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Problem 3-4 (1) Determining Adjusting Entries and Tracing Their Effects to Financial Statements

Kitz Limo Service, Inc., was organized to provide limousine service between the airport and various suburban locations. It has just completed its second year of business. Its trial balance follows.

Kitz Limo Service, Inc.
Trial Balance
June 30, 2014
Cash (111)		9,812
Accounts Receivable (113)		14,227
Prepaid Rent (117)		12,000
Prepaid Insurance (118)		4,900
Prepaid Maintenance (119)		12,000
Spare Parts (140)		11,310
Limousines (148)		200,000
Accumulated Depreciation - Limousines (149)				25,000
Notes Payable (211)				45,000
Unearned Passenger Service Revenue (212)				30,000
Common Stock (311)				30,000
Retained Earnings (312)				48,211
Dividends (313)		20,000
Passenger Service Revenue (411)				428,498
Gas and Oil Expense (510)		89,300
Salaries Expense (511)		206,360
Advertising Expense (513)		26,800
		606,709		606,709

The following information is also available:

To obtain space at the airport, Kitz paid two years' rent in advance when it began the business.

An examination of insurance policies reveals that $2,800 expired during the year.

To provide regular maintenance for the vehicles, Kitz deposited $12,000 with a local garage. An examination of maintenance invoices reveals charges of $10,944 against the deposit.

An inventory of spare parts shows $1,902 on hand.

Kitz depreciates all of its limousines at the rate of 12.5 percent per year. No limousines were purchased during the year.

A payment of $1,500 for one full year's interest on notes payable is now due.

Unearned Passenger Service Revenue on June 30 includes $17,815 for tickets that employers purchased for use by their executives but which have not yet been redeemed.

Federal income taxes for the year are estimated to be $13,250.

1. Determine adjusting entries and enter them in the general journal (Page 14). Enter the adjusting entries in the order shown above (a through h) in the additional information section. Include the Post. Ref. column and fill in using the account numbers listed in the question.

GENERAL JOURNAL				PAGE 14
DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
2014
Jun. 30	SelectCashRent PayableRent RevenuePrepaid RentRent ExpenseItem 1
	SelectCashRent PayableRent RevenuePrepaid RentRent ExpenseItem 4
	To expense second year's rent paid in advance
Jun. 30	SelectCashInsurance PayableInsurance RevenuePrepaid InsuranceInsurance ExpenseItem 7
	SelectCashInsurance PayableInsurance RevenuePrepaid InsuranceInsurance ExpenseItem 10
	To record insurance that expired during the year
Jun. 30	SelectCashMaintenance PayableMaintenance RevenuePrepaid MaintenanceMaintenance ExpenseItem 13
	SelectCashMaintenance PayableMaintenance RevenuePrepaid MaintenanceMaintenance ExpenseItem 16
	To record amount of deposit used during the year
Jun. 30	SelectCashSpare Parts PayableSpare Parts RevenueSpare Parts ExpenseSpare PartsItem 19
	SelectCashSpare Parts PayableSpare Parts RevenueSpare Parts ExpenseSpare PartsItem 22
	To record spare parts used during the year
Jun. 30	SelectCashLimousinesLimousines ExpenseAccumulated Depreciation-LimousinesDepreciation Expense-LimousinesItem 25
	SelectCashLimousinesLimousines ExpenseAccumulated Depreciation-LimousinesDepreciation Expense-LimousinesItem 28
	To record depreciation on the limousines for the year
Jun. 30	SelectCashInterest RevenuePrepaid InterestInterest ExpenseInterest PayableItem 31
	SelectCashInterest RevenuePrepaid InterestInterest ExpenseInterest PayableItem 34
	To record accrued interest
Jun. 30	SelectCashPassenger Service Revenue PayablePassenger Service Revenue ReceivablePassenger Service RevenueUnearned Passenger Service RevenueItem 37
	SelectCashPassenger Service Revenue PayablePassenger Service Revenue ReceivablePassenger Service RevenueUnearned Passenger Service RevenueItem 40
	To recognize passenger service revenue earned
Jun. 30	SelectCashInterest ExpenseIncome Taxes ExpenseIncome Taxes PayableIncome Taxes RevenueItem 43
	SelectCashInterest ExpenseIncome Taxes ExpenseIncome Taxes PayableIncome Taxes RevenueItem 46
	To record estimated income taxes

2. Open ledger accounts for the accounts in the trial balance plus the following: Interest Payable (213); Income Taxes Payable (214); Rent Expense (514); Insurance Expense (515); Spare Parts Expense (516); Depreciation ExpenseLimousines (517); Maintenance Expense (518); Interest Expense (519) and Income Taxes Expense (520). Record the balances shown in the trial balance.

3. Post the adjusting entries from the general journal to the ledger accounts, showing proper references. If an amount box does not require an entry, leave it blank.

GENERAL LEDGER
ACCOUNT	Cash				ACCOUNT NO.	111
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 49

ACCOUNT	Accounts Receivable				ACCOUNT NO.	113
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 54

ACCOUNT	Prepaid Rent				ACCOUNT NO.	117
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 59
Jun. 30	SelectBalanceAdjustmentItem 64

ACCOUNT	Prepaid Insurance				ACCOUNT NO.	118
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 70
Jun. 30	SelectBalanceAdjustmentItem 75

ACCOUNT	Prepaid Maintenance				ACCOUNT NO.	119
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 81
Jun. 30	SelectBalanceAdjustmentItem 86

ACCOUNT	Spare Parts				ACCOUNT NO.	140
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 92
Jun. 30	SelectBalanceAdjustmentItem 97

ACCOUNT	Limousines				ACCOUNT NO.	148
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 103

ACCOUNT	Accumulated DepreciationLimousines				ACCOUNT NO.	149
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 108
Jun. 30	SelectBalanceAdjustmentItem 113

ACCOUNT	Notes Payable				ACCOUNT NO.	211
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 119

ACCOUNT	Unearned Passenger Service Revenue				ACCOUNT NO.	212
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 124
Jun. 30	SelectBalanceAdjustmentItem 129

ACCOUNT	Interest Payable				ACCOUNT NO.	213
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 135

ACCOUNT	Income Taxes Payable				ACCOUNT NO.	214
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 141
Jun. 30	SelectBalanceAdjustmentItem 146

ACCOUNT	Common Stock				ACCOUNT NO.	311
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 152

ACCOUNT	Retained Earnings				ACCOUNT NO.	312
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 157

ACCOUNT	Dividends				ACCOUNT NO.	313
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 162

ACCOUNT	Passenger Service Revenue				ACCOUNT NO.	411
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 167
Jun. 30	SelectBalanceAdjustmentItem 172

ACCOUNT	Gas and Oil Expense				ACCOUNT NO.	510
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 178

ACCOUNT	Salaries Expense				ACCOUNT NO.	511
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 183

ACCOUNT	Advertising Expense				ACCOUNT NO.	513
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 188

ACCOUNT	Rent Expense				ACCOUNT NO.	514
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 193

ACCOUNT	Insurance Expense				ACCOUNT NO.	515
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 199

ACCOUNT	Spare Parts Expense				ACCOUNT NO.	516
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 205

ACCOUNT	Depreciation ExpenseLimousines				ACCOUNT NO.	517
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 211

ACCOUNT	Maintenance Expense				ACCOUNT NO.	518
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 217

ACCOUNT	Interest Expense				ACCOUNT NO.	519
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 223

ACCOUNT	Income Taxes Expense				ACCOUNT NO.	520
					BALANCE
DATE	ITEM	POST. REF.	DEBIT	CREDIT	DEBIT	CREDIT
2014
Jun. 30	SelectBalanceAdjustmentItem 229
Jun. 30	SelectBalanceAdjustmentItem 234