Part I Booking Transactions using Journal Entries

The Topanga Company sells services to its customers. At the beginning of 2006, the company had the following balances in its financial accounting records:

DEBIT CREDIT

Cash $16,000

Accounts Receivable $1,600

Supplies $2,200

Equipment $4,800

Loan Payable $2,000

Common Stock $19,800

Retained Earnings $2,800

Notes Payable represents money borrowed a long time ago. The company pays interest (in cash) every December 31 at a rate of 6%.

Equipment was purchased at the very end of 2005 and is expected to be used up over the next 4 years.

For each of the transactions below, write journal entries in a manner that makes it CLEAR which accounts are debited and which are credited. Failure to do this will be rewarded with NO credit.

Transaction 1: On April 1, the company pays 2 years of rent in advance with $9,600 cash.

Transaction 2: On April 11, the company buys more supplies for $3,000 but doesnt pay it.

Transaction 3: On May 1, the company finds someone willing to buy $14,000 of services. The customer can only pay $9,000 immediately. The customer is known to have excellent credit scores.

Transaction 4: On June 13, a customer pays the company $3,000 in cash for services that will not be delivered to the customer until a later time.

Transaction 5: On August 26, the company collects $4,000 from customers with good credit ratings who have already received services from the company.

Transaction 6: On December 15, the company gets a Utilities bill for the year for $6,000. They pay it immediately.

Transaction 7: On December 15, the company pays out a $1,000 cash dividend to its owners.

Transaction 8: On December 15, the company pays $2,000 for some of the supplies it bought on April 11.

Part II Booking Adjustments

Now, it is December 31, 2006. For each of the transactions below, write journal entries in a manner that makes it CLEAR which accounts are debited and which are credited. Failure to do this will be rewarded with NO credit.

9 months of the rent purchased on April 1 has been used up.

The company has provided 2/3rds of the services that it promised to its customer on June 13.

There is only $800 worth of Supplies left.

Deal with Annual Depreciation on the Equipment ($4,800 cost to be used over 4 years):

Deal with Annual Interest on the Loan Payable (6% interest on a $2,000 loan):

Part III Preparing Financial Statements

1. Prepare an Income Statement for The Topanga Company for the year ended December 31, 2006.

The Topanga Company

Income Statement

For the Year Ended December 31, 2006

2. Prepare a well-formatted Balance Sheet for The Topanga Company as of December 31, 2006.

The Topanga Company

Balance Sheet

As of December 31, 2006