chap 2 accounting cycle

Exercise: ACCOUNTING CYCLE

On July 1, 20*7, Craig Miller started the Miller Auto Customizing Service, a firm that will rebuild cars and vans to give them custom features. The transactions that took place during July are shown below.

July 1 Craig Miller began the business with a cash investment of $27,000.

1 Signed a lease for facilities. Issued Check 1001 for $4,800 to pay the rent in advance for six months, as specified in the lease.

1 Purchased equipment for $3,500. Issued Check 1002 to pay for it immediately. 1 Signed a one-year advertising contract with the local newspaper. Issued Check 1003 for $1,920 to pay the full amount in advance.

4 Purchased supplies for $1,450. Paid for them with Check 1004.

6 Purchased additional equipment for $4,100 from the Lane Company. Received Invoice 5723, payable in 30 days.

15 Isuued Checks 1005 and 1006 for $1,200 to pay the semimonthly salaries of the employees.

22 Sent Check 1007 for $75 to pay the monthly telephone bill.

31 Performed services for $2,400 in cash and $3,855 on credit during July.

31: Received the monthly utility bill, which totaled $160. Paid it with Check 1008. 31 Isuued Checks 1009 and 1010 for $1,200 to pay the semimonthly salaries of the employees.

INSTRUCTIONS:

1. Open the general ledger accounts.

2. Record the July transactions in the general journal.

3. Post the journal entries to the general ledger accounts. (cash, prepaid rent, equipment)

4. Prepare a trial balance.

5. Prepare the adjusting entries in the general journal and post to related ledgers. Adjustments:

a) Compute and record the adjustments for supplies used. A count made on July 31 showed that supplies costing $700 were on hand.

b) Compute and record the adjustments for expired rent.

c) Compute and record the adjustments for expired advertising.

d) Compute and record the adjustments for depreciation on the equipments. The accountant estimated that the equipment will have a useful life of five years and a total salvage value of the two equipments will be $1,000. (In order to compute the total amount of depreciation for the five-year period, subtract the salvage value from the original cost. Take a full month of depreciation for July.)

6. Prepare an statement of profit or loss for the month ended July 31, 20*7.

7. Prepare a statement of financial position as of July 31, 20*7. (using the vertical format)

8. Record closing entries in the general journal and post to ledger accounts.