Accounting Cycle:
Problem 1: Prepare the appropriate journal entries based on this information for Year 1.
1. Zeus Company [the firm] was formed on July 31, Year 1 when five people each invested $40,000 in the firm. One investor lent $50,000 to the firm that is to be repaid on January 31, Year 2, along with $3,000 of interest.
2. The firm leased an office space for one year on August 1, Year 1 and moved in the same day. The monthly rate was $2,000 and the rent for the entire twelve-month lease term had to be paid on October 31, Year 1. No journal entry was made at the time the firm moved into the office.
3. On August 1, Year 1, the firm rented some equipment for three years at a monthly cost of $300. The firm paid for the first three months equipment rental on August 1, Year 1. Equipment rental payments have to be made every three months. The contacts call for the second equipment rental payment on November 1, Year 1. [Assume the full amount of the each payments is debited into Prepaid Equipment Rent at the at the time each payments is made. Assume both rental payments for Year 1 are made as required. Equipment Rent Expense will be one of the accounts adjusted at the end of the year1]
4. On September 13, Year 1, the firm purchased some supplies for use in the business at a cost of $3,000. This amount was charged to the firm's account.
5. On September 14, Year 1, the form returned 10% of the supplies it had purchased because at they were defective.
6. On August 1, Year 1, the firm hired four employees at a monthly salary of $5,000. These employees are to be paid at the middle of each month for the period ending on that day. Their first payday will be on August 15, Year 1.
7. On September 30, Year 1, the firm purchased some securities at a cost of $3,600 paying cash.
8. On September 30, Year 1, the firm paid the amount owed for the supplies it had purchased earlier.
9. On October 1, Year 1, the firm completed its firm consulting project for a client. The project was valued at $200,000 and the client paid 60% immediately and promised to pay the remainder on January 31, Year 2. Zeus promised not to charge interest on the unpaid amount.
10. Record the paydays occur on the 15th day of each month. Refer to item 6 above.
11. On November 1, year 1, the firm received $105,000 for a consulting project to be started late in Year 1.
12. During the last month of Year 1, the firm sold its investments for $2,000 cash.
Identify individual accounts its balances at the end of year. Some of these accounts belong in the balance sheet at the end of Year 1. Other accounts belong in the income statement for Year 1. At December 31, Year 1, Remainder you need to identify accounts where the balances need to be adjusted. Supplies on hand at the end of the year were $400 by actual count.
Prepare a balance sheet at December 31. Year 1 and income statement for the five months ended December 31, Year 1.