Answer:
Dynamite Fireworks
a) Journal Entries:
January 2:
Debit Rent Prepaid with $6,900
Credit Cash with $6,900
To record rent prepaid at $575/month.
January 9:
Debit Supplies Account with $3,800
Credit Accounts Payable with $3,800
To record purchase of supplies on account.
January 13:
Debit Accounts Receivable with $25,800
Credit Service Revenue with $25,800
To record services provided to customers on account.
January 17:
Debit Cash Account with $4,000
Credit Deferred Service Revenue with $4,000
To record cash received in advance from customers.
January 20:
Debit Salaries Account with $11,800
Credit Cash Account with $11,800
To record payment of salaries for the month.
January 22:
Debit Cash Account with $24,400
Credit Accounts Receivable with $24,400
To record receipt from customers on account.
January 29:
Debit Accounts Payable with $4,300
Credit Cash Account with $4,300
To record payment to suppliers on account.
b) Effect of the transactions on the account balances in the General Ledger:
1. Cash Account:
Jan. 1: Debit balance = $24,100
Jan. 2: Rent = ($6,900)
Jan. 17: Deferred Service Revenue = $4,000
Jan. 20: Salaries = ($11,800)
Jan. 22: Accounts Receivable = $24,400
Jan. 29: Accounts Payable = ($4,300)
Jan. 31: Balance = $29,500
2. Accounts Receivable
Jan. 1: Debit Balance = $5,500
Jan. 13: Service Revenue - $25,800
Jan. 22: Cash = ($24,400)
Jan. 31: Debit Balance = $6,900
3. Supplies
Jan. 1: Debit Balance = $3,400
Jan. 9: Accounts Payable = $3,800
Jan. 31: Total = $7,200
Adjustment:
Jan. 31: Cost of Service = $3,700 (3,400 + 3,800 - 3,500)
Jan. 31: Debit Balance = $3,500
4. Land
Jan. 1: Debit Balance = $53,000
5. Accounts Payable
Jan. 1: Credit Balance = $3,500
Jan. 9: Supplies = $3,800
Jan. 29: Cash = ($4,300)
Jan. 31: Credit Balance = $3,000
6. Common Stock
Jan. 1: Credit Balance = $68,000
7. Retained Earnings
Jan. 1: Credit Balance = $14,500
8. Rent Prepaid
Jan. 2: Cash = $6,900
Adjustment
Jan. 31: Rent = $575
Jan. 31: Debit Balance = $6,325 (6,900 - 575)
9. Service Revenue
Jan. 13: Accounts Receivable = $25,800
Adjustment:
Jan. 31: Deferred Revenue = $3,725
Total = $29,525
10. Deferred Service Revenue
Jan. 17: Cash = $4,000
Adjustment:
Jan. 31: Service Revenue = $3,725
Jan. 31 Balance = $275
11. Salaries
Jan. 20: Cash = $11,800
c) Effect of Transactions on the Trial Balance
Accounts Debit:
Cash $29,500
Accounts Receivable 6,900
Supplies 7,200
Land 53,000
Rent Repaid 6,900
Salaries 11,800
Total $115,300
Accounts Credit:
Accounts Payable $3,000
Common Stock 68,000
Retained Earnings 14,500
Service Revenue 25,800
Deferred Service Revenue 4,000
Total $115,300
d) Adjusting entries in the general journal:
i) Debit Rent with $575
Credit Rent Prepaid with $575
To record rent for the month.
ii) Debit Cost of Supplied used with $3,700
Credit Supplies with $3,700
To record cost of Supplies used and bring the balance to $3,500.
iii) Debit Deferred Service Revenue with $3,725
Credit Service Revenue with $3,725
To record services provided to customers.
Step-by-step explanation:
1. Recording transactions in the general journal involves debiting the account that receives value and crediting the account that supplies value.
2. A review of the general ledger and the trial balance tabs showed the effects of the transactions on the account balances and the new accounts created with the new transactions.
3. Adjusting entries for:
a) Rent: This accrued the rent for the month of January. The amount reduced the Rent Prepaid account.
b) Supplies: The cost of supplies used was determined as the difference between the sum of opening supplies and purchases less the closing supplies. The cost of supplies reduces the Supplies account to the closing balance of $3,500.
c) Deferred Revenue was reduced by the amount of services already provided. This is in accordance with the accrual concept and matching principles of Generally Accepted Accounting Principles.