Mulberry Services sells electronic data processing services to firms too small to own their own computing equipment. Mulberry had the following accounts and account balances as of January 1, 2011:
Accounts Payable ............... $ 14,000
Accounts Receivable ............. 130,000
Common Stock ............... 114,000
Cash .................... 6,000
Interest Payable ............... 8,000
Notes Payable (Long-term) ......... 80,000
Prepaid Rent (Short-term) ......... 96,000
Retained Earnings, 12/31/2010 ....... 16,000
During 2011, the following transactions occurred (the events described below are aggregations of many individual events):
a. During 2011, Mulberry sold $690,000 of computing services, all on credit.
b. Mulberry collected $570,000 from the credit sales in transaction a and an additional $129,000 from the accounts receivable outstanding at the beginning of the year.
c. Mulberry paid the interest payable of $8,000.
d. Wages of $379,000 were paid in cash.
e. Repairs and maintenance of $9,000 were incurred and paid.
f. The prepaid rent at the beginning of the year was used in 2011. In addition, $28,000 of computer rental costs were incurred and paid. There is no prepaid rent or rent payable at year-end.
g. Mulberry purchased computer paper for $13,000 cash in late December. None of the paper was used by year-end.
h. Advertising expense of $26,000 was incurred and paid.
i. Income tax of $10,300 was incurred and paid in 2011.
j. Interest of $5,000 was paid on the long-term loan.
Required:
1. Establish a ledger for the accounts listed above and enter the beginning balances. Use a chart of accounts to order the ledger accounts.
2. Analyze each transaction. Journalize as appropriate.
3. Post your journal entries to the ledger accounts. Add additional ledger accounts when needed.
4. Use the ending balances in the ledger accounts to prepare a trial balance.