Acct 2210 Zeigler: Demo 3-1 Solution(Debits/Credits & T-Accts on Board)

The following events apply to Braxton Personnel Advisory Services Company (BPASC).

1.On January 1, 2014, issued common stock for $5,000 cash. (FA)

2.Paid $1,800 cash to rent office space for one year beginning on February 1, 2014. (OA)

3.Received a $2,400 cash advance as a retainer for services to be provided. Services were to be provided evenly for one year beginning on March 1, 2014. (OA)

4.On December 1, 2014, paid dividends of $200 to the stockholders. (FA)

Required:

a.Record the events in ledger T-accounts and prepare an unadjusted trial balance.

b.Record necessary adjusting entries in ledger T-accounts and prepare an adjusted trial balance.

c.Use the adjusted trial balance to prepare an income statement, a statement of retained earnings, a balance sheet, and a statement of cash flows.

d.Record the closing entries in ledger T-accounts and prepare a post-closing trial balance.

T-Account Entries

Panel 1 Recording Scheme Provided for Convenience
ASSETS / LIABILITIES / EQUITY
Debit / Credit / Debit / Credit / Debit / Credit
+ / ─ / ─ / + / ─ / +
Panel 2 Ledger T-Accounts
Cash / Unearned Revenue / Common Stock
(1) 5,000 / 1,800(2) / 2,400(3) / 5,000(1)
(3) 2,400 / 200 (4)
Bal. 5,400
Prepaid Rent / Dividends
(2) 1,800 / (4) 200
Braxton Personnel Advisory Services Company
Unadjusted Trial Balance
December 31, 2014
Account Title / Debit / Credit
Cash / 5,400
Prepaid rent / 1,800
Unearned revenue / 2,400
Common stock / 5,000
Retained earnings / 0
Services revenue / 0
Rent expense / 0
Dividends / 200
Totals / 7,400 / 7,400

Demonstration Problem 3-1 Solution, part b.

T-Account Adjusting Entries

Panel 1 Recording Scheme Provided for Convenience
ASSETS / LIABILITIES / EQUITY
Debit / Credit / Debit / Credit / Debit / Credit
+ / ─ / ─ / + / ─ / +
Panel 2 Ledger T-Accounts
Cash / Unearned Revenue / Common Stock
(1) 5,000 / 1,800(2) / (adj2) 2,000 / 2,400(3) / 5,000(1)
(3) 2,400 / 200 (4) / 400 Bal.
Bal. 5,400
Prepaid Rent / Services Revenue
(2) 1,800 / 1,650 (adj1) / 2,000 (adj2)
Bal. 150
Rent Expense
(adj1) 1,650
Dividends
(4) 200
Braxton Personnel Advisory Services Company
AdjustedTrial Balance
December 31, 2014
Account Title / Debit / Credit
Cash / 5,400
Prepaid rent / 150
Unearned revenue / 400
Common stock / 5,000
Retained earnings / 0
Services revenue / 2,000
Rent expense / 1,650
Dividends / 200
Totals / 7,400 / 7,400

Demonstration Problem 3-1 Solution, part c. Financial Statements

Braxton Personnel Advisory Services Company
Financial Statements
Income Statement
For the Year Ended December 31, / 2014
Services revenue / $ 2,000
Rent expense / 1,650
Net income / $ 350
Statement of Retained Earnings
Beginning retained earnings / $ 0
Plus: Net income / 350
Less: Dividends / (200)
Ending retained earnings / $ 150
Balance Sheet as of December 31, 2014
Assets
Cash / $ 5,400
Prepaid rent / 150
Total assets / $ 5,550
Liabilities
Unearned revenue / $ 400
Stockholders’ equity
Common stock / 5,000
Retained earnings / 150
Total stockholders’ equity / 5,150
Total liabilities and stockholders’ equity / $ 5,550
Statement of Cash Flows
Net cash flow from operating activities1 / $ 600
Net cash flow from investing activities / 0
Net cash flow from financing activities2 / 4,800
Net change in cash / 5,400
Beginning cash balance / 0
Ending cash balance / $ 5,400

1Net cash flow from operating activities: $2,400 inflow from clients less $1,800 outflow for prepaid insurance ($2,400 ─ $1,800 = $600).

2Net cash flow from financing activities: $5,000 inflow from issuing common stock less $200 outflow for dividends to stockholders. ($5,000 ─ $200 = $4,800).

Demonstration Problem 3-1 Solution, part d. T-Account Closing Entries

Panel 1 Recording Scheme Provided for Convenience
ASSETS / LIABILITIES / EQUITY
Debit / Credit / Debit / Credit / Debit / Credit
+ / − / − / + / − / +
Panel 2 Ledger T-Accounts
Cash / Unearned Revenue / Common Stock
(1) 5,000 / 1,800(2) / (adj2) 2,000 / 2,400(3) / 5,000(1)
(3) 2,400 / 200 (4) / 400 Bal. / 5,000Bal.
Bal. 5,400
Prepaid Rent / Retained Earnings
(2) 1,800 / 1,650(adj1) / (cl2) 1,650 / 2,000(cl1)
Bal. 150 / (cl3) 200
150 Bal.
Services Revenue
Note: We are closing only “temporary” accounts (i.e. Revenues, Expenses and Dividends). Notice that the / (cl1) 2,000 / 2,000(adj2)
Asset, Liability and Equity accounts (permanent)
accounts remain open. By closing the temporary accounts, Retained Earnings is “updated” each period. / Rent Expense
(adj1) 1,650 / 1,650(cl2)
We are now ready to begin a new acct period!
Dividends
(4) 200 / 200 (cl3)
Braxton Personnel Advisory Services Company
Post-closingTrial Balance
December 31, 2014
Account Title / Debit / Credit
Cash / 5,400
Prepaid rent / 150
Unearned revenue / 400
Common stock / 5,000
Retained Earnings (Updated Bal) / 150
Services revenue (Zero) / 0
Rent expense (Zero) / 0
Dividends (Zero) / 0
Totals / 5,550 / 5,550