Homework 1: Helping Tea Corp

The below questions focus on a company called Tea Corp. This company prepared their journal
entries, general ledger (T accounts) and trial balance already, but debits and credits didn't match in
the trial balance!

You have been asked to figure out what went wrong, to fix it, and to help them close the books for
the year. They have provided all of the information they have in the next 4 tabs.

NOTE: Anything in green text will automatically calculate; anything in blue text is pulled from a
different page. Points are assinged based on effort.

Question 1 [4 points: 1 per entry; 1 for trial balance]

Your first task is to pinpoint the problems with their trial balance. A trusted source has informed you
that there are three errors, and all of these errors are in the general journal. Find the three errors,
and write down the corrected journal entries below, along with a short description of the error Tea
Corp's accountant made.

Error #1: Account DR CR

Utilities Expense $ 1,000
Utilities Payable $ 2,000
Cash $ 3,000
Paid $3,000 utilities bill ($2,000 previously recorded) to Windfarm International.

Error #2: Account DR CR

Cash $ 23,000
Cost of goods sold $ 4,500
Revenue $ 23,000
Inventory $ 5,400
Made $23,000 cash in sales, COGS of $4,500

Error #3: Account DR CR

A/P $ 2,000
Cash $ 2,000
Paid 3,000 to Vintage Teapot Co.

Next, edit the journal and ledger to match the corrections. The Trial balance updates itself
automatically. Verify that DR=CR and A=L+E using the trial balance.

After correction…
DR= $ 262,500 CR= $ 262,500
A= $ 173,000 L + E = $ 173,000
Question 2 [3 points: 1/2 per entry; 1 for trial balance]

Now that you have a corrected trial balance, please record the following 4 adjusting entries for Tea
Corp.

1. An outstanding utilities expense of $1,000 that has not yet been billed to Tea Corp.
2. Outstanding salaries of $2,000.
3. Depreciation against equipment for a period of 1 year (straight line depreciation, 5 years of life with $20,000 in sa
4. Depreciation against the building of $12,000.

JE 1: Account DR CR
Utilities Expenses $ 1,000
Utilities Payable $ 1,000

JE 2: Account DR CR
Salaries Expenses $ 2,000
Salaries Payable $ 2,000

JE 3: Account DR CR
Depreciation Expenses $ 4,000
Accum. Depr. (Equipment) $ 4,000

JE 4: Account DR CR
Depreciation Expenses $ 12,000
Accum. Depr. (Equipment) $ 12,000

Write the journal entries from question 2 into the general ledger. Verify that DR=CR and A=L+E using
the trial balance.

After adjustment…
DR= $ 281,500 CR= $ 281,500
A= $ 157,000 L + E = $ 157,000

Question 3 [3 points: 2 for entry; 1 for trial balance]

Write the journal entry to close the books as 1 transaction to Retained Earnings (see the
Session2_Activity-Answers.xlsx spreadsheet on elearn for an example). Then, write those changes
into the general ledger. Verify that DR=CR and A=L+E using the trial balance.

JE: Account DR CR
Revenue $ 23,000
Retained Earnings $ 19,500
COGS $ 4,500
Utilities expense $ 2,000
Salaries expense $ 3,000
Depreciation Expense $ 16,000
Miscellaneous Expense $ 10,000
Maintenance Expense $ 5,000
Loss $ 2,000

After closing…
DR= $ 239,000 CR= $ 239,000
A= $ 157,000 L + E = $ 157,000
of life with $20,000 in salvage value).
 FY2015 Statement of Financial Position, Tea Corp
DR CR
Assets
Cash $ 40,000
A/R $ 10,000
Inventory $ 4,500
Equipment $ 100,000
Accum. Depr. (Equipment) $ 16,000
Building (Building) $ 100,000
Accum. Depr. (Building) $ 50,000
Total Assets $ 188,500

Liabilities
A/P $ 10,000
Salaries Payable $ 5,000
Utilities Payable $ 2,000
Total Liabilities $ 17,000

Equity
Retained Earnings $ 71,500
Paid in Capital $ 100,000
Total Equity $ 171,500

Total Liabilities + Equity $ 188,500

 General Journal for Tea Corp

DR CR
1 Utilities Expense $ 1,000
Utilities Payable $ 2,000
Cash $ 3,000
Paid $3,000 utilities bill ($2,000 previously recorded) to Windfarm International.

2 A/P $ 5,000
Cash $ 5,000
Paid $5,000 owed to tea leaf supplier.

3 Miscellaneous Expense $ 10,000

Cash $ 10,000
Paid for staff trip to Bali.

4 Cash $ 23,000
Cost of goods sold $ 4,500
Revenue $ 23,000
Inventory $ 4,500
Made $23,000 cash in sales, COGS of $4,500

5 Salaries payable $ 5,000

Salaries expense $ 1,000
Cash $ 6,000
Paid salaries of which $5000 was previously recognized as an expense.

6 Insurance Receivable $ 20,000

Building $ 20,000
Insurance claim for burned down storage facility.

7 Maintenance expense $ 5,000

Cash $ 5,000
Extra maintenance for building to bring up to expected value.

8 Cash $ 18,000
Loss $ 2,000
Insurance Receivable $ 20,000
Insurer covered 90% of warehouse loss.

9 A/P $ 3,000
Cash $ 3,000
Paid 3,000 to Vintage Teapot Co.

10 Cash $ 6,000
A/R $ 6,000
Collected 6,000 cash from Banquets Inc.
 Cash A/R Inventory
$ 40,000 $ 10,000 $ 4,500
$ 3,000 $ 6,000
$ 5,000
$ 10,000
$ 23,000
$ 6,000 $ 4,000 $ -
$ 5,000
$ 18,000
$ 3,000 Equipment Accum. Depr. (Equipment)
$ 6,000 $ 100,000

$ 55,000 $ 100,000

Building Accum. Depr. (Building) Insurance Receivable

$ 100,000 $ 50,000 $ 20,000
$ 20,000 $ 4,000
$ 12,000

$ 80,000 $ 66,000 $ -

A/P Utilities Payable Salaries Payable

$ 10,000 $ 2,000
$ 5,000 $ 2,000 $ 5,000
$ 3,000 $ 1,000

$ 2,000 $ 1,000

Retained Earnings Paid in Capital Revenue

$ 71,500 $ 100,000
$ 19,500 $ 23,000

$ 52,000 $ 100,000

COGS Utilities expense Salaries expense

$ 4,500 $ 1,000 $ 1,000
$ 4,500 $ 1,000 $ 2,000
 $ 2,000

$ - $ - $ -

Depreciation Expense Miscellaneous Expense Maintenance Expense

$ 4,000 $ 10,000 $ 5,000
$ 12,000 $ 10,000
$ 16,000

$ - $ - $ -

Loss
$ 2,000
$ 2,000

$ -
 Inventory

$ 4,500

ccum. Depr. (Equipment)

$ 16,000

$ 16,000

Insurance Receivable

$ 20,000

Salaries Payable
$ 5,000

$ 2,000

$ 2,000

Revenue
$ 23,000

$ -

Salaries expense
 $ 3,000

Maintenance Expense

$ 5,000
 Trial Balance
DR CR
Assets
Cash $ 55,000 Asset: $ 157,000
A/R $ 4,000
Inventory $ - Liabilities: $ 5,000
Equipment $ 100,000
Accum. Depr. (Equipment) $ 16,000 Equity: $ 152,000
Building $ 80,000
Accum. Depr. (Building) $ 66,000
Insurance Receivable $ -
Liabilities
Accounts payable $ 2,000
Utilities payable $ 1,000
Salaries payable $ 2,000
Equity
Retained earnings $ 52,000
Paid in Capital $ 100,000
Revenue $ -
COGS $ -
Utilities expense $ -
Salaries expense $ -
Depreciation Expense $ -
Miscellaneous Expense $ -
Maintenance Expense $ -
Loss $ -
Total $ 239,000 $ 239,000