The comprehensive problem provides an illustration of the basic accounting cycle. Students must complete the following items for the first month of operation (January) and the second month of operations (February). Record transactions with journal entries in the General Journal. Post journal entries to the General Ledger. Prepare the trial balance before adjustment. Prepare the adjusting journal entries. Post the adjusting entries to the General Ledger. Prepare the adjusted trial balance. Prepare closing journal entries. Post the closing entries to the General Ledger. Prepare the post-closing trial balance. Prepare the following financial statements: Income Statement Balance Sheet Statement of Retained Earnings. Comprehensive Problem Part One - January Kellers Music was organized in January of 2017. The company offers music lessons to people of all ages and skill level. The company charges an annual $50 registration fee and $100 monthly due per student for music lessons. You have been hired by the company to install and maintain the companys accounting system. The owner of Kellers Music would like see the following statements at the end of each month: Income Statement Balance Sheet Retained Earnings Statement The following transactions occurred during the month of January: Jan. 1 Kellers Music is organized as a corporation and sells $50,000 of capital stock to its owners. 1 Paid the annual insurance premium of $1,824. (Hint: Prepaids are recorded as an asset until the resource has been used up.) 1 Rented a building for $1,250 per month and paid the first three months rent in advance. 1 Paid $17,340 for the purchase, delivery, and installation of the following: Musical Instruments . . . . . . . . . . $12,000 Computer . . . . . . . . . . . . . . . . . . . $1,440 Furniture . . . . . . . . . . . . . . . . . . . $3,900 2 Received cash of $1,650 for signing up 11 students. The $1,650 included $550 collected for the annual registration fee and $1,100 for the monthly dues for lessons. 3 Paid $220 for fliers to be distributed this week to local schools. 5 Purchased supplies (business cards, ink, paper, pencils, etc) on account, $225. 5 Purchased snacks on account for grand opening event for $145 (advertising expense). 9 Received cash of $1,250 for signing up 10 additional students. The $1,250 included $500 collected for the annual registration fee and $750 for the prorated monthly dues for lessons. 10 Hired a music teacher to help out in the evenings at $20/hour. (Hint: No entry required.) Signed up 7 additional students for $700. The $700 included $350 collected for the annual registration fee and $350 for prorated monthly dues for lessons. 24 Paid the music teacher hired on January 10th for 9 hours. 26 Signed up 10 additional students which paid an annual registration fee of $50/student and $100/monthly dues. These students will not begin music lessons until next month, but each student paid for February lessons in advance. (Hint: The amount collected for the annual registration fee is earned in January as that is when the registration took place in January. The amount collected for lessons is recorded as unearned revenue since the service will not be provided until February). 31 The owner/manager is a musician giving lessons (employee of company) and takes a salary of $2,500 for first month. Additional Information needed for adjusting entries at January 31st: Record depreciation expense using the straight line depreciation method for the month of January using the following useful lives (no residual value is anticipated): a. Musical Instruments 10 years b. Computer 4 years c. Furniture 5 years The cost of supplies on hand at January 31st was $95. The music teacher has worked 4.5 hours since January 24th that he hasnt been paid. These wages will not be paid until next pay day. Electricity bill received but unpaid at January 31st, totaled $196. Additional adjustments are required for the rent and insurance expired during the month of January. Comprehensive Problem Part Two February In February, Kellers Music begins selling music books. It uses the first-in, first-out method to account for inventories (books) in a perpetual inventory system. Feb. 1 Received cash of $100/student in from the 25 of the students that signed up last month. 1 There were 3 students from last month did not have payment for February lessons. The parents explained that they will have the money by the end of the month. Mr. Keller agreed to continue to give the students lessons, but get paid later this month. (Hint: Cash to be received in the future is recorded as Accounts Receivable.) 1 Purchased 24 music books at a cost of $5/unit. Received cash of $600 for signing up 4 students. The $600 included $200 collected for the registration fees and $400 for monthly dues. 6 Paid the electricity bill received at the end of last month. 7 Paid music teacher for 16 hours worked over the last couple of weeks. (Hint: The 16 hours includes the 4.5 hours already recorded at the end of January.) 8 Sold 16 music books for $20/unit receiving cash. 14 Purchased 24 more music books. The cost per unit went up to $5.25/unit. 15 Purchased supplies on account, $110. 17 Sold 16 music books for $20/unit receiving cash. 18 Purchased 20 more music books. The cost per unit went up to $5.50/unit. 21 Paid music teacher for 14 hours. 21 Sold 20 music books for $20/unit receiving cash. 27 Paid cash of $160 on account. Owners are paid a dividend of $250. 28 The owner/manager receives a salary of $2,650 for the month. 28 Received $200 from 2 of the students that did not have the money at the beginning of the month. Additional information needed for adjusting entries at February 28th, 2017: Record appropriate entries for the depreciation of assets using the straight line method. Supplies on hand at Feb. 28th, $135. The music teacher has worked 6.5 hours since she was last paid on February 21st. These wages will not be paid until next payday. Electricity bill received but unpaid at Feb. 28th, totaled $185. Additional adjustments are required for the rent and insurance expired in February. If you have not already done so then dont forget to record the unearned revenue from last month that has been earned.