3rd Departmental Quiz Answers – Accounting Cycle of a Servicing Business

A. Provide the journal entries for the transactions.

1. Cash 2,000,000
Owner’s Capital 2,000,000
2. Equipment 1,000,000
Cash 1,000,000
3. Cash 500,000
Notes Payable 500,000
4. Insurance Expense 180,000
Cash 180,000
5. Cash 2,000,000
Accounts Receivable 4,000,000
Service Fees 6,000,000
6. Cash 1,800,000
Accounts Receivable 1,800,000
7. Salaries Expense 1,200,000
Cash 1,200,000
8. Utilities Expense 500,000
Cash 500,000
9. Supplies Expense 150,000
Cash 150,000
10. Owner’s Drawings 1,400,000
Cash 1,400,000

B. Prepare the adjusting entries.

1. Depreciation Expense 100,000
Accumulated Depreciation 100,000
2. Interest Expense 15,000
Interest Payable 15,000
3. Prepaid Insurance 105,000
Insurance Expense 105,000
4. Prepaid Supplies 60,000
Supplies Expense 60,000

C. Prepare the Adjusted Trial Balance.

Entity A
Adjusted Trial Balance
For The Period Ended December 31, 2022

Account Title Debit Credit

Cash 1,870,000
Accounts Receivable 2,200,000
Prepaid Insurance 105,000
Prepaid Supplies 60,000
Equipment 1,000,000
Accumulated Depreciation 100,000
Notes Payable 500,000
Interest Payable 15,000
Owner’s Capital 2,000,000
Owner’s Drawings 1,400,000
Service Fees 6,000,000
Salaries Expense 1,200,000
Utilities Expense 500,000
Depreciation Expense 100,000
Interest Expense 15,000
Insurance Expense 75,000
Supplies Expense 90,000 ___________
Total 8,615,000 8,615,000

D. Prepare the Income Statement.

Entity A
Income Statement
For The Period Ended December 31, 2022
 Service Fees 6,000,000
Less: Total Expenses:
Salaries Expense 1,200,000
Utilities Expense 500,000
Depreciation Expense 100,000
Interest Expense 15,000
Insurance Expense 75,000
Supplies Expense 90,000 1,980,000
Net Income 4,020,000

E. Prepare the Statement of Changes in Owner’s Equity.

Entity A
Statement of Changes in Owner’s Equity
For The Period Ended December 31, 2022

Owner’s Capital, Beginning 2,000,000

Add: Net Income 4,020,000
Total 6,020,000
Less: Owner’s Drawings 1,400,000
Owner’s Capital, Ending 4,620,000

F. Prepare the Statement of Financial Position.

Entity A
Statement of Financial Position
As of the Period Ended December 31, 2022

ASSETS

Current Assets:
Cash 1,870,000
Accounts Receivable 2,200,000
Prepaid Insurance 105,000
Prepaid Supplies 60,000
Total Current Assets 4,235,000

Noncurrent Assets:
Equipment 1,000,000
Accumulated Depreciation 100,000 900,000
Total Assets 5,135,000

LIABILITIES AND OWNER’S CAPITAL

Current Liabilities:
Notes Payable 500,000
Interest Payable 15,000 515,000

Owner’s Capital:
Owner’s Capital, Ending 4,620,000
Total Liabilities and Owner’s Capital 5,135,000

G. Prepare the closing entries.

1. Service Fees 6,000,000
Income Summary 6,000,000
To close nominal accounts with credit balances.

2. Income Summary 1,980,000

Salaries Expense 1,200,000
Utilities Expense 500,000
Depreciation Expense 100,000
Interest Expense 15,000
Insurance Expense 75,000
Supplies Expense 90,000
To close nominal accounts with debit balances.

3. Income Summary 4,020,000

 Owner’s Capital 4,020,000
To close income summary representing net income to capital account.

4. Owner’s Capital 1,400,000

Owner’s Drawings 1,400,000
To close withdrawal account to capital account.

H. Prepare the Post-Closing Trial Balance.

Entity A
Post-Closing Trial Balance
For The Period Ended December 31, 2022

Account Title Debit Credit

Cash 1,870,000
Accounts Receivable 2,200,000
Prepaid Insurance 105,000
Prepaid Supplies 60,000
Equipment 1,000,000
Accumulated Depreciation 100,000
Notes Payable 500,000
Interest Payable 15,000
Owner’s Capital 4,620,000
Total 5,235,000 5,235,000

I. Prepare the reversing entries.

1. Interest Payable 15,000
Interest Expense 15,000
3. Insurance Expense 105,000
Prepaid Insurance 105,000
4. Supplies Expense 60,000
Prepaid Supplies 60,000