SERVICE BUSINESS

Comprehensive Accounting Cycle Review Problem

On December 1st, Marie Kairish Vivar began an auto repair shop, Lalang Quality Automotive. The following information about
December’s transactions, accounts, and adjustment data is available.

TRANSACTIONS
Dec 1 Marie Kairish contributed 50,000 cash to the business in exchange for capital
1 purchased 10,800 of equipment paying cash
1 paid 4,500 for a 9-month insurance policy starting December 1
9 paid 18,000 cash to purchase land to be used in operations
10 purchased office supplies on account, 3,000
19 borrowed 28,000 from the bank for business use. Marie Kairish signed a note payable to the bank in the name of the
business
22 paid 800 for advertising expense
26 paid 1,000 on account
28 the business received a bill for utilities to be paid in January, 280
31 revenues earned during the month included 17,500 cash and 2,700 on account
31 paid employees’ salaries 3,600 and building rent 700. Record as a compound entry
31 the business received 1,440 for auto screening services to be performed next month
31 Marie Kairish withdrew cash of 3,000

ACCOUNT TITLES

Cash Vivar, Capital

Accounts Receivable Vivar, Withdrawals
Office Supplies Service Revenue
Prepaid Insurance Salaries Expense
Equipment Rent Expense
Accumulated Depreciation-Equipment Utilities Expense
Land Advertising Expense
Accounts Payable Supplies Expense
Utilities Payable Insurance Expense
Interest Payable Interest Expense
Unearned Revenue Depreciation Expense-Equipment
Notes Payable

ADJUSTMENTS
A. Office supplies used during the month, 600
B. Depreciation for the month, 180
C. One month insurance has expired
D. Accrued interest expense, 75

REQUIREMENTS
A. Journal Entries and T-accounts
B. Unadjusted Trial Balance
C. Adjusting Entries and T-Accounts
D. Adjusted Trial Balance
E. Income Statement, Statement of Changes in OE, Balance Sheet
F. Closing Entries and T-Accounts
G. Post-closing Trial Balance
 GENERAL JOURNAL
DATE PARTICULARS DEBIT CREDIT
Dec 1 Cash $ 50,000
Vivar, Capital $ 50,000
To record initial investment

1 Equipment $ 10,800
Cash $ 10,800
To record purchase of equipment

1 Prepaid Insurance $ 4,500

Cash $ 4,500
To record payment of insurance

9 Land $ 18,000
Cash $ 18,000
To record purchase of land

10 Office Supplies $ 3,000

Accounts Payable $ 3,000
To record purchase of office supplies on account

19 Cash $ 28,000
Notes Payable $ 28,000
To record borrowed cash from the bank

22 Advertising Expense $ 800

Cash $ 800
To record payment of advertising

26 Accounts Payable $ 1,000

Cash $ 1,000
To record payment of account

28 Utilities Expense $ 280

Accounts Payable $ 280
To record utilities expense

31 Cash $ 17,500
Accounts Receivable $ 2,700
Service Revenue $ 20,200
To record service revenue

31 Salaries Expense $ 3,600

Rent Expense $ 700
Cash $ 4,300
To record payment of salaries and rent expense

31 Cash $ 1,440
 Unearned Revenue $ 1,440
To record unearned service revenue

31 Vivar, Withdrawals $ 3,000

Cash $ 3,000
To record owner’s withdrawals
 GENERAL LEDGER

CASH
DATE DEBIT DATE CREDIT VIVAR, WITHDRAWALS
Dec 1 $ 50,000 Dec 1 $ 10,800 DATE DEBIT DATE CREDIT
Dec 19 $ 28,000 Dec 1 $ 4,500 Dec 31 $ 3,000
Dec 31 $ 17,500 Dec 9 $ 18,000
Dec 31 $ 1,440 Dec 22 $ 800 SERVICE REVENUE
Dec 26 $ 1,000 DATE DEBIT DATE CREDIT
Dec 31 $ 4,300 Dec 31 $ 20,200
Dec 31 $ 3,000
$ 96,940 $ 42,400 SALARIES EXPENSE
$ 54,540 DATE DEBIT DATE CREDIT
Dec 31 $ 3,600
ACCOUNTS RECEIVABLE
DATE DEBIT DATE CREDIT RENT EXPENSE
Dec 31 $ 2,700 DATE DEBIT DATE CREDIT
Dec 31 $ 700
OFFICE SUPPLIES
DATE DEBIT DATE CREDIT UTILITIES EXPENSE
Dec 10 $ 3,000 AJE $ 600 DATE DEBIT DATE CREDIT
$ 2,400 Dec 28 $ 280

PREPAID INSURANCE ADVERTISING EXPENSE

DATE DEBIT DATE CREDIT DATE DEBIT DATE CREDIT
Dec 1 $ 4,500 AJE $ 500 Dec 22 $ 800
$ 4,000
SUPPLIES EXPENSE
EQUIPMENT DATE DEBIT DATE CREDIT
DATE DEBIT DATE CREDIT AJE $ 600
Dec 1 $ 10,800
INSURANCE EXPENSE
ACCUMULATED DEP.-EQUIPMENT DATE DEBIT DATE CREDIT
DATE DEBIT DATE CREDIT AJE $ 500
AJE $ 180
INTEREST EXPENSE
LAND DATE DEBIT DATE CREDIT
DATE DEBIT DATE CREDIT AJE $ 75
Dec 9 $ 18,000

ACCOUNTS PAYABLE DEPRECIATION EXPENSE-EQUIPMENT

DATE DEBIT DATE CREDIT DATE DEBIT DATE CREDIT
Dec 26 $ 1,000 Dec 10 $ 3,000 AJE $ 180
Dec 28 $ 280
$ 1,000 $ 3,280
$ 2,280

INTEREST PAYABLE
DATE DEBIT DATE CREDIT
AJE $ 75

UNEARNED REVENUE
DATE DEBIT DATE CREDIT
Dec 31 $ 1,440

NOTES PAYABLE
DATE DEBIT DATE CREDIT
Dec 19 $ 28,000

VIVAR, CAPITAL
DATE DEBIT DATE CREDIT
Dec 1 $ 50,000
 GENERAL JOURNAL (ADJUSTING ENTRY)
DATE PARTICULARS DEBIT CREDIT
Dec 31 Supplies Expense $ 600
Office Supplies $ 600

31 Depreciation Expense-Equipment $ 180

Accumulated Depreciation-Equipment $ 180

31 Insurance Expense $ 500

Prepaid Insurance $ 500

31 Interest Expense $ 75
Interest Payable $ 75

LALANG QUALITY AUTOMOTIVE

INCOME STATEMENT
For the period ended December 31, 2022

REVENUES:
Service Revenue $ 20,200
EXPENSES:
Salaries Expense $ 3,600
Rent Expense 700
Utilities Expense 280
Advertising Expense 800
Supplies Expense 600
Insurance Expense 500
Interest Expense 75
Depreciation Expense-Equipment 180 (6,735)
NET INCOME $ 13,465

LALANG QUALITY AUTOMOTIVE

STATEMENT OF FINANCIAL POSITION
As of December 31, 2022

ASSETS
CURRENT ASSETS
Cash $ 54,540
Accounts Receivable 2,700
Office Supplies 2,400
Prepaid Insurance 4,000 $ 63,640
NONCURRENT ASSETS
Equipment $ 10,800
Accumulated Depreciation-Equipment 180
Land 18,000 $ 28,980
TOTAL ASSETS $ 92,620

LIABILITIES AND OWNER’S EQUITY

CURRENT LIABILITIES
Accounts Payable $ 2,280
Interest Payable 75
Unearned Revenue 1,440
Notes Payable 28,000 $ 31,795
OWNER’S EQUITY
Vivar, Capital – Dec. 1 $ 0
Add: Vivar, Capital – Dec. 31 50,000
Net Income 13,465
 Less: Vivar, Withdrawals (3,000) 60,465
TOTAL LIABILITIES AND OWNER’S EQUITY $ 92,260

LALANG QUALITY AUTOMOTIVE

STATEMENT OF CHANGES IN OWNER’S EQUITY
As of December 31, 2022
Vivar, Capital – Dec. 1 $ 0
Add: Owner’s Investment 50,000
Net Income 13,465
Less: Vivar, Withdrawals (3,000)
VIVAR, CAPITAL – DEC. 31 $ 60,465

LALANG QUALITY AUTOMOTIVE

POST-CLOSING TRIAL BALANCE
For the period ended December 31, 2022

DEBIT CREDIT
Cash $ 54,540
Accounts Receivable 2,700
Office Supplies 2,400
Prepaid Insurance 4,000
Equipment 10,800
Accumulated Depreciation-Equipment $ 180
Land 18,000
Accounts Payable 2,280
Interest Payable 75
Unearned Revenue 1,440
Notes Payable 28,000
Vivar, Capital 60,465
TOTAL $ 92,440 $ 92,440

GENERAL JOURNAL (CLOSING ENTRY)

DATE PARTICULARS DEBIT CREDIT
Dec 31 Service Revenue $ 20,200
Income Summary $ 20,200
To close all IS accounts with credit balances

31 Income Summary $ 6,735

Salaries Expense $ 3,600
Rent Expense $ 700
Utilities Expense $ 280
Advertising Expense $ 800
Supplies Expense $ 600
Insurance Expense $ 500
Interest Expense $ 75
Depreciation Expense-Equipment $ 180
To close all IS accounts with debit balances

Income Summary $ 13,465

Vivar, Capital $ 13,465
To close income summary accounts

Vivar, Capital $ 3,000

Vivar, Withdrawals $ 3,000
To close capital accounts