lOMoARcPSD|12311488

NAME: ARLYN R. RAGUDOS

COURSE & YEAR: BSA1

Chapter 9: Accounting Cycle Of A

Service Business
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Chapter 9
Accounting Cycle of a Service
Business

PROBLEM 1: FOR CLASSROOM DISCUSSION

Solutions:

Requirement (a): Journal entries

(1) Cash 200,000

Owner’s equity 200,000
(2) Cash 300,000
Notes payable 300,000
(3) Equipment 360,000
Cash 360,000
(4) Office supplies/ Prepaid supplies 80,000
Cash 80,000
(5) Cash 180,000
Service fees 180,000
(6) Accounts receivable 420,000
Service fees 420,000
(7) Cash 370,000
Accounts receivable 370,000
(8) Utilities expense 16,000
Cash 16,000
(9) Salaries expense 140,000
Cash 140,000
(10) Owner’s drawings 100,000
Cash 100,000
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Requirement (b): Posting

ASSETS
Cash Accounts receivable
(1) (6) 420,000
200,000 (3) 370,000 (7)
(2)
300,000 360,000 (4)
(5)
(7) 180,000 80,000 (8)
370,000 16,000 (9)
140,000 (10)
100,000
Bal. 354,000 Bal. 50,000

Office supplies Equipment

(4) 80,000 (3) 360,000
Bal. 80,000 Bal. 360,000

LIABILITIES
Notes payable

300,000 (2)
300,000 Bal.
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EQUITY
Owner’s equity Owner’s drawings

200,000 (1) (10) 100,000

200,000 Bal. Bal. 100,000

INCOME EXPENSES
Service fees Utilities expense
180,000 (5)
420,000 (6) (8) 16,000
600,000 Bal. Bal. 16,000

Salaries expense

(9) 140,000
Bal. 140,000

Requirement (c): Unadjusted trial balance

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Requirement (d): Adjusting entries

AJE #1: Interest expense

Interest expense (300,000 x 12% x 3/12) 9,000
Interest payable 9,000

AJE #2: Depreciation expense

Depreciation expense [(360K ÷ 5) x 2/12] 12,000
Accumulated depreciation 12,000

AJE #3: Bad debt expense

Bad debt expense (50,000 x 6%) 3,000
Allowance for bad debts 3,000
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AJE #4: Supplies expense

Supplies expense (80,000 – 5,000 unused) 75,000
Office supplies/Prepaid supplies 75,000

Requirement (e): Worksheet

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Requirement (f): Closing entries

CLE #1
Service fees 600,000
Utilities expense 16,000
Salaries expense 140,000
Interest expense 9,000
Depreciation expense 12,000
Bad debts expense 3,000
Supplies expense 75,000
Income summary 345,000

CLE #2
Income summary 345,000
Owner’s equity 345,000

CLE #3
Owner’s equity 100,000
Owner’s drawings 100,000

Requirement (g): Balance sheet and Income statement

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Entity A
Balance Sheet
As of December 31, 20x1

ASSETS
Cash ₱354,000
Accounts receivable 50,000 Allowance for bad debts (3,000)
Office supplies 5,000
Equipment 360,000
Accumulated depreciation (12,000)
TOTAL ASSETS ₱754,000

LIABILITIES
Notes payable ₱300,000
Interest payable 9,000
TOTAL LIABILITIES 309,000

EQUITY
Owner's equity 445,000
TOTAL EQUITY 445,000
TOTAL LIABILITIES &
EQUITY ₱754,000
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Entity A
Income Statement
For the two months ended December 31, 20x1

INCOME
Service Fees ₱600,000

EXPENSES
Utilities expense (16,000)
Salaries expense (140,000)
Interest expense (9,000)
Depreciation expense (12,000)
Bad debt expense (3,000)
Supplies expense (75,000)
TOTAL EXPENSES (255,000)

PROFIT FOR THE PERIOD ₱345,000

PROBLEM 2: WORKSHEET

Solutions:

Requirement (a): Journal entries

(1) Cash 320,000

Owner’s equity 320,000
(2) Cash 200,000
Notes payable 200,000
(3) Equipment 240,000
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Cash 240,000
(4) Prepaid rent 108,000
Cash 108,000
(5) Cash 260,000
Service fees 260,000
(6) Utilities expense 15,000
Cash 15,000
(7) Owner’s drawings 50,000
Cash 50,000

Requirement (b): Posting

ASSETS
Cash Prepaid rent
(1) 320,000 (4) 108,000
(2) 200,000 240,000 (3)
(5) 260,000 108,000 (4)
15,000 (6)
50,000 (7)

Bal. 367,000 Bal. 108,000

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Equipment
(3) 240,000
Bal. 240,000

LIABILITIES
Notes payable

200,000 (2)
200,000 Bal.

EQUITY
Owner’s equity Owner’s drawings

320,000 (1) (7) 50,000

320,000 Bal. Bal. 50,000

INCOME EXPENSES
Service fees Utilities expense

260,000 (5) (6) 15,000

260,000 Bal. Bal. 15,000

Requirement (c): Unadjusted trial balance

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Requirement (d): Adjusting entries

AJE #1: Salaries expense

Salaries expense 8,000
Salaries payable 8,000

AJE #2: Interest expense

Interest expense (200,000 x 12% x 1/12) 2,000
Interest payable 2,000

AJE #3: Depreciation expense

Depreciation expense [(240K ÷ 4) x 1/12] 5,000
Accumulated depreciation 5,000
AJE #4: Rent expense
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Rent expense (108,000 x 1/6) 18,000

Prepaid rent 18,000

Requirement (e): Worksheet

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Requirement (f): Closing entries

CLE #1
Service fees 260,000
Utilities expense 15,000
Salaries expense 8,000
Interest expense 2,000
Depreciation expense 5,000
Rent expense 18,000
Income summary 212,000

CLE #2
Income summary 212,000
Owner’s equity 212,000

CLE #3
Owner’s equity 50,000
Owner’s drawings 50,000

Requirement (g): Balance sheet and Income statement

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Entity B
Balance Sheet
As of December 31, 20x1

ASSETS
Cash ₱367,000
Prepaid rent 90,000
Equipment 240,000
Accumulated depreciation (5,000)
TOTAL ASSETS ₱692,000

LIABILITIES
Notes payable ₱200,000
Salaries payable 8,000
Interest payable 2,000
TOTAL LIABILITIES 210,000

EQUITY
Owner's equity 482,000
TOTAL EQUITY 482,000
TOTAL LIABILITIES &
EQUITY ₱692,000
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Entity B
Income Statement
For the two months ended December 31, 20x1

INCOME
Service Fees ₱260,000

EXPENSES
Utilities expense (15,000)
Salaries expense (8,000)
Interest expense (2,000)
Depreciation expense (5,000)
Rent expense (18,000)
TOTAL EXPENSES (48,000)

PROFIT FOR THE PERIOD ₱212,000

PROBLEM 3: WORKSHEET

Solutions:

Requirement (a): Journal entries

(1) Cash 100,000

Owner’s equity 100,000
(2) Supplies expense 60,000
Cash 60,000
(3) Accounts receivable 400,000
Service fees 400,000
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(4) Cash 270,000

Accounts receivable 270,000
(5) Owner’s drawings 60,000
Cash 60,000
(6) Salaries expense 180,000
Cash 180,000

Requirement (b): Posting

ASSETS
Cash Accounts receivable
(1) 100,000 (3) 400,000
(4) 270,000 60,000 (2) 270,000 (4)
60,000 (5)
180,000 (6)
Bal. 70,000 Bal. 130,000

EQUITY
Owner’s equity

100,000 (1)
100,000 Bal.

Owner’s drawings

(5) 60,000
Bal. 60,000
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INCOME EXPENSES
Service fees Supplies expense

400,000 (3) (2) 60,000

400,000 Bal. Bal. 60,000

Salaries expense
(6) 180,000
Bal. 180,000

Requirement (c): Unadjusted trial balance

Requirement (d): Adjusting entries

AJE #1: Bad debts expense

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Bad debts expense 10,000

Allowance for bad debts 10,000

AJE #2: Supplies expense

Prepaid supplies (the unused) 20,000
Supplies expense 20,000

AJE #3: Salaries expense

Salaries expense 30,000
Salaries payable 30,000

Requirement (e): Worksheet

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Requirement (f): Closing entries

CLE #1
Service fees 400,000
Supplies expense 40,000
Salaries expense 210,000
Bad debts expense 10,000
Income summary 140,000

CLE #2
Income summary 140,000
Owner’s capital 140,000

CLE #3
Owner’s capital 60,000
Owner’s drawings 60,000

Requirement (g): Balance sheet and Income statement

Guitar Doc
Balance Sheet
As of December 31, 20x1

ASSETS
Cash ₱70,000
Accounts receivable 130,000
Allowance for bad debts (10,000)
Prepaid supplies 20,000
TOTAL ASSETS ₱210,000

LIABILITIES Salaries payable

30,000
TOTAL LIABILITIES 30,000

EQUITY
Owner's equity 180,000
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TOTAL EQUITY 180,000

TOTAL LIABILITIES &
EQUITY ₱210,000

Guitar Doc
Income Statement
For the year ended December 31, 20x1

INCOME
Service Fees ₱400,000

EXPENSES
Supplies expense (40,000)
Salaries expense (210,000)
Bad debts expense (10,000)
TOTAL EXPENSES (260,000)

PROFIT FOR THE PERIOD ₱140,000

PROBLEM 4: WORKSHEET

Solutions:

Requirement (a): Journal entries

(1) Cash 2,000,000

Owner’s equity 2,000,000
(2) Office equipment 800,000
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Cash 800,000
(3) Prepaid rent 720,000
Cash 720,000
(4) Accounts receivable 2,900,000
Service fees 2,900,000
(5) Supplies expense 190,000
Cash 190,000
(6) Utilities expense 260,000
Cash 260,000
(7) Salaries expense 1,900,000
Cash 1,900,000
(8) Cash 2,700,000
Accounts receivable 2,700,000

Requirement (b): Posting

ASSETS
Cash Accounts receivable
(1) 2,000,000 (4) 2,900,000
(8) 2,700,000 800,000 (2) 2,700,000 (8)
720,000 (3)
190,000 (5)
260,000 (6)
1,900,000 (7)
Bal. 830,000 Bal. 200,000

Prepaid rent Office equipment

(3) 720,000 (2) 800,000
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Bal. 720,000 Bal. 800,000

EQUITY
Owner’s equity

2,000,000 (1)
2,000,000 Bal.

INCOME EXPENSES
Service fees Supplies expense

2,900,000 (4) (5) 190,000

2,900,000 Bal. Bal. 190,000

Utilities expense
(6) 260,000
Bal. 260,000

Salaries expense
(7) 1,900,000

Bal. 1,900,000

Requirement (c): Unadjusted trial balance

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Requirement (d): Adjusting entries

AJE #1: Depreciation expense

Depreciation expense (800,000 ÷ 10) 80,000
Accumulated depreciation 80,000

AJE #2: Rent expense

Rent expense (720,000 x 1/2) 360,000
Prepaid rent 360,000

Requirement (e): Worksheet

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Requirement (f): Closing entries

CLE #1
Service fees 2,900,000
Supplies expense 190,000
Utilities expense 260,000
Salaries expense 1,900,000
Depreciation expense 80,000
Rent expense 360,000
Income summary 110,000

CLE #2
Income summary 110,000
Owner’s capital 110,000

Requirement (g): Balance sheet and Income statement

Entity C
Balance Sheet
As of December 31, 20x1

ASSETS
Cash ₱830,000
Accounts receivable 200,000 Prepaid rent 360,000
Office equipment 800,000
Accumulated depreciation (80,000)
TOTAL ASSETS ₱2,110,000

LIABILITIES -

EQUITY
Owner's equity 2,110,000
TOTAL EQUITY 2,110,000
TOTAL LIABILITIES &
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EQUITY ₱2,110,000

Entity C
Income Statement
For the year ended December 31, 20x1

INCOME
Service Fees
₱2,900,000

EXPENSES
Supplies expense (190,000)
Utilities expense (260,000)
Salaries expense (1,900,000)
Depreciation expense (80,000)
Rent expense (360,000)
TOTAL EXPENSES (2,790,000)

PROFIT FOR THE PERIOD ₱110,000

PROBLEM 5: MICROSOFT EXCEL

The solution is on the text.

PROBLEM 6: MULTIPLE CHOICE (REVERSING ENTRIES)

1. D
2. B
3. A
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4.
C 5. B
PROBL
EM 7:
WORK
SHEET
&
REVER
SING
ENTRI
ES

Solutions:

Requirement (a): Journal entries

(1) Cash 1,000,000

Owner’s equity 1,000,000
(2) Computer equipment 700,000
Cash 700,000
(3) Taxes and licenses 200,000
Cash 200,000
(4) Insurance expense 42,000
Cash 42,000
(5) Accounts receivable 3,200,000
Service fees 3,200,000
(6) Utilities expense 420,000
Cash 420,000
(7) Salaries expense 2,400,000
Cash 2,400,000
(8) Cash 2,900,000
Accounts receivable 2,900,000
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Requirement (b): Posting

ASSETS
Cash Accounts receivable
(1) 1,000,000 (5) 3,200,000
(8) 2,900,000 700,000 (2) 2,900,000 (8)
200,000 (3)
42,000 (4)
420,000 (6)
2,400,000 (7)
Bal. 138,000 Bal. 300,000

Computer equipment

(2) 700,000

Bal. 700,000

EQUITY
Owner’s equity

1,000,000 (1)
1,000,000 Bal.
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INCOME EXPENSES
Service fees Taxes & licenses

3,200,000 (5) (3) 200,000

3,200,000 Bal. Bal. 200,000

Insurance expense
(4) 42,000
Bal. 42,000

Utilities expense
(6) 420,000
Bal. 420,000

Salaries expense
(7) 2,400,000
Bal. 2,400,000

Requirement (c): Unadjusted trial balance

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Requirement (d): Adjusting entries

AJE #1: Depreciation expense

Depreciation expense [(700,000 ÷ 5) x 3/12] 35,000
Accumulated depreciation 35,000

AJE #2: Bad debt expense

Bad debt expense (300,000 x 10%) 30,000
Allowance for bad debts 30,000

AJE #3: Rent expense

Rent expense 120,000
Rent payable 120,000
AJE #4: Insurance expense
Prepaid insurance (42,000 x 9/12) 31,500
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Insurance expense 31,500

Requirement (e): Worksheet

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Requirement (f): Closing entries

CLE #1
Service fees 3,200,000
Income summary 15,500
Taxes and licenses 200,000
Insurance expense 10,500 Utilities expense 420,000
Salaries expense 2,400,000
Depreciation expense 35,000
Bad debt expense 30,000
Rent expense 120,000

CLE #2
Owner’s equity 15,500
Income summary 15,500
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Requirement (g): Balance sheet and Income statement

Wellness Massage
Balance Sheet
As of December 31, 20x1

ASSETS
Cash ₱138,000
Accounts receivable 300,000
Allowance for bad debts (30,000)
Prepaid insurance 31,500
Computer equipment 700,000 Accumulated depreciation
(35,000)
TOTAL ASSETS ₱1,104,500

LIABILITIES Rent payable 120,000 TOTAL

LIABILITIES 120,000

EQUITY
Owner's equity 984,500
TOTAL EQUITY 984,500
TOTAL LIABILITIES &
EQUITY ₱1,104,500
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Wellness Massage
Income Statement
For the three months ended December 31, 20x1

INCOME
Service Fees
₱3,200,000

EXPENSES
Taxes and licenses (200,000)
Insurance expense (10,500)
Utilities expense (420,000)
Salaries expense (2,400,000)
Depreciation expense (35,000)
Bad debt expense (30,000)
Rent expense (120,000)
TOTAL EXPENSES (3,215,500)

LOSS FOR THE PERIOD (₱15,500)

Requirement (h): Reversing entries

Rev.E #1: Rent expense (Accrual of expense)

Rent payable 120,000
Rent expense 120,000

Rev.E #2: Insurance expense (Expense method)

Insurance expense 31,500
Prepaid insurance 31,500
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PROBLEM 8: PRACTICE SET

Requirement (a): Analyzing and Recording

JOURNAL
Date Account titles Debit Credit
Dec. 1 Rent expense 100,000
Cash 100,000
to record the payment for the December 20x1 rent

Dec. 2 Cash 262,000

Service fees 262,000
to record the collection of service fees

Dec. 3 Office supplies expense 20,000

Cash 20,000
to record the purchase of office supplies

Dec. 12 Cash 60,000

Service fees 60,000
to record the collection of service fees

Dec. 15 Salaries expense 45,000

Cash 45,000
to record the salaries for the payroll period Dec. 1 to Dec. 15, 20x1

Dec. 17 Computer equipment 150,000

Cash 150,000
to record the acquisition of computer equipment
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Dec. 17 Utilities expense 15,000

Cash 15,000
to record the payment for utility bills for Nov. 15 to Dec. 15

Dec. 23 Cash 37,000

Service fees 37,000
to record the collection of service fees

Dec. 23 Salaries expense 75,000

Cash 75,000
th
to record payment for 13 month pay of employees

Dec. 28 Prepaid insurance 5,000

Cash 5,000
to record the payment for insurance covering the year 20x2

Dec. 30 Cash 350,000

Service fees 350,000
to record the collection of service fees

Dec. 30 Salaries expense 45,000

Cash 45,000
to record the salaries for the payroll period Dec. 15 to Dec. 31, 20x1

Requirement (b): Posting in the ledger

GENERAL LEDGER
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ASSETS
Cash Accounts receivable
396,000 -
BEG. BEG.
12/1
100,000
262,000 20,000
12/2 60,000 45,000 12/3 -
12/12 37,000 150,000 12/15 Bal.
12/23 350,000 15,000 12/17
75,000
12/30 12/17
5,000
12/23 45,000
12/28 650,000
12/30 Bal.

Prepaid insurance Computer equipment

BEG. -
12/28 5,000

Bal. 5,000

BEG. 1,400,000
Accum.
12/17 150,000
Depreciation
240,000 BEG.
Bal. 1,550,000

240,000

Bal.
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LIABILITIES
Loans payable
1,000,000
BEG.

1,000,000
Bal.

EQUITY
Owner’s equity
1,254,000 3,300,000
Owner’s drawings
BEG.

1,254,000 Bal. Bal. 3,300,000

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Utilities expense
BEG. 165,000
15,000
12/17 180,000
Bal.
Office supplies expense
BEG.
84,000
12/3
20,000
Bal.
104,000

Insurance expense

BEG.
5,000

Bal. 5,000
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Requirement (c): Unadjusted trial balance

RAK N' KOLL Co.

Worksheet
December 31, 20x1
ACCOUNTS Unadjusted trial balance
Dr. Cr.
Cash 650,000
Accounts receivable -
Prepaid insurance 5,000
Computer equipment 1,550,000
Accumulated depreciation 240,000
Loans payable 1,000,000
Owner’s equity 1,254,000
Owner’s drawings 3,300,000
Service fees 5,655,000
Salaries expense 1,155,000
Rent expense 1,200,000
Utilities expense 180,000
Office supplies expense 104,000
Insurance expense 5,000
Totals 8,149,000 8,149,000
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Requirement (d): Adjusting entries

JOURNAL
Date Account titles Debit Credit
Dec. 31 Accounts receivable 34,000
(i) Service fees 34,000
to accrue service fees rendered for Hedge Fund, Inc.

Dec. 31 Prepaid office supplies 9,000

(ii) Office supplies expense 9,000
to record the unused office supplies as prepaid asset

Dec. 31 Depreciation expense 126,250

(iii) Accumulated depreciation 126,250
to record the depreciation expense {[(150,000 /2) x 1/12] + 120,000}

Dec. 31 Interest expense 10,000

(iv) Interest payable 10,000
to accrue interest on the loan payable (1,000,000 x 12% x 1/12)

Dec. 31 Utilities expense 7,500

(v) Utilities payable 7,500
to accrue the cost of utilities used but not yet paid
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Requirement (e): Worksheet

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Requirement (f): Closing entries

JOURNAL
Date Account titles Debit Credit
Dec. 31 Service fees 5,689,000
(Cl. E) Salaries expense 1,155,000
Rent expense 1,200,000
Utilities expense 187,500
Office supplies expense 95,000
Insurance expense 5,000
Depreciation expense 126,250
Interest expense 10,000
Income summary 2,910,250
to close the nominal accounts to income summary

Dec. 31 Income summary 2,910,250

(Cl. E) Owner’s equity 2,910,250
to close the income summary to owner’s equity

Dec. 31 Owner’s equity 3,300,000

(Cl. E) Owner’s drawings 3,300,000
to close the owner’s drawings to owner’s equity
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Requirement (g): Balance sheet & Income statement

Rak N’ Koll Co.

Balance Sheet
As of December 31, 20x1

ASSETS
Cash ₱650,000
Accounts receivable 34,000
Prepaid insurance 5,000
Office supplies 9,000
Computer equipment 1,550,000 Accumulated depreciation
(366,250)
TOTAL ASSETS ₱1,881,750

LIABILITIES
Notes payable ₱1,000,000
Interest payable 10,000
Utilities payable 7,500
TOTAL LIABILITIES 1,017,500

EQUITY
Owner's equity 864,250
TOTAL EQUITY 864,250
TOTAL LIABILITIES &
EQUITY ₱1,881,750
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Rak N’ Koll Co.

Income Statement
For the year ended December 31, 20x1

INCOME
Service fees ₱5,689,000

EXPENSES
Salaries expense (1,155,000)
Rent expense (1,200,000)
Utilities expense (187,500)
Office supplies expense (95,000)
Insurance expense (5,000)
Depreciation expense (126,250)
Interest expense (10,000)
TOTAL EXPENSES (2,778,750)

PROFIT FOR THE PERIOD ₱2,910,250

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PROBLEM 9: MULTIPLE CHOICE

1. C 2.
C
3. C
4. B
5. A
6. C
7. D
8. A
9. C
10. A