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Comprehensive Review Problem 1 - Jim Arnold’s Photography Studio
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Comprehensive Review Problem 1
Jim Arnold’s Photography Studio

 

You have reached the end of the first section of this book: The following problem is desined to review and reinforce your knowledge of accounting for a service business.

 

Jim Arnold has been a photographer since his graduation from high school several years ago. On July 1, 20X1, he decided to open his own photography firm, called Arnold’s Photos. To start his accounting system. Jim developed the chart of accounts shown below.

 

Arnold’s Photo Studio. Chart of Accounts

 

ASSETS

 

111  Cash                                                    OWNER’S EQUITY

                                                                     311  Jim Arnold, Capital

112  Accounts Receivable                            312  Jim Arnold, Drawing

113  Office Supplies                                     313  Income Summary

114 Photography supplies   

115 Prepaid Insurance                                                     REVENUE

121  Office Equipment                                                    411  Photography Revenue

121.1 Accumulated Depreciation- Office Equipment     412  Vending Machine Revenue

122  Photography Equipment                                                   EXPENSES

122.1 Accumulated Depreciation-Photography Equipment    511 Salaries Expenses

123  Furniture Fixtures                                                            512  Advertising Expenses

123.1 Accumulated Depreciation- Furniture and Fixtures      513  Rent Expense

                                                                                                 514   Repairs Expense

LIABILITIES                                                                          515   Insurance Expense

211  Accounts Payable                                                            516   Office Supplies Expense

212  Notes Payable                                                                  517   Photography Supplies Expense

213  Salaries Payable                                               518   Depreciation Expense- Office Equipment

                                                                          519   Depreciation Expense- Photography Equipment

                                                                             520   Depreciation Expense- Furniture and Fixtures

                                                                                                521   Utilities Expense

                                                                                                522   Miscellaneous Expense

 

 

Jim completed the following transaction during the first month of operations:
July 20X1

1   Jim invested $40,000 cash and photography equipment valued at $20,000 in the business

1    Purchased office supplies for cash, $1,300.

1    Purchased photography supplies on account, 6,750.

1    Paid July rent, $1,700.

1    Paid for a newspaper ad, $500.

2    Purchased office equipment on account, $6,700.

2    Paid property insurance for the upcoming year, $3,600.

3    Purchased a computer a computer system and software, $3,200, by issuing a note payable.

5    Paid for proportional handouts, $150.

6    Paid miscellaneous expenses, $175.

7    Paid salaries of employees, $1,400.

7    Recorded week’s cash receipts for photo work, $1,350.

8     Paid for carpet cleaning (a miscellaneous expense), $75

9     Recorded photo work done for a customer on account, $885.

9     Purchased additional photography supplies on account, $3,200.

10     Purchased additional photography equipment  for  cash, $3,500.

10   Entered into a contract with Southside Food Vendors to place vending machines in the waiting room.  Jim is to receive 10% of all sales, with a minimum of $200 monthly.  Received $200 as an advance payment.

11    Purchased furniture for the lobby area, $1,700.  Paid cash in full.

12   Paid cash for the installation of overhead lightning fixtures, $900.

15   Recorded second week’s cash receipts for photo work, $2,170.

15  Paid second week salaries, $1,400.

17   Jim withdrew cash for personal use, $800.

18    Paid for a TV ad , 710.

19     Paid for repair to equipment, $80

19    collected $500 for the photo work done on account on July 9

22    Recorded third week’s cash receipts for photo work, $2,045.

22   Paid weekly salaries, $1,400.

23   Did a special wedding photo session for a customer on credit, $550

28   Recorded third week’s cash receipts for photo work, $1,995.

28   Paid salaries of employees, $1,400.

28  Paid water bill for February, $70.

28  Paid electric bill for February, $1,095.

28  Made a $500 payment on the note for the computer purchased on July 3.

28   Made a payment for the office equipment purchased on account, $2,000.

28   Made a payment on the photography supplies purchased on account, $1,000.

28   Wrote a business check to pay for Jim’s home phone bill, $310.

28   Southside Food Vendors reported a total of $2,800 of vending machine sales for February.  Ten percent of these sales is $280.  Since $200 has already been received and recorded in February, Jim was owed $80.  Received the $80 check.

 

Directions:

1.  Open an account in the ledger for each account shown in the chart of accounts.

2.   Journalize each of the transactions for July, beginning on page 1 of the general journal.

3.   Post the journal entries to the ledger.

4.  Prepare a trial balance of the ledger in the first two columns of a 10-column work sheet.

5.  Complete the 10-column work sheet.  Assume for the purposes of this problem that Jim has a one-month accounting period.  Data for adjustments are as follow:

a) Office supplies on hand $850

 

b) Photography supplies on hand $5,550

c) Insurance  expired , $300.

D  Salaries unpaid, two days of a five day week; weekly salaries are $1,400

E) Depreciation of office equipment $190

f) Depreciation of photography equipment $275

g) Depreciation of furniture and fixtures $75

 

6.  Prepare an income statement for the month ended on July 31.

7.  Prepare a statement of owner’s equity for the month ended on July 31.

8.  Prepare a balance sheet as of July 31.

9.  Journalize adjusting entries from the completed work sheet

10.  Journalize closing entries

11. Post adjusting and closing entries to the ledger

12. Prepare a post-closing trial balance.

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