Question

This comprehensive problem is a continuation of Comprehensive Problem 1. Murphy Delivery Service has completed closing entries and the accounting cycle for 2018. The business is now ready to record January 2019 transactions. Jan. 3 Collected \(200 cash from customer on account. 5 Purchased office supplies on account, \)1,000. 12 Performed delivery services for a customer and received \(3,000 cash. 15 Paid employee salary, including the amount owed on December 31, \)4,100. 18 Performed delivery services on account, \(1,350. 20 Paid \)300 on account. 24 Purchased fuel for the truck, paying \(200 cash. 27 Completed the remaining work due for Unearned Revenue. 28 Paid office rent, \)2,200, for the month of January. 30 Collected \(3,000 in advance for delivery service to be performed later. 31 Cash dividends of \)1,500 were paid to stockholders. Requirements 1. Record each January transaction in the journal. Explanations are not required. 2. Post the transactions in the T-accounts. Don’t forget to use the December 31, 2018, ending balances as appropriate. 3. Prepare an unadjusted trial balance as of January 31, 2019. 4. Prepare a worksheet as of January 31, 2019 (optional). 5. Journalize the adjusting entries using the following adjustment data and also by reviewing the journal entries prepared in Requirement 1. Post adjusting entries to the T-accounts. CHAPTER 4 246 chapter 4 Adjustment data: a. Office Supplies on hand, \(600. b. Accrued Service Revenue, \)1,800. c. Accrued Salaries Expense, $500. d. Prepaid Insurance for the month has expired. e. Depreciation was recorded on the truck for the month. 6. Prepare an adjusted trial balance as of January 31, 2019. 7. Prepare Murphy Delivery Service’s income statement and statement of retained earnings for the month ended January 31, 2019, and the classified balance sheet on that date. On the income statement, list expenses in decreasing order by amount—that is, the largest expense first, the smallest expense last. 8. Calculate the following ratios as of January 31, 2019, for Murphy Delivery Service: return on assets, debt ratio, and current ratio.

Short answer

(1) Journal entries are mentioned in Step 1.

(2) T accounts are mentioned in Step 2.

(3) Under unadjusted trial balance, total debits and credits equals $40,550.

(4) Worksheet is mentioned in Step 4.

(5) Adjusting entries and T accounts are mentioned in Step 5.

(6) Under adjusted trial balance, total debits and credits equals $42,950.

(7) Net income is $400, ending balance of retained earnings equals $7,800 and total assets and total liabilities & stockholders’ equity equals $34,000.

(8) Return on assets equals 1.19%, debt ratio equals 12.35% and current ratio equals 6.

Step-by-step solution

Step-by-Step-Solution  Step 1: Journal entries and T accounts

(1) Journal entries are as follows:

Date	Accounts and Explanation	Debit	Credit
Jan. 3	Cash	$200
	Accounts Receivable		$200
Jan. 5	Office Supplies	$1,000
	Accounts Payable		$1,000
Jan. 12	Cash	$3,000
	Service Revenue		$3,000
Jan.15	Salaries Expense	$3,300
	Salaries Payable	$800
	Cash		$4,100
Jan. 18	Accounts Receivable	$1,350
	Service Revenue		$1,350
Jan. 20	Accounts Payable	$300
	Cash		$300
Jan. 24	Fuel Expense	$200
	Cash		$200
Jan. 27	Unearned Revenue	$1,500
	Service Revenue		$1,500
Jan. 28	Rent Expense	$2,200
	Cash		$2,200
Jan. 30	Cash	$3,000
	Unearned Revenue		$3,000
Jan. 31	Dividends	$1,500
	Cash		$1,500

T accounts

T accounts are as follows:

Cash
Beg. Bal.	$21,500	$4,100	Jan.15
Jan. 3	$200	$300	Jan. 20
Jan. 12	$3,000	$200	Jan. 24
Jan.30	$3,000	$2,200	Jan. 28
		$1,500	Jan. 31
Bal.	$19,400

Accounts Receivable
Beg. Bal.	$1,850	$200	Jan. 3
Jan.18	$1,350
Bal.	$3,000

Office Supplies
Beg. Bal.	$450
Jan. 5	$1,000
Bal.	$1,450

Accounts Payable
Jan.20	$300	0	Beg. Bal.
		$1,000	Jan.5
		$700	Bal.

Unearned Revenue
Jan.27	$1,500	$1,500	Beg. Bal.
		$3,000	Jan. 30
		$3,000	Bal.

Salaries Payable
Jan.15	$800	$800	Beg. Bal.
		.$0	Bal.

Service Revenue
		$3,000	Jan. 12
		$1,350	Jan. 18
		$1,500	Jan. 27
		$5,850	Bal.

Salaries Expense
Jan.15	$3,300
Bal.	$3,300

Fuel Expense
Jan.24	$200
Bal.	$200

Rent Expense
Jan.28	$2,200
Bal.	$2,200

Dividends
Jan.31	$1,500
Bal.	$1,500

Unaadjusted Trial Balance

(3) Unadjusted trial balance is shown as follows:

Murphy Delivery Service
Unadjusted Trial Balance
January 31, 2019
Account Names	Debit	Credit
Cash	$19,400
Accounts Receivable	$3,000
Prepaid Insurance	$500
Office Supplies	$1,450
Truck	$9,000
Accumulated Depreciation-Truck		$100
Accounts Payable		$700
Unearned Revenue		$3,000
Common Stock		$22,000
Retained Earnings		$8,900
Dividends	$1,500
Service Revenue		$5,850
Salaries Expense	$3,300
Rent Expense	$2,200
Fuel Expense	$200
Total	$40,550	$40,550

Worksheet

(4) Worksheet is shown as follows:

Murphy Delivery Service
Worksheet
January 31, 2019
	Unadjusted Trial Balance		Adjustments		Adjusted Trial Balance	Income Statement	Balance Sheet
Account Names	Debit	Credit		Debit	Credit		Debit	Credit	Debit	Credit	Debit	Credit
Cash	$19,400						$19,400				$19,400
Accounts Receivable	3,000		(b)	$1,800			4,800				4,800
Prepaid Insurance	500				100	(d)	400				400
Office Supplies	1,450				850	(a)	600				600
Truck	9,000						9,000				9,000
Accumulated Depreciation-Truck		$100			100	(e)		200				200
Accounts Payable		700						700				700
Unearned Revenue		3,000						3,000				3,000
Salaries Payable		0			500	(c)		500				500
Common Stock		22,000						22,000				22,000
Retained Earnings		8,900						8,900				8,900
Dividends	1,500						1,500				1,500
Service Revenue		5,850			1,800	(b)		7,650		7,650
Salaries Expense	3,300		(c)	500			3,800		3,800
Rent Expense	2,200						2,200		2,200
Fuel Expense	200						200		200
Insurance Expense			(d)	100			100		100
Depreciation Expense-Truck			(e)	100			100		100
Supplies Expense			(a)	850			850		850
Total	$40,550	$40,550		$3,350	$3,350		$42,950	$42,950	$7,250	$7,650	$35,700	$35,300
								Net Income	$400			$400
Total									$7,650	$7,650	$35,700	$35,700

Step 5: Adjusting Entries Recording and Posting

(5) Adjusting entries are as follows:

	Date	Accounts and Explanation	Debit	Credit
(a)	Dec. 31	Supplies Expense	$850
		Office Supplies		$850
		($1,450-$600)
(b)	Dec. 31	Accounts Receivable	$1,800
		Service Revenue		$1,800
(c)	Dec. 31	Salaries Expense	$500
		Salaries Payable		$500
(d)	Dec. 31	Insurance Expense	$100
		Prepaid Insurance		$100
		($600/6)
(e)	Dec. 31	Depreciation Expense-Truck	$100
		Accumulated Depreciation—Truck		$100
		((9000-3000)/5)*1/12

T accounts are as follows:

Supplies Expense
Jan.31	$850
Bal.	$850

Office Supplies
Beg. Bal.	$450	$850	Jan.31
Jan. 5	$1,000
Bal.	$600

Accounts Receivable
Beg. Bal.	$1,850	$200	Jan. 3
Jan.18	$1,350
Jan. 31	$1,800
Bal.	$4,800

Service Revenue
		$3,000	Jan. 12
		$1,350	Jan. 18
		$1,500	Jan. 27
		$1,800	Jan. 31
		$7,650	Bal.

Salaries Expense
Jan.15	$3,300
Jan. 31	$500
Bal.	$3,800

Salaries Payable
Jan.15	$800	$800	Beg. Bal.
		.$500	Jan. 31
		$500	Bal.

Insurance Expense
Jan.31	$100
Bal.	$100

Prepaid Insurance
Beg. Bal.	$500	$100	Jan. 31
Bal.	$400

Depreciation Expense—Truck
Jan. 31	$100
Bal.	$100

Accumulated Depreciation—Truck
		$100	Beg. Bal.
		$100	Jan.31
		$200	Bal.

Step 6: Adjusted Trial Balance

(6) Adjusted trial balance is shown as follows:

Murphy Delivery Service
Adjusted Trial Balance
January 31, 2019
Account Names	Debit	Credit
Cash	$19,400
Accounts Receivable	4,800
Prepaid Insurance	400
Office Supplies	600
Truck	9,000
Accumulated Depreciation—Truck		$200
Accounts Payable		700
Unearned Revenue		3,000
Salaries Payable		500
Common Stock		22,000
Retained Earnings		8,900
Dividends	1,500
Service Revenue		7,650
Salaries Expense	3,800
Rent Expense	2,200
Fuel Expense	200
Insurance Expense	100
Depreciation Expense-Truck	100
Supplies Expense	850
Total	$42,950	$42,950

Income statement, Statement of retained earnings, and the classified balance sheet

(7) Income statement is shown as follows:

Murphy Delivery Service
Income Statement
Month Ended January 31, 2019
Revenues
Service Revenue		$7,650
Expenses
Salaries Expense	$3,800
Rent Expense	2,200
Supplies Expense	850
Fuel Expense	200
Depreciation Expense-Truck	1,200
Insurance Expense	100
Total Expenses		7,250
Net Income		$400

Statement of retained earnings is shown as follows:

Murphy Delivery Service
Statement of Retained Earnings
Month Ended January 31, 2019
Retained Earnings, Beginning Balance	$8,900
Net Income for the year	400
	9,300
Dividends	(1,500)
Retained Earnings, Ending Balance	$7,800

Balance Sheet is shown as follows:

Murphy Delivery Service
Balance Sheet
January 31, 2019
Assets
Current Assets:
Cash		$19,400
Accounts Receivable		4,800
Prepaid Insurance		400
Office Supplies		600
Total Current Assets			$25,200
Property, Plant, and Equipment:
Truck	$9,000
Less: Accumulated Depreciation- Truck	(200)	8,800
Total Property, Plant, and Equipment:			8,800
Total Assets			$34,000

Liabilities
Current Liabilities:
Unearned Revenue		$3,000
Accounts Payable		700
Salaries Payable		500
Total Current Liabilities:			$4,200
Total Liabilities			$4,200

Stockholders’ Equity
Common Stock			22,000
Retained Earnings			7,800
Total Stockholders’ Equity			29,800
Total Liabilities and Stockholders’ Equity			$34,000

Closing entries and posting

(8) Closing entries are as follows:

Date	Accounts and Explanation	Debit	Credit
Dec. 31	Service Revenue	$7,650
	Income Summary		$7,650
	To close revenue.
Dec. 31	Income Summary	$7,250
	Salaries Expense		$3,800
	Rent Expense		2,200
	Depreciation Expense-Truck		100
	Supplies Expense		850
	Fuel Expense		200
	Insurance Expense		100
	To close expenses.
Dec. 31	Income Summary	$400
	Retained Earnings		$400
	To close Income Summary
Dec. 31	Retained Earnings	$1,500
	Dividends		$1,500
	To close Dividends

Retained Earnings
Clos.4	$1,500	$8,900	Beg. Bal
		$400	Clos.3
		$7,800	Bal.

Income Summary
Clos.2	$7,250	$7,650	Clos.1
		$400
Clos.3	$400
		$0	Bal.

Dividends
Bal.	$1,500	$1,500	Clos. 4
Bal.	$0

Service Revenue
Clos.1	$19,600	$19,600	Dec.31
		$0	Bal.

Salaries Expense
Jan.15	$3,300	$3,800	Clos. 2
Jan. 31	$500
Bal.	$0

Rent Expense
Dec.31	$2,200	$2,200	Clos. 2
Bal.	$0

Depreciation Expense-Truck
Dec. 31	$100	$100	Clos.2
Bal.	$0

Supplies Expense
Dec.31	$850	$850	Clos.2
Bal.	$0

Fuel Expense
Dec.31	$200	$200	Clos.2
Bal.	$0

Insurance Expense
Dec.31	$100	$100	Clos.2
Bal.	$0

Step 9: Ratio Calculations

(8) Return on assets, debt ratio and current ratio is calculated as follows:

$\begin{array}{c}\mathbf{}\mathbf{}\mathbf{ReturnonAssets}\mathbf{=}\frac{\mathrm{NetIncome}}{\frac{\mathrm{BeginningTotalAssets}+\mathrm{EndingTotalAssets}}{2}}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\$400}{\frac{\$33,200+\$34,000}{2}}\\ \mathbf{=}\mathbf{1}\mathbf{.}\mathbf{19}\mathbf{\%}\end{array}$

$\begin{array}{c}\mathbf{DebtRatio}\mathbf{=}\frac{\mathrm{TotalDebts}}{\mathrm{TotalAssets}}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\$4,200}{\$34,000}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{12}\mathbf{.}\mathbf{35}\mathbf{\%}\end{array}$

$\begin{array}{c}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{CurrentRatio}\mathbf{=}\frac{\mathrm{CurrentAssets}}{\mathrm{CurrentLiabilities}}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\$25,200}{\$4,200}\\ =6\end{array}$