On January 1 2018 the general ledger of Dynamite Fireworks i

On January 1, 2018, the general ledger of Dynamite Fireworks includes the following account balances: Accounts Debit Credit Cash $ 24,100 Accounts Receivable 5,500 Supplies 3,400 Land 53,000 Accounts Payable 3,500 Common Stock 68,000 Retained Earnings 14,500 Totals $ 86,000 $ 86,000 During January 2018, the following transactions occur: January 2 Purchase rental space for one year in advance, $6,900 ($575/month). January 9 Purchase additional supplies on account, $3,800. January 13 Provide services to customers on account, $25,800. January 17 Receive cash in advance from customers for services to be provided in the future, $4,000. January 20 Pay cash for salaries, $11,800. January 22 Receive cash on accounts receivable, $24,400. January 29 Pay cash on accounts payable, $4,300. The following information is available on January 31, 2018. Rent for the month of January has expired. Supplies remaining at the end of January total $3,100. By the end of January, $3,425 of services has been provided to customers who paid in advance on January 17. Unpaid salaries at the end of January are $5,590.

1

Purchase rental space for one year in advance, $6,900 ($575/month).

2

Purchase additional supplies on account, $3,800.

3

Provide services to customers on account, $25,800.

4

Receive cash in advance from customers for services to be provided in the future, $4,000.

5

Pay cash for salaries, $11,800.

6

Receive cash on accounts receivable, $24,400.

7

Pay cash on accounts payable, $4,300.

8

Record the adjusting entry for rent. Rent for the month of January has expired.

9

Record the adjusting entry for supplies. Supplies remaining at the end of January total $3,100.

10

Record the services provided to customers who paid in advance. By the end of January, $3,425 of services has been provided to customers who paid in advance on January 17.

11

Record the adjustment for salaries payable. Unpaid salaries at the end of January are $5,590.

12

Record the entry to close the revenue accounts.

13

Record the entry to close the expense accounts.

8 Jan 31 575 Rent expense Prepaid rent 575 Jan 31 Supplies expense 4,100 Supplies 4,100 10 Jan 31 Deferred revenue Service revenue Salaries expense Salaries payable Jan 31 12 Jan 31 Service revenue Retained earnings 13 Jan 31 Retained earnings Supplies expense Salaries expense Rent expense Requirement General Ledger

Solution

(a) The amount of profit reported for the month of January is: $29225 - $22065 = $7160

(b) The ratio of current assets to current liabilities at the end of January is: $45825/$9165 = 5

Workings:

(c) Dynamite Fireworks appears to be in a good financial condition.

Since there is a good profit and current assets to current liabilities is greater than 1.

	Date	Account Titles and Explanation	Debit	Credit
1	Jan-02	Prepaid rent	6900
		Cash		6900
2	Jan-09	Supplies	3800
		Accounts payable		3800
3	Jan-13	Accounts receivable	25800
		Service revenue		25800
4	Jan-17	Cash	4000
		Deferred revenue		4000
5	Jan-20	Salaries expense	11800
		Cash		11800
6	Jan-22	Cash	24400
		Accounts receivable		24400
7	Jan-29	Accounts payable	4300
		Cash		4300
8	Jan-31	Rent expense	575
		Prepaid rent		575
9	Jan-31	Supplies expense (3400+3800-3100)	4100
		Supplies		4100
10	Jan-31	Deferred revenue	3425
		Service revenue		3425
11	Jan-31	Salaries expense	5590
		Salaries payable		5590
12	Jan-31	Service revenue (25800 + 3425)	29225
		Retained earnings		29225
13	Jan-31	Retained earnings	22065
		Salaries expense (11800 + 5590)		17390
		Rent expense		575
		Supplies expense		4100