payable & interest expenses

350,000
387,000

Aug 1
account receivable
200,000

587,000

Sept. 15
salaries expenses

40,000
547,000

Sept. 30
meal and entertainment

20,000
527,000

Sept. 30
travel expense

30,000
497,000

Dec. 1
unearned revenue
50,000

547,000

Dec. 31
Dividends

20,000
527,000

ACCOUNTS RECEIVABLE

Date
Description
Debit
Credit
Balance

Jan. 1
Balance forward
–
–
–

Mar. 31
service revenue
200,000

200,000

Apr. 30
cash

100,000
100,000

July 1
service revenue
200,000

300,000

Aug 1
cash

200,000
100,000

100,000

OFFICE SUPPLIES

Date
Description
Debit
Credit
Balance

Jan. 1
Balance forward
–
–
–

Feb. 1
account payable
20,000

20,000

Aug. 15
account payable
15,000

35,000

35,000

PREPAID INSURANCE

Date
Description
Debit
Credit
Balance

Jan. 1
Balance forward
–
–
–

Jan. 1
cash
33,000

33,000

33,000

EQUIPMENT

Date
Description
Debit
Credit
Balance

Jan. 1
Balance forward
–
–
–

Jan. 1
cash & note payable
1,200,000

1,200,000

ACCUMULATED DEPRECIATION

Date
Description
Debit
Credit
Balance

Jan. 1
Balance forward
–
–
–

–

ACCOUNTS PAYABLE

Date
Description
Debit
Credit
Balance

Jan. 1
Balance forward
–
–
–

Feb. 1
office supplies

20,000
20,000

Apr. 15
cash
20,000

–

Aug. 15
office supplies

15,000
15,000

INTEREST PAYABLE

Date
Description
Debit
Credit
Balance

Jan. 1
Balance forward
–
–
–

–

UNEARNED REVENUE

Date
Description
Debit
Credit
Balance

Jan. 1
Balance forward
–
–
–

Dec. 1
cash

50,000
50,000

NOTES PAYABLE

Date
Description
Debit
Credit
Balance

Jan. 1
Balance forward
–
–
–

Jan. 1
equipment

1,000,000
1,000,000

June 30
cash
100,000

900,000

CAPITAL STOCK

Date
Description
Debit
Credit
Balance

Jan. 1
Balance forward
–
–
–

Jan. 1
cash

1,000,000
1,000,000

RETAINED EARNINGS

Date
Description
Debit
Credit
Balance

Jan. 1
Balance forward
–
–
–

–

–

DIVIDENDS

Date
Description
Debit
Credit
Balance

Dec. 31
cash
20,000

20,000

20,000

SERVICE REVENUE

Date
Description
Debit
Credit
Balance

Mar. 31
account receivable

200,000
200,000

July 1
account receivable

200,000
400,000

400,000

400,000

SALARIES EXPENSE

Date
Description
Debit
Credit
Balance

Mar. 15
cash
30,000

30,000

June 15
cash
50,000

80,000

Sept. 15
cash
40,000

120,000

120,000

MEALS & ENTERTAINMENT EXPENSE

Date
Description
Debit
Credit
Balance

June 30
cash
10,000

10,000

Sept. 30
cash
20,000

30,000

30,000

TRAVEL EXPENSE

Date
Description
Debit
Credit
Balance

June 30
cash
20,000

20,000

Sept. 30
cash
30,000

50,000

50,000

INSURANCE EXPENSE

Date
Description
Debit
Credit
Balance

–

–

OFFICE SUPPLIES EXPENSE

Date
Description
Debit
Credit
Balance

Feb. 1
account payable
20,000

20,000

Aug. 15
account payable
15,000

35,000

INTEREST EXPENSE

Date
Description
Debit
Credit
Balance

June 30
cash
250,000

250,000

250,000

250,000

DEPRECIATION EXPENSE

Date
Description
Debit
Credit
Balance

–

–

INCOME SUMMARY

Date
Description
Debit
Credit
Balance

–

–

–

Unadj Trial Balance

THE WILD CORPORATION

Unadjusted Trial Balance

December 31, 2020

Debits

Credits

Cash
$ 527,000

Accounts Receivable
100,000

Office Supplies
35,000

Prepaid Insurance
33,000

Equipment
1,200,000

Accounts Payable

15,000

Unearned Revenue

50,000

Notes Payable

900,000

Capital Stock

1,000,000

Dividends
20,000

Service Revenue

400,000

Salaries Expense
120,000

Meals & Entertainment Expense
80,000

Office Supplies Expense
35,000

Interest Expense
250,000

$ 2,400,000

$ 2,365,000

Adjusting Entries

GENERAL JOURNAL                                                                   Page 5

Date

Accounts

Debit

Credit

31-Dec

Office Supplies Expense

27,000

Office Supplies

27,000

(To supplies expensed)

31-Dec

Depreciation Expense

45,000

Accumulated Depreciation

45,000

(To record depreciation)

31-Dec

Unearned Revenue

85,000

Service Revenue

85,000

(To revenue recognized)

Adj Trial Balance

THE WILD CORPORATION

Adjusted Trial Balance

December 31, 2020

Debits

Credits

Cash
$ 527,000

Accounts Receivable
100,000

Office Supplies
6,000

Prepaid Insurance
33,000

Equipment
1,200,000

Accounts Payable

15,000

Unearned Revenue

35,000

Notes Payable

900,000

Capital Stock

1,000,000

Dividends
20,000

Service Revenue

490,000

Salaries Expense
120,000

Meals & Entertainment Expense
80,000

Office Supplies Expense
35,000

Interest Expense
250,000

Travel Expense
50,000

Accumulated Depreciation

$ 2,421,000

$ 2,440,000

Financial Statements

THE WILD CORPORATION

Income Statement

For the Year Ending December 31, 2020

Revenues

service revenue

$ 315,000

Expenses

travel expenses
$ 50,000

meal&entertainment
30,000

interest expenses
250,000

supplies expenses
35,000

depreciation expenses
–

–

–
365,000

Net income

$ (50,000)

THE WILD CORPORATION

Statement of Retained Earnings

For the Year Ending December 31, 2020

Beginning retained earnings

$ –

Plus: Net income

(50,000)

$ (50,000)

Less: Dividends

–

Ending retained earnings

$ (50,000)

THE WILD CORPORATION

Balance Sheet

December 31, 2020

Assets

Current assets

$ –

–

–
$ – 0

Non-current assets

–
– 0

Property, plant & equipment

$ –

–
–

Total assets

$ –

Liabilities

Current liabilities

$ –

–

–
$ –

Long-term liabilities

–

Total liabilities

$ –

Stockholders’ equity

$ –

(50,000)

Total stockholders’ equity

(50,000)

Total Liabilities and equity

$ (50,000)

Closing Entries

GENERAL JOURNAL                                                                   Page 6

Date

Accounts

Debit

Credit

Post-Closing Trial Balance

THE WILD CORPORATION

Post-Closing Trial Balance

December 31, 2020

Debits

Credits

$ –

$ –

$ –

$ –