COMPREHENSIVE ACCOUNTING CYCLE PROBLEM

For the past several years, Emily Page has operated a part-time consulting business from her home. As
of June 1, 2022, Emily decided to move to rented quarters and to operate the business, which was to be
known as Bottom Line Consulting, on a full-time basis. Bottom Line Consulting entered into the following
transactions during June: June 1. The following assets were received from Emily Page: cash, $20,000;
accounts receivable, $4,500; supplies, $2,000; and office equipment, $11,500. There were no liabilities
received.

1. Paid three months’ rent on a lease rental contract, $6,000.

2. Paid the premiums on property and casualty insurance policies, $2,400.

4. Received cash from clients as an advance payment for services to be provided and recorded it as
unearned fees, $2,700.

5. Purchased additional office equipment on account from Office Depot Co., $3,500.

6. Received cash from clients on account, $3,000.

10. Paid cash for a newspaper advertisement, $200.

12. Paid Office Depot Co. for part of the debt incurred on June 5, $750.

12. Recorded services provided on account for the period June 1–12, $5,100.

14. Paid part-time receptionist for two weeks’ salary, $1,100.

17. Recorded cash from cash clients for fees earned during the period June 1–16, $6,500.

18. Paid cash for supplies, $750.

20. Recorded services provided on account for the period June 13–20, $3,100.

24. Recorded cash from cash clients for fees earned for the period June 17–24, $5,150.

26. Received cash from clients on account, $6,900.

27. Paid part-time receptionist for two weeks’ salary, $1,100.

29. Paid telephone bill for June, $150.

30. Paid electricity bill for June, $400.

30. Recorded cash from cash clients for fees earned for the period June 25–30, $2,500.

30. Recorded services provided on account for the remainder of June, $1,000.

30. Emily withdrew $5,000 for personal use.

Instructions

1. Journalize each transaction in a two-column journal, referring to the following chart of accounts in
selecting the accounts to be debited and credited. (Do not insert the account numbers in the journal at
this time.)

11 Cash 31 Emily Page, Capital

12 Accounts Receivable 32 Emily Page, Drawing

14 Supplies 41 Fees Earned

15 Prepaid Rent 51 Salary Expense

16 Prepaid Insurance 52 Rent Expense

18 Office Equipment 53 Supplies Expense

19 Accumulated Depreciation 54 Depreciation Expense

21 Accounts Payable 55 Insurance Expense

22 Salaries Payable 59 Miscellaneous Expense

23 Unearned Fees

2. Post the journal to a ledger of four-column accounts.

3. Prepare an unadjusted trial balance.

4. At the end of June, the following adjustment data were assembled. Analyze and use these data to
complete parts (5) and (6).

a. Insurance expired during June is $200.

b. Supplies on hand on June 30 are $650.

c. Depreciation of office equipment for June is $250.

d. Accrued receptionist salary on June 30 is $220.

e. Rent expired during June is $2,000.

f. Unearned fees on June 30 are $1,875.

5. Enter the unadjusted trial balance on an end-of-period spreadsheet (work sheet) and complete the
spreadsheet.

6. Journalize and post the adjusting entries.

7. Prepare an adjusted trial balance.

8. Prepare an income statement, a statement of owner’s equity, and a balance sheet.

9. Prepare and post the closing entries. (Income Summary is account #33 in the chart of accounts.)
Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry.

10. Prepare a post-closing trial balance

ANSWER:

1. Journal Entries (June 2022)

June 1 – Owner Investment
Cash 20,000
Accounts Receivable 4,500
Supplies 2,000
Office Equipment 11,500
Emily Page, Capital 38,000

June 1 – Rent paid (3 months)

Prepaid Rent 6,000
Cash 6,000

June 2 – Insurance paid

Prepaid Insurance 2,400
Cash 2,400

June 4 – Advance from clients

Cash 2,700
Unearned Fees 2,700

June 5 – Equipment purchased on account

Office Equipment 3,500
Accounts Payable 3,500

June 6 – Cash received on account

Cash 3,000
Accounts Receivable 3,000

June 10 – Advertising
Miscellaneous Expense 200
Cash 200

June 12 – Partial payment to Office Depot

Accounts Payable 750
Cash 750

June 12 – Services on account

Accounts Receivable 5,100
Fees Earned 5,100

June 14 – Receptionist salary

Salary Expense 1,100
Cash 1,100

June 17 – Cash fees earned

Cash 6,500
Fees Earned 6,500

June 18 – Supplies purchased

Supplies 750
Cash 750

June 20 – Services on account

Accounts Receivable 3,100
Fees Earned 3,100

June 24 – Cash fees earned

Cash 5,150
Fees Earned 5,150

June 26 – Cash received on account

Cash 6,900
Accounts Receivable 6,900
June 27 – Receptionist salary
Salary Expense 1,100
Cash 1,100

June 29 – Telephone bill

Miscellaneous Expense 150
Cash 150

June 30 – Electricity bill

Miscellaneous Expense 400
Cash 400

June 30 – Cash fees earned

Cash 2,500
Fees Earned 2,500

June 30 – Services on account

Accounts Receivable 1,000
Fees Earned 1,000

June 30 – Owner withdrawal

Emily Page, Drawing 5,000
Cash 5,000

2. Posting to Ledger (Summary Balances)

(After posting all journal entries)

 Cash = 29,500
 Accounts Receivable = 3,800
 Supplies = 2,750
 Prepaid Rent = 6,000
 Prepaid Insurance = 2,400
 Office Equipment = 15,000
 Accounts Payable = 2,750
 Unearned Fees = 2,700
 Capital = 38,000
 Drawing = 5,000
 Fees Earned = 23,450
 Salary Expense = 2,200
  Miscellaneous Expense = 750

3. Unadjusted Trial Balance (June 30)

Account Debit Credit
Cash 29,500
Accounts Receivable 3,800
Supplies 2,750
Prepaid Rent 6,000
Prepaid Insurance 2,400
Office Equipment 15,000
Accounts Payable 2,750
Unearned Fees 2,700
Emily Page, Capital 38,000
Emily Page, Drawing 5,000
Fees Earned 23,450
Salary Expense 2,200
Miscellaneous Expense 750
Totals 67,400 67,400

4. Adjusting Entries (June 30)

a. Insurance expired
Insurance Expense 200
Prepaid Insurance 200

b. Supplies used
Supplies Expense 2,100
Supplies 2,100

c. Depreciation
Depreciation Expense 250
Accumulated Depreciation 250

d. Accrued salary
Salary Expense 220
Salaries Payable 220
e. Rent expired
Rent Expense 2,000
Prepaid Rent 2,000

f. Earned unearned fees

Unearned Fees 825
Fees Earned 825

5. Adjusted Trial Balance

Account Debit Credit
Cash 29,500
Accounts Receivable 3,800
Supplies 650
Prepaid Rent 4,000
Prepaid Insurance 2,200
Office Equipment 15,000
Accumulated Depreciation 250
Accounts Payable 2,750
Salaries Payable 220
Unearned Fees 1,875
Emily Page, Capital 38,000
Emily Page, Drawing 5,000
Fees Earned 24,275
Salary Expense 2,420
Rent Expense 2,000
Supplies Expense 2,100
Insurance Expense 200
Depreciation Expense 250
Miscellaneous Expense 750
Totals 67,870 67,870

6. Income Statement (June 2022)

Fees Earned: 24,275

Expenses

 Salary Expense: 2,420

 Rent Expense: 2,000
  Supplies Expense: 2,100
 Insurance Expense: 200
 Depreciation Expense: 250
 Miscellaneous Expense: 750

Total Expenses = 7,720

Net Income = 16,555

7. Statement of Owner’s Equity

Beginning Capital
Add: Net Income
Less: Drawings
Ending Capital

8. Balance Sheet (June 30, 2022)

Assets

 Cash: 29,500
 Accounts Receivable: 3,800
 Supplies: 650
 Prepaid Rent: 4,000
 Prepaid Insurance: 2,200
 Office Equipment: 15,000
 Less Accumulated Depreciation: (250)

Total Assets = 54,900

Liabilities

 Accounts Payable: 2,750

 Salaries Payable: 220
 Unearned Fees: 1,875

Total Liabilities = 4,845

Owner’s Equity

 Emily Page, Capital: 49,555

Total Liabilities & Equity = 54,900

9. Closing Entries
a. Close revenue
Fees Earned 24,275
Income Summary 24,275

b. Close expenses
Income Summary 7,720
Salary Expense 2,420
Rent Expense 2,000
Supplies Expense 2,100
Insurance Expense 200
Depreciation Expense 250
Miscellaneous Expense 750

c. Close income summary

Income Summary 16,555
Emily Page, Capital 16,555

d. Close drawings
Emily Page, Capital 5,000
Emily Page, Drawing 5,000

10. Post-Closing Trial Balance

Account Debit Credit
Cash 29,500
Accounts Receivable 3,800
Supplies 650
Prepaid Rent 4,000
Prepaid Insurance 2,200
Office Equipment 15,000
Accumulated Depreciation 250
Accounts Payable 2,750
Salaries Payable 220
Unearned Fees 1,875
Emily Page, Capital 49,555
 Account Debit Credit
Totals 55,150 55,150