Answered Essay: ONLY NEED HELP WITH PROBELM 4, 5 and 6

ONLY NEED HELP WITH PROBELM 4, 5 and 6

Moonlight Bay Inn is incorporated on January 2, 2014, by its three owners, each of whom contributes $20,000 in cash inexchange for shares of stock in the business. In addition to the sale of stock, the following transactions are entered into during the month of January:

January 2: A Victorian inn is purchased for $50,000 in cash. An appraisal performed on this date indicates that the land is worth $15,000, and the remaining balance of the purchase price is attributable to the house. The owners estimate that the house will have an estimated useful life of 25 years and an estimated salvage value of $5,000.

January 3: A two-year, 12%, $30,000 promissory note was signed at the Second State Bank. Interest and principal will be repaid on the maturity date of January 3, 2019.

January 4: New furniture for the inn is purchased at a cost of $15,000 incash. The furniture has an estimated useful life of 10 years and no salvage value.

January 5: A 24-month property insurance policy is purchased for $6,000 in cash.

January 6: An advertisement for the inn is placed in the local newspaper. Moonlight Bay pays $450 cash for the ad, which will run in the paper throughout January.

January 7: Cleaning supplies are purchased on account for $950. The bill is payable within 30 days.

January 15: Wages of $4,230 for the first half of the month are paid in cash.

January 16: A guest mails the business $980 in cash as a deposit for a room to be rented for two weeks. The guest plans to stay at the inn during the last week of January and the first week of February.

January 31: Cash receiptsfrom rentals of rooms for the month amount to $8,300.

January 31: Cash receiptsfrom operation of the restaurant for the month amount to $6,600.

January 31:. Each stockholder is paid $200 in cash dividends.

Required 1. Prepare journal entries to record each of the preceding transactions. Don’t forget the stock.

2. Post each of the journal entries to T accounts.

3. Prepare adjusting journal entries for each of the following transactions as of January 31.

a. Depreciation of the house

b. Depreciation of the furniture

c. Interest on the promissory note

d. Recognition of the expired portion of the insurance

e. Recognition of the earned portion of the guests’ deposit

f. Wages earned during the second half of January amount to $520 and will be paid on Feb. 3

g. Cleaning supplies on hand on January 31 amount to $230

h. A utility bill is received amounts to $740 and is payable by Feb. 5

i. Income taxes are to be accrued at a rate of 30% of income before taxes

4. Post each adjusting journal entry to T accounts

5. Prepare the following financial statements:

a. Income statement for month ended January 31

b. Statement of retained earnings for the month ended January 31

c. Balance sheet at January 31

6. What are your reactions to Moonlight’s first month of operations? Is the bank comfortable with the loan it made?

Expert Answer

 

Solution:

4) Posting Each Adjusting Journal Entries to T-Accounts:

Cash
1/2 $60,000 $50,000 1/2
1/3 $30,000 $15,000 1/4
$6,000 1/5
1/16 $9,80 $450 1/6
1/31 $8,300 $4,230 1/15
1/31 $6,600 $600 1/31
End. Bal. $105,880 $76,280
$29,600 1/31
Accounts Payable
$950 1/7
Common Stock
$60,000 1/2
Wages Payable
$5,720 1/31
Wages Expenses
1/15 $4,230
1/31 $5,120
End. Bal $9,350
Rent Revenue
$8,300 1/31
$490
$8,790 End. Bal
Cleaning Supplies
1/7 $950
$720 1/31
End. Bal $230
Rent Received in Advance
$980
$490
$490 End. Bal.
Advertising Expense
1/6 $450
Restuarent Revenues
$6,600
Prepaid Insurance
1/5 $6,000
$250
End. Bal. $5,750
Utilities Payable
$740
Depreciation Expense House
$100
Land
1/2 $15,000
Income Tax Payable
$107
Depreciation Expense House
$125
House
1/2 $35,000
Notes Payable
$30,000
Interest Expense
$300
Accumulated Depreciation House
$100 1/31
Accured Interest Payable
$300
Insurance Expense
$250
Furniture
$125 1/31
Supplies Expense
$720
Income Tax Expense
$1,007
Accumulated Depreciation Furniture
$125 1/31
Utilities Expense
$740
Dividends
$600

5) Preparing the Following Financial Statements:

a) Income statement for month ended January 31:

MOONLIGHT BAY INN

Income Statement

For the Month Ending January 31, 2014

Revenues:
From rental of rooms $8,790
From restaurant $6,600
Total revenues $15,390
Expenses:
Advertising $6,450
Wages $9,350
Depreciation House $100
Dpereciation Furniture $125
Interest $300
Insurance $250
Cleaning Supplies $720
Utilities $740
Income Taxes $1,007
Total Expenses $13,042
Net Income $2,348

b) Statement of Retained Earnings for the Month Ended January 31:

MOONLIGHT BAY INN

Retained Earnings Statement

For the Month Ending January 31, 2014

Beginning balance, January 2, 2014 $0
Add: Net income $2,348
Deduct: Cash dividends ($600)
Ending balance, January 31, 2014 $1,748

c) Balance Sheet at January 31:

MOONLIGHT BAY INN

Balance Sheet

January 31, 2014

Assets: Liabilities:
Current Assets: Current liabilities:
Cash $29,600 Accounts Payable $950
Cleaning Supplies $230 Wages Payable $5,120
Prepaid Insurance $5,750 Rent received in Advance $490
Income Tax Payable $1,007
Utilities payable $740
Total Current Assets $35,580 Total Current liabilities $8,307
Property, Plant and Equipment: Long Term Debt:
Land $15,000 Notes Payable $30,000
House $35,000 Accrued Interest $300
Less: Accumulated Depreciation ($100) $34,900 Total Long Term Debt $30,300
Furniture $15,000 Total Liabilities $38,607
Less: Accumulated Depreciation ($125) $14,875 Stockholder’s Equity:
Total Property, Plant and Equipment $64,775 Capital Stock $60,000
Retained Earnings $1,748
Total Stockholder’s Equity $61,748
Total Assets $100,355 Total Liabilities and Stockholder’s Equity $100,355
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