Closing Entries and the Post-Closing Trial Balance: Accounting Cycle Review Problem A

This problem is designed to enable you to apply the knowledge you have acquired in the preceding courses. In accounting, the ultimate test is being able to handle data in real-life situations. This problem will give you valuable experience.

Chart of Accounts Assets

111 Cash

112 Accounts Receivable

114 Prepaid Insurance

121 Land

122 Building

123 Accumulated Depreciation, Building

124 Pool/Slide Facility

125 Accumulated Depreciation, Pool/Slide Facility

126 Pool Furniture

127 Accumulated Depreciation, Pool Furniture Liabilities

221 Accounts Payable

222 Wages Payable

223 Mortgage Payable Owner's Equity

311 L. Judar, Capital

312 L. Judar, Drawing

313 Income Summary Revenue

411 Income from Services

412 Concessions Income Expenses

511 Pool Maintenance Expense

512 Wages Expense

513 Advertising Expense

514 Utilities Expense

515 Interest Expense

517 Insurance Expense

518 Depreciation Expense, Building

519 Depreciation Expense, Pool/Slide Facility

520 Depreciation Expense, Pool Furniture

522 Miscellaneous Expense

You are to record transactions in a two-column general journal. Assume that the fiscal period is one month. You will then be able to complete all of the steps in the accounting cycle.

When you are analyzing the transactions, think them through by visualizing the T accounts or by writing them down on scratch paper. For unfamiliar types of transactions, specific instructions for recording them are included. However, reason them out for yourself as well. Check off each transaction as it is recorded.

July 1 Judar deposited $135,000 in a bank account for the purpose of buying Blast Off! The business is a recreation area offering three large waterslides (called tubes)one children's slide, an inner tube run, and a looping extreme slide.

2 Bought Blast Off! in its entirety for a total price of $540,800. The assets include pool furniture, $3,800; the pool/slide facility (includes filter system, pools, pump, and slides), $148,800; building, $96,200; and land, $292,000. Paid $120,000 down and signed a mortgage note for the remainder.

2 Received and paid the bill for a one-year premium for insurance, $12,240.

2 Bought 125 inner tubes from Worn Tires for $1,225, paying $500 down, with the remainder due in 20 days.

3 Signed a contract with a video game company to lease space for video games and to provide a food concession. The rental income agreed upon is 10 percent of the revenues generated from the machines and food, with the estimated monthly rental income paid in advance. Received cash payment for July, $250.

5 Received bills totaling $1,320 for the grand opening/Fourth of July party. The bill from Party Rentals for the promotional handouts, balloons, decorations, and prizes was $620, and the newspaper advertising bills from the City Star were $700. (These expenses should all be considered advertising expense.)

6 Signed a one-year contract for the pool maintenance with All-Around Maintenance and paid the maintenance fee for July of $1,600.

6 Paid cash for employee picnic food and beverages, $128. (Debit Miscellaneous Expense.)

7 Received $12,086 in cash as income for the use of the facilities.

9 Bought parts for the filter system on account from Arlen's Pool Supply, $646. (Debit Pool Maintenance Expense.)

14 Received $10,445 in cash as income for the use of the facilities.

15 Paid wages to employees for the period ended July 14, $9,460.

16 Paid cash as partial payment on account for promotional expenses recorded on July 5, $1,150.

16 Judar withdrew cash for personal use, $2,500.

17 Bought additional pool furniture from Pool Suppliers for $2,100; payment due in 30 days.

18 Paid cash to seamstress for alterations and repairs to the character costumes, $328. (Debit Miscellaneous Expense.)

21 Received $10,330 in cash as income for the use of the facilities.

21 Paid cash to Worn Tires as partial payment on account, $600.

23 Received a $225 reduction of our account from Pool Suppliers for lawn chairs received in damaged condition. 2

5 Received and paid telephone bill, $292.

29 Paid wages for the period July 15 through 28 of $8,227.

31 Received $11,870 in cash as income for the use of the facilities.

31 Paid cash to Arlen's Pool Supply to apply on account, $360.

31 Received and paid water bill, $684.

31 Paid cash as an installment payment on the mortgage, $3,890. Of this amount, $1,910 represents a reduction in the principal and the remainder is interest.

31 Received and paid electric bill, $942.

31 Bought additional inner tubes from Worn Tires for $480, paying $100 down, with the remainder due in 30 days.

31 Judar withdrew cash for personal use, $3,200.

31 Sales for the video and food concessions amounted to $4,840, and 10 percent of $4,840 equals $484. Because you have already recorded $250 as concessions income, record the additional $234 revenue due from the concessionaire. (Cash was not received.)

Required

1. Journalize the transactions, starting on page 1 of the general journal.

2. Post the transactions to the ledger accounts.

3. Prepare a trial balance in the first two columns of the work sheet.

4. Complete the work sheet. Data for the adjustments are as follows:

a. Insurance expired during the month, $1,020.

b. Depreciation of building for the month, $480.

c. Depreciation of pool/slide facility for the month, $675.

d. Depreciation of pool furniture for the month, $220.

e. Wages accrued at July 31, $920.

5. Journalize adjusting entries.

6. Post adjusting entries to the ledger accounts.

7. Prepare the income statement.

8. Prepare the statement of owner's equity.

9. Prepare the balance sheet.

10. Journalize closing entries.

11. Post closing entries to the ledger accounts.

12. Prepare a post-closing trial balance.

Check Figure

Trial balance total, $601,941; net income, $16,293; post-closing trial balance total, $569,614