Liabilities & Shareholders’ Equity

Accounting
Name of the Student:
Name of the University:
Author’s Note:

Part 2 – ACCOUNTING CYCLE
ADJUSTING ENTRIES AND POSTING TO T-ACCOUNTS (10 points)
If needed, prepare the required adjusting journal entry for each situation as of December 31,
2019 and post them to T- accounts provided. (See the last page for the unadjusted account
balances shown in T-accounts.)
Example.
Dec. 31 Account Name Debit
2019 Account Name Credit
(a) Suppose Dana’s had received a $1,800 shipment of supplies in September 2019. When
counting the supplies on December 31, 2019, Dana’s found only $800 worth of supplies on hand.
(2 points)
Debit and credit the accounts affected.
Dec. 31 Supplies expenses $1,000
2019 Supplies $1,000
(b) Suppose Dana’s had paid $12,000 for six months’ rent on November 1, 2019. (2 points)
Debit and credit the accounts affected.
Dec. 31 Rent expenses $4,000
2019 Prepaid rent $4,000

(c) Suppose Dana’s had paid $6,000 for one year’s insurance on June 1, 2019. (2 points)
Debit and credit the accounts affected.
Dec. 31 Insurance expense $3,500
2019 Prepaid insurance $3,500
(d) The company had acquired Property, Plant & Equipment costing $40,000 on January 1, 2019.
Suppose that the depreciation on this Equipment was calculated to be $2,000 for 2019. (2 points)
Debit and credit the accounts affected.
Dec. 31 Depreciation expense-Plant & Equipment $2,000
2019 Accumulated depreciation-Plant & Equipment $2,000
(e) On December 1, 2019, the company had sold $500 in gift certificates for decorating services
to a customer. On December 31, 2019, the accountant received an envelope containing $400
worth of redeemed gift certificates, not yet recorded in the company’s books. (2 points)
Debit and credit the accounts affected.
Dec. 31 Decorating revenue $400
2019 Unearned revenue $400
(f) On June 30, 2019, the company invested $20,000 in a certificate of deposit that will yield
(generate) 12% interest at the end of one year. (2 points)
Debit and credit the accounts affected.
Dec. 31 Investment income $2,400
2019 Interest receivable $2,400

(g) The company borrowed money (a note payable) from the bank for $30,000 on January 1,
2019, due with all interest on June 30, 2020. The note payable requires 10% (annual) interest. (2
points)
Debit and credit the accounts affected.
Dec. 31 Interest expense $3,000
2019 Interest payable $3,000
(h) The company calculated its income taxes as $26,110 for the year ended December 31, 2019.
(2 points)
Debit and credit the accounts affected.
Dec. 31 Income tax expense $26,110
2019 Income tax payable $26,110
(i) On December 15, 2019, the company declared a $750 dividend, payable January 15, 2020. (2
points)
Debit and credit the accounts affected.
Dec. 31 Retained earnings $750
2019 Dividend payable $750

Un-adjusted starting balances are given. Post the adjusting entries above to the
T-accounts on the following page. (10 points)
Assets Liabilities Stockholders’ Equity,
continued
+ Cash –
Unadj. 43,450
Adj 43,450
+ Supplies –
Unadj
.
1,80
0
1,00
0
Ex
p
Adj 800
+ Accounts Receivable –
Unadj
.
4,000
Adj 4,000
+ Prepaid Rent –
Unad
j.
12,00
0
4,00
0
Ex
p
Adj 8,000
+ Prepaid Insurance –
Unadj
.
6,00
0
3,50
0
Ex
p
Adj 2,50
0
+ Certificate of Deposit –
Unadj
.
20,000
Adj 20,000
+ Interest Receivable –
Unadj. 0
Inv
Income
2,400
– Accounts Payable +
250 Unadj.
250 Adj
– Dividend Payable +
0 Unadj.
750 Payable
750 Adj
– Unearned Revenue +
50
0
Unad
j.
Revenu
e
40
0
10
0
Adj
– Notes Payable +
30,000 Unadj.
30,000 Adj
– Interest Payable +
0 Unadj.
3,000 Interest
3,000 Adj
– Income Tax Payable +
0 Unadj.
26,110 Payable
26,110 Adj
Stockholders’ Equity
– Common Stock +
1,000 Unadj.
1,000 Adj
– Additional Paid-In
– Retained Earnings +
0 Unadj.
Dividend 750
Adj 750
– Decorating Revenue +
120,00
0 Unadj.
400 Revenue
120,40
0 Adj
– Investment Income +
2,400 Interest
2,400 Adj
+ Wage Expense –
Unadj
.
32,00
0
+ Utilities Expense –
Unadj
.
1,00
0
Adj 1,00
0
+ Telephone Expense –
Unadj. 500
Adj 500
+ Supplies Expense –
Supplie
s
1,00
0
Adj 1,00
0
+ Rent Expense –
Prepai 4,00

Adj 2,400
+ Property, Plant &
Equipment –
Unadj
.
40,000
Adj 40,000
– Accumulated Depr. +
0 Unadj.
2,000 Dep
Exp
2,000 Adj
Capital +
9,000 Unadj.
9,000 Adj
d 0
Adj 4,00
0
+ Insurance Expense –
Prepai
d
3,50
0
Adj 3,50
0
+ Depreciation Expense –
Accum
. Dep
2,00
0
Adj 2,00
0
+ Interest Expense –
Exp 3,00
0
Adj 3,00
0
+ Income Tax Expense –
Exp 26,11
0
Adj 26,11
0

ADJUSTED TRIAL BALANCE (5 points)
Prepare the adjusted trial balance as of December 31, 2019.
Dana’s Decorators
Adjusted Trial Balance
December 31, 2019
Debit Credit
Cash 43,450
Supplies 800
Accounts Receivable 4,000
Prepaid Rent 8,000
Prepaid Insurance 2,500
Certificate of Deposit 20,000
Interest Receivable 2,400
Property, Plant & Equipment 40,000
Accumulated Depreciation 2,000
Accounts Payable 250
Dividend Payable 750
Unearned Revenue 100
Notes Payable 30,000
Interest Payable 3,000
Income Tax Payable 26,110
Common Stock ($1 par value) 1,000
Additional Paid-in Capital 9,000
Retained Earnings 750
Decorating Revenue 120,400
Investment Income 2,400
Wage Expense 32,000
Utilities Expense 1,000
Telephone Expense 500
Supplies Expense 1,000
Rent Expense 4,000
Insurance Expense 3,500
Depreciation Expense 2,000
Interest Expense 3,000
Income Tax Expense 26,110
Totals 195,010 195,010

INCOME STATEMENT & BALANCE SHEET
Prepare a classified Income Statement for the full year 2019 and a classified Balance Sheet as of
December 31, 2019.
Dana’s Decorators
Income Statement (7 points)
For the year ended December 31, 2019
Revenues:
Decorating revenue 120,400
Interest income 2,400
Subtotal: 122,800
Expenses:
Wages expense 32,000
Utilities expense 1,000
Telephone expense 500
Supplies expense 1,000
Rent expense 4,000
Insurance expense 3,500
Depreciation expense 2,000
Interest expense 3,000
Income tax expense 26110
Subtotal: 73,110
Net Income: 49,690

Dana’s Decorators
Balance Sheet (8 points)
December 31, 2019
Assets
Current Assets:
Cash 43,450
Supplies 800
Accounts receivable 4,000
Prepaid rent 8,000
Prepaid insurance 2,500
Certificate of deposits 20,000
Interest receivable 2,400
Non-current Assets:
Property, Plant & Equipment 40,000
Accumulated depreciation (2,000)
Total Assets 119,150
Liabilities
Current Liabilities
Accounts payable 250
Dividend payable 750
Unearned revenue 100
Notes payable 30,000
Interest payable 3,000
Income tax payable 26,110
Total Liabilities 60,210
Stockholders’ Equity
Common stock 1,000
Additional paid in capital 9,000
Retained earnings (750)
Net income 49,690
Total Liabilities & Shareholders’ Equity 119,150