Exercise 01

On April 1, 2020 Julie Spengel established Spengel’s Travel Agency. The trial balances of Spengel’s
Travel Agency are given below for the month ended April 30, 2020.

Spengel’s Travel Agency

Trial Balance
April 30, 2020
No Name of Account Ref Debit Credit
1 Cash $15900
2 Owners’ Equity $15000
3 Office rent 600
4 Equipment 3000
5 Advertising Expense 700
6 Account payable 200
7 Office Supplies 900
8 Account Receivable 3000
9 Service Revenue 10000
10 Drawing 600
11 Salary Expense 2500
12 Unearned Service Revenue 4000
13 Prepaid Insurance 2000
Total $29200 $29200

Other data:
1. $600 of office supplies have been used during the month.
2. Utilities expense incurred but not paid on April 30, 2020, $250.
3. The insurance policy is for 2 years.
4. $500 of the balance in the unearned service revenue account remains unearned at the end of the month.
5. The equipment has one year life with no salvage value. It is being depreciated at $250 per month for 60
months.
6. Invoices representing $1,700 of services performed during the month have not been recorded as of
April 30

Instructions
a. Prepare the adjusting entries for the month of May. Use J4 as the page number for your journal.
b. Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as
beginning account balances and place a check mark in the posting reference column.
c. Prepare an adjusted trial balance at April 30, 2020.
d. Prepare an income statement
e. Prepare an owner’s equity statement
f. Prepare a balance sheet
Solution: a)

Adjusting Journal
Date Explanation Re Debit Credit
f
1 Office Supplies expenses 600
Office Supplies 600
2 Utilities Expense 250
Utilities Payable 250
3 Insurance Expenses 85
Prepaid Insurance 85
4 Unearned Service Revenue 3500
Service Revenue 3500
5 Depreciation expenses 250
Accumulated Depreciation-Equipment 250
6 Account Receivable 1700
Service revenue 1700
b) Ledger
Office Supplies Expenses
Date Explanation Ref Debit Credit Balance
Supplies 600 600

Office Supplies
Date Explanation Ref Debit Credit Balance
Balance B/D 900
Office Supplies Expense 600 300

Utilities Expenses
Date Explanation Ref Debit Credit Balance
Utilities Payable 250 250

Utilities Payable
Date Explanation Ref Debit Credit Balance
Utilities expenses 250 250

Insurance expense
Date Explanation Ref Debit Credit Balance
Prepaid Insurance 85 85

Prepaid Insurance
Date Explanation Ref Debit Credit Balance
Balance B/D 2000
Insurance expense 85 1915

Unearned Service revenue

Date Explanation Ref Debit Credit Balance
Balance B/D 4000
Service revenue 3500 500
 Service revenue
Date Explanation Ref Debit Credit Balance
Balance B/D 10000
Unearned Service revenue 3500 13500
Account Receivable 1700 15200

Depreciation Expense
Date Explanation Ref Debit Credit Balance
Accumulated Depreciation 250 250

Accumulated Depreciation-Equipment
Date Explanation Ref Debit Credit Balance
Depreciation expenses 250 250

Account Receivable
Date Explanation Ref Debit Credit Balance
Balance B/D 3000
Service revenue 1700 4700

c) Adjusted Trial Balance

Spengel’s Travel Agency
Adjusted Trial Balance
April 30, 2020
No Name of Account Ref Debit Credit
1 Cash $15900
2 Owners’ Equity $15000
3 Office rent 600
4 Equipment 3000
5 Advertising Expense 700
6 Account payable 200
7 Office Supplies 300
8 Account Receivable 4700
9 Service Revenue 15200
10 Drawing 600
11 Salary Expense 2500
12 Unearned Service Revenue 500
13 Prepaid Insurance 1915
14 Office supplies expense 600
15 Utilities expense 250
16 Utilities payable 250
17 Insurance expenses 85
18 Depreciation expense 250
19 Accumulated Depreciation-Equipment 250
 Total $31400 $31400

d) Income Statement

Spengel’s Travel Agency

Income Statement
April 30, 2020
Explanation Amount
Revenue:
Service Revenue 15200
Less: Expenses
Office Rent expenses 600
Advertising Expenses 700
Salary expenses 2500
Office supplies expenses 600
Utilities expenses 250
Insurance Expenses 85
Depreciation expenses 250 4985

Net Income 10215

e) Owner’s Equity Statement

Spengel’s Travel Agency

Owner’s Equity Statement
April 30, 2020
Explanation Amount
Owner’s capital 15000
Add: Net Income 10215
25215
Less: Drawing 600
24615

f) Balance Sheet

Spengel’s Travel Agency

Balance Sheet
As at on April 30, 2020

Assets Amount
Cash 15900
Equipment 3000
Less: Accumulated Depreciation 250 2750
Office Supplies 300
Account Receivable 4700
Prepaid Insurance 1915
Total 25565
Liabilities and Owner’s Equity
Account Payable 200
Unearned Service Revenue 500
Utilities Payable 250
Owner’s equity 24615
Total 25565