Question

Ryan Hope, controller of Hope Inc., provides you with the following information concerning Hope during 2017. (Hope Inc. began operations on January 1, 2017.)
1. Issued 1,000 shares of common stock at $95 per share.
2. Paid $2,600 for each of 12 months to rent office and warehouse space for 2017. The rent was paid on the last day of each month.
3. Made total sales for services of $190,000: $65,000 for cash and $125,000 on account.
4. Purchased land for $32,000.
5. Borrowed $75,000 on December 31. The note payable matures in two years.
6. Salaries and wages totaling $80,000 were paid during the year.
7. Miscellaneous expenses totaling $40,000 were paid during the year.
8. $56,000 was received from customers as payment on account.
9. Declared and paid a dividend of $26,000.

Required:
a. Prepare journal entries for these transactions.
b. Establish T-accounts for each account, and post the journal entries to these T-accounts.
c. Prepare an income statement for 2017.

Answer 1

Answer:

a)

1. Issued 1,000 shares of common stock at $95 per share.

Dr Cash 95,000

    Cr Common stock 95,000

2. Paid $2,600 for each of 12 months to rent office and warehouse space for 2017. The rent was paid on the last day of each month.

Dr Rent expense 31,200

    Cr Cash 31,200

3. Made total sales for services of $190,000: $65,000 for cash and $125,000 on account.

Dr Cash 65,000

Dr Accounts receivable 125,000

    Cr Service revenue 190,000

4. Purchased land for $32,000.

Dr Land 32,000

    Cr Cash 32,000

5. Borrowed $75,000 on December 31. The note payable matures in two years.

Dr Cash 75,000

    Cr Notes payable 75,000

6. Salaries and wages totaling $80,000 were paid during the year.

Dr Wages expense 80,000

    Cr Cash 80,000

7. Miscellaneous expenses totaling $40,000 were paid during the year.

Dr Miscellaneous expense 40,000

    Cr Cash 40,000

8. $56,000 was received from customers as payment on account.

Dr Cash 56,000

    Cr Accounts receivable 56,000

9. Declared and paid a dividend of $26,000.

Dr Dividends 26,000

    Cr Cash 26,000

b)

Cash

debit                             credit

95,000

                                    31,200

65,000

                                    32,000

75,000

                                    80,000

                                    40,000

56,000

                                    26,000

81,800

Common stock

debit                             credit

                                     95,000

Rent expense

debit                             credit

31,200

                                     31,200

Accounts receivable

debit                             credit

125,000

                                     56,000

69,000

Service revenue

debit                             credit

                                     190,000

190,000                                    

Land

debit                             credit

32,000

Notes payable

debit                             credit

                                     75,000

Wages expense

debit                             credit

80,000

                                    80,000

Miscellaneous expense

debit                             credit

40,000

                                    40,000

Dividends

debit                             credit

26,000

                                    26,000

Retained earnings

debit                             credit

                                    38,800

26,000                                    

                                    12,800

closing entries

Dr Service revenue 190,000

    Cr Income summary 190,000

Dr Income summary 151,200

    Cr Rent expense 31,200

    Cr Wages expense 80,000

    Cr Miscellaneous expense 40,000

   

Dr Income summary 38,800

    Cr Retained earnings 38,800

Dr Retained earnings 26,000

    Cr Dividends 26,000

c. Hope, inc.

Income Statement

For the year ended December 31, 2017

Revenues                                                  $190,000

Operating expenses:

• Rent expense $31,200
• Wages expense $80,000
• Miscellaneous expense $40,000  ($151,200)

Net income                                                $38,800