Intermediate Accounting (2nd Edition)
Intermediate Accounting (2nd Edition)
2nd Edition
ISBN: 9780134730370
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Chapter 4, Problem 4.1P

Transaction Analysis; Journal Entries; Adjusting Journal Entries. Jester Entertainment Company began operations on January 1, 2018. The company had the following transactions in its first year of business:

  • January 4: Owners invested $120,000 (the par value of the stock) in exchange for 20,000 shares of common stock.
  • February 2: Jester took out a 10-year note payable in the amount of $80,000 to pay for operating expenses Interest payments are due every six months, and the balance of the note will be paid off in a lump-sum in 10 years. The interest rate is 10% annually, that is, 5% every six months
  • February 16: Jester signed a rental lease for its operating facility and paid a year of rent up front in the amount of $60,000. The rental lease runs from March 1, 2018, through February 29, 2019.
  • March 1: Jester purchased office supplies in the amount of $12,000 and paid in cash.
  • March 12: Jester paid $18,000 cash for advertising expenses.
  • April 1: Jester purchased a two-year insurance policy that runs from April 1, 2018, to March 31, 2020, in the amount of $40,000 and paid in full for the policy in cash.
  • May 12: Jester negotiated a contract with a customer to provide entertainment services for a one-year period running from June 1, 2018, to May 31, 2019. The customer paid the contract in full on May 12 with cash in the amount of $64,000.
  • June 16: Jester paid wages in the amount of $12,000 to employees in cash
  • July 20: Jester negotiated a contract with a customer to provide entertainment services for a six-month period running from September 1, 2018, to February 28, 2019. The customer paid the contract in full on July 20 with cash in the amount of $42,000.
  • August 2: Jester paid cash in the amount of $4,000 for the first interest payment on the note payable taken out on February 2.
  • August 18: Jester received and paid a utilities bill in the amount of $7,000 in cash.
  • September 10: Jester paid wages in the amount of $28,000 in cash.
  • October 1: Jester negotiated a contract with a customer to provide entertainment services for a one-year period running from October 1, 2018, to September 30, 2019, in the amount of $420,000. The customer paid the contract in full on October 1.
  • November 14: Jester purchased office supplies in the amount of $26,000 on account with the vendor.
  • December 6: Jester received an advertising bill for $22,000. The services were provided in 2018 and the bill will be paid in January.

Note: At year-end, Jester had $18,000 of office supplies remaining on hand. Required

  1. a. Prepare the journal entries for the original transactions. Omit explanations.
  2. b. Show the accounting equation effect of each of the original transactions.
  3. c. Prepare any necessary year-end adjusting journal entries for these transactions.
  4. d. Show the accounting equation effect of each of the adjusting journal entries.
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Chapter 4 Solutions

Intermediate Accounting (2nd Edition)

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