Accounting 205 Sun Photography Inc.

Cycle Problem Beth Lasky, CPA JD

Name ________________________________

Instructions: Rose Glass begun a new photography business on December 1 called Sun Photography, Inc.
1. Prepare journal entries to record the events below.
2. Post your Journal entries to the ledgers provided.
3. Prepare the adjusting entries from the facts provided.
4. Post the adjusting entries to your ledgers.
5. Prepare an Adjusted Trial Balance from your ledgers.
6. Prepare financial statements from you Adjusted Trial Balance, first an Income Statement, then a
Statement of Owners Equity, then a Balance Sheet.
7. Prepare closing entries and post them to the ledgers.
December
1 Rose invested $10,000 cash and $25,000 of photography equipment in the company in exchange
for common stock. The equipment is estimated to have a 10 year life and a $1,000 salvage value.
2 Rose pre-paid $6,000 cash for an insurance policy to cover the next 6 months. Coverage is to begin
immediately.
5 Rose purchased photography supplies for $2,000 on account.
7 Rose photographed rare pieces of art for the NOLA Museum and sent a bill for $4,000.
10 City Park paid Rose $6,000 in advance to photograph park wildlife for a new book to be published soon.
11 Rose photographed a wedding on Bayou St. John and was paid $2,000 cash.
15 Rose paid $1200 towards her account payable.
18 Rose paid $1,000 cash to her assistant for her salary.
20 The Museum of Art paid Rose $2,500 in partial payment of the bill Rose sent previously.
30 Rose paid $500 cash for December utilities.
30 Rose paid herself a $4000 dividend.

Dec. 1 Cash 10,000
Photography Equipment 25,000
Common Stock 35,000

2 Prepaid Insurance 6,000
Cash 6,000

5 Supplies 2,000
Accounts payable 2,000

7. Accounts receivable 4,000
Photography fees earned 4,000

10. Cash 6,000
Unearned revenue 6,000

11. Cash 2,000
Photography fees earned 2,000

15. Accounts Payable 1200
Cash 1200



18 Salaries Expense 1,000
Cash 1,000

20. Cash 2,500
Accounts receivable 2,500

30 Utilities Expense 500
Cash 500

30. Dividends 4,000
Cash 4,000

Adjusting Entries Please record adjusting entries as of December 31 based on the facts below.
1.) Rose records one months depreciation on the equipment. The equipment cost $25,000 is estimated to have
a 10 year life and a $1,000 salvage value. (Note: For one months depreciation take the annual amount and
divide by 12)

Depreciation expense 200
Accumulated depreciation 200
(25,000 1,000)/10 = 2,400 per year/12 = $200 per month.


2) Rose records the expiration of one months pre-paid insurance during December. Rose had paid $6,000 for
an insurance policy to cover six months.
Insurance expense 1,000
Prepaid Insurance 1,000
$6,000/6 - $1,000 per month

3) An inventory at the end of the month revealed that only $1200 of photography supplies remained on hand.
Rose had bought $2,000 at the beginning of the month.
Supplies expense 800
Supplies 800
$2000 1200 = 800 used.

4) Rose performed 1/3 of the photography services promised to City Park. City Park had paid Rose $6,000 in
advance to photograph park wildlife for a new book to be published soon.
Unearned Revenue 2,000
Photography Fees earned 2,000

5) Rose records $800 of unrecorded and unpaid salaries owed to her assistant at year end.
Salaries expense 800
Salaries Payable 800

6) Late in months, Rose completed a project for the Jazz and Heritage Foundation to document Mardi Gras
Indians at Christmas. She has not yet sent her bill or recorded the $2500 she earned.
Accounts receivable 2500
Photography Fees earned 2500






Sun Photography
Income Statement
For the Year Ended Dec. 31
Revenues:
Photography fees earned .................................. $10,500
Expenses:
Depreciation Expense ...................................... 200
Insurance Expense ........................................ 1,000
Salaries Expense ........................................... 1,800
Supplies Expense ............................................ 800
Utilities Expense ............................................... 500
Total Expenses ........................................ 4300
Net income $6,200

Sun Photography
Statement of Retained Earnings
For the Year Ended Dec. 31
Retained Earnings, December. 1 ............................ $ 0
Add: Net income ................................................ 6,200
Less: Dividends ................................................... (4,000)
Retained Earnings, December 31 ........................... $2,200

Sun Photography
Balance Sheet
As of December 31
Assets Liabilities
Cash ..................................... $7,800 Accounts payable ............... $ 800
Accounts receivable 4,000 Salaries Payable 800
Supplies ............................... 1,200 Unearned Revenue 4,000
Prepaid Insurance ................ 5,000 Total Liabilities 5,600
Equipment 25,000 Equity
Less: Accum. Depr. 200 24,800 Common Stock 35,000
Retained Earnings 2,200
Total Equity 37,200
Total assets ......................... $42,800 Total liabilities & equity ...... $42,800

Please record your closing Entries and post them to the ledgers

Revenue 10,500
Income Summary 10,500

Income Summary 4,300
Depreciation Expense ...................................... 200
Insurance Expense ........................................ 1,000
Salaries Expense ........................................... 1,800
Supplies Expense ............................................ 800
Utilities Expense ............................................... 500

Income Summary 6,200
Retained Earnings 6,200

Retained Earnings 4,000
Dividends 4000