Accounting Cycle

The Accounting Cycle – Problem Set ABC Company Ltd.

Balance Sheet on Nov. 30, 2014

Assets

Equities

Equipment

2 500

Paid-in Capital

3 000

Land

1 000

Retained Earnings

2 400

Office Supplies Inventory

1 200

Loan Payable

1 000

Accounts Receivable

1 400

Tax payable

800

Cash, Bank

3 500

Accounts payable

2 400

Total assets

9 600

Total equities

9 600

Summary of transactions during December:

1. Cash-Purchase of €1,500 of Office Supplies Inventory

2. Performed consulting services, for which we received € 1,000 cash immediately.

3. Received an invoice for a series of advertisements, € 200, that appeared in the local news during December and will be paid in January.

4. Performed additional consulting work, € 1 900 on credit.

5. Performed advertisement services, for which we received € 1,000 cash immediately.

6. Paid salaries to employees of € 700 for December.

7. Received an invoice for external services of € 400 for December to be paid with 60 credit term

8. Paid outstanding tax in the amount € 800

9. Paid trade creditors € 1,300.

10. The cost of office supplies used during December is € 1,900.

11. At the end of the month Company repaid to the Bank credit tranche 200 and paid interest charges (interest rate as of 9 % p.a.)

12. Depreciation of equipment for December amounts to € 250.

Required:

a) Prepare the opening journal entry on Dec. 1, 2014.

b) Prepare the journal entries for the transactions (1. – 12) for the month of December and post them to the T-accounts, opening additional T-accounts for accounts as needed. Cross-reference the entries using the numbers of the transactions above.

c) Prepare a trial balance.

d) Prepare the adjusting journal entries and record them at the end of December in the T-accounts as well as in the trial balance.

e) Prepare the closing entries for the temporary accounts and the Income Statement.

f) Prepare the closing entries for the permanent accounts and the Balance Sheet as of Dec. 31, 2014.