Question

On July 1, 2017, Lula Plume created a new self-storage business, Safe Storage Co. The following transactions

occurred during the company’s first month.

July 1 Plume invested \(30,000 cash and buildings worth \)150,000 in the company in exchange for

common stock.

2 The company rented equipment by paying \(2,000 cash for the first month’s (July) rent.

5 The company purchased \)2,400 of office supplies for cash.

10 The company paid \(7,200 cash for the premium on a 12-month insurance policy. Coverage begins

on July 11.

14 The company paid an employee \)1,000 cash for two weeks’ salary earned.

24 The company collected \(9,800 cash for storage fees from customers.

28 The company paid \)1,000 cash for two weeks’ salary earned by an employee.

29 The company paid \(950 cash for minor repairs to a leaking roof.

30 The company paid \)400 cash for this month’s telephone bill.

31 The company paid \(2,000 cash in dividends.

The company’s chart of accounts follows:

101 Cash 401 Storage Fees Earned

106 Accounts Receivable 606 Depreciation Expense—Buildings

124 Office Supplies 622 Salaries Expense

128 Prepaid Insurance 637 Insurance Expense

173 Buildings 640 Rent Expense

174 Accumulated Depreciation—Buildings 650 Office Supplies Expense

209 Salaries Payable 684 Repairs Expense

307 Common Stock 688 Telephone Expense

318 Retained Earnings 901 Income Summary

319 Dividends

Required

1. Use the balance column format to set up each ledger account listed in its chart of accounts.

2. Prepare journal entries to record the transactions for July and post them to the ledger accounts. Record

prepaid and unearned items in balance sheet accounts.

3. Prepare an unadjusted trial balance as of July 31.

4. Use the following information to journalize and post adjusting entries for the month:

a. Two-thirds of one month’s insurance coverage has expired.

b. At the end of the month, \)1,525 of office supplies are still available.

c. This month’s depreciation on the buildings is \(1,500.

d. An employee earned \)100 of unpaid and unrecorded salary as of month-end.

e. The company earned $1,150 of storage fees that are not yet billed at month-end.

5. Prepare the adjusted trial balance as of July 31. Prepare the income statement and the statement of

retained earnings for the month of July and the balance sheet at July 31, 2017.

6. Prepare journal entries to close the temporary accounts and post these entries to the ledger.

7. Prepare a post-closing trial balance.

Short answer

The commission earned account was debited with $10,950.

Step-by-step solution

Definition of closing entries

The closing entries are those entries that are passed at the end of the year to close accounts.

Definition of closing entries

Date	Particulars	Debit	Credit
July 31	Commission Earned	$10,950
	Income Summary		$10,950
	(Being closing entry for commission earned)
July 31	Income Summary	$8,225
	Depreciation Expense- Building		$1,500
	Salaries Expense		$2,100
	Insurance Expense		$400
	Rent Expense		$2,000
	Office Supplies Expense		$875
	Repairs Expense		$950
	Telephone Expense		$400
	(Being entry for expense transferred to income summary)
July 31	Income Summary	$2,725
	Retained Earnings		$2,725
	(Being closing entry for net income)
Juuly 31	Retained Earnings	$2,000
	Dividends		$2,000
	(Being entry closing entry for withdrawal)