Step 8: Preparing a Postclosing Trial Balance
T- Accounts for Tom's Wear at the Beginning of March
tom'swGal Ltf;
Note: BB = beginning balance
Accounts receivable lnventory Prenaid Insurance
Computers Accumulated depreciation
Other payables Accounts payable Interest payable
Notes payable Common stock Retained eamings
Sales (revenue) Cost of goods sold
Insurance expense Depreciation expense Interest expense
5 9 6 A P P E N D I X B . T H E M E C H A N I C S O F A N A C C O U N T I N G S Y S T E M
Journal Entries for March 2006
Ref. Date Journal entry DR CR
3 - 1 3 1 0 1 1 0 6 E q u i p m e n t Cash
Notes payable To record the purchase of
a computer with a cash p a y m e n t o f $1,000 a n d a note payable of $3,000
3-2 3110106 Other payables
Cash
To record the payment of a liability for last year's advertising expense
3-3 3115106 Cash
Accounts receivable To record the collection of
accounts receivable
3-4 3120106 Accounts payable
Cash
To record payment to vendor for last month's purchase
3-5 3124106 Inventory
Cash
To record the purchase of 250 T-shirts at $4 each, paid for in cash 3-6a 3127106 Accounts receivable
Sa les
To record the sale of 200 T-shirts, on account 3-6b 3127106 Cost of goods sold
Inventory To record the expense
cost of goods so/d and reduce the inventory by 200 x $4
50
1 5 0 4,000
1 , 0 0 0
2,000
800
1 , 0 0 0 3,000
50
1 5 0
800
r,000
2,000
800
Required
1. Post the journal entries for March using the T-accounts shown in Exhibit B.15.
2. Then prepare an unadjusted trial balance at March 31.
3. Make the necessary adjusting journal entries at March 3l and post them to the T-accounts.
For Tom's Wear, three adjustments need to be made before the financial statements can be prepared. The adjustments are:
a. Depreciation expense for the computer: $100 b. Insurance expense for the month: $50 c. Interest payable on the note: $30
4. Prepare an adjusted trial balance at March 3I,2006.
5. Use the adjusted trial balance to prepare the four basic financial statements.
A P P E N D I X B . T O M ' S W E A R T R A N S A C T I O N S F O R M A R C H 2 0 0 6 l N A G E N E R A L L E D G E R S Y S T E M
Solution
1. T-accounts are shown in the answer to part 3.
.,
Tom's WeaL lnc.
Unadjusted Trial Balance March 31, 2006
597
Cash
Accounts receivable Inventory
P r e p a i d i n s u r a n c e E q u i p m e n t Notes payable Common stock R e t a i n e d e a r n i n g s S a l e s
Cost of goods sold Totals
$ 3 , 9 9 s 2,000 300 125 4,000
800
$t t,zzo
$ 3,ooo
5,000 1,220 2,000
3.
$ 1 1 , 2 2 0 Adjusting journal entries and explanations:
a. The computer has been used for one full month, so you must record depreciation ex- pense. The cost was $4,000, an estimated residual value of $400, and a 3-year use- ful life. Each year the equipment will be depreciated by $1,200 (: (4,000 - 400)/
3 years). That makes the depreciation expense $100 per month.
Transaction Debit Credit
3131106 Depreciation expense
Accumulated dePreciation To record the depreciation expense for March
1 0 0
1 0 0 Adj-1 Tom's Wear signed a $3,000 note on March 1 to purchase the computer. A month has passed, and Tom's Wear needs to accrue the interest expense on that note in the amount of $30 (: $3,000 x 0.I2 x IlI2).
Date Transaction Debit Credit
3131106 Interest expense
Interest payable
To record the interest expense for March Adj-2 3 0
598 A P P E N D I X B o T H E M E C H A N I C S O F A N A C C O U N T I N G S Y S T E M
c. In mid-February, Tom's Wear purchased 3 months of insurance for $ 150, which is
$50 per month. On the March 1 balance sheet, there is a current asset called pre- paid insurance in the amount of $125. A full month's worth of insurance expense needs to be recorded for the month of March. That amount will be deducted from prepaid insurance.
Date Transaction Debit Credit
3t31t06 Insurance expense
P r e p a i d i n s u r a n c e To record the insurance expense for the year
50 Adj-3 T:accounts with adjustments for March 2006 posted (Balances in each account are shown with a double underline)
50
Cash 1,000
50 800
Accounts receivable Inventory Prepaid Insurance
BB 6,695 3-3 150
3-1 3-2
s-4
3-6 3.995
Insurance expense
w
Equipment 4.000
Notes payable
Other payables Accounts payables Interest payable Notes payable
3.000 3-l
Common stock Retained Earnings
1.220 BB
Sales (revenue) 2,000 3-6a
Cost of goods sold 3-6b 800
Depreciation expense
Aqi-r 100
Interest expense
4.
A P P E N D I X B . T O M ' S W E A R T R A N S A C T I O N S F O R M A R C H 2 0 0 6 l N A G E N E R A L L E D G E R S Y S T E M 5 9 9
Tom's Wear, Inc.
Adjusted Trial Balance M a r c h 3 1 , 2 0 0 6
$ 3,ess
2,000 300
7 5 4,000 Cash
Accounts receivable Inventory
Prepaid insurance E q u i p m e n t
Accumulated depreciation Interest payable
Notes payable Common stock R e t a i n e d e a r n i n g s S a l e s
Cost of goods sold Insurance expense Depreciation expense Interest expense
Totals $ 1 1 , 3 5 0
$ 1 0 0 30 3,000 5,000 1,220 2,000
5 1 1 , 3 5 0 800
5 0 1 0 0
3 0
5. The financial statements:
Tom's Wear, Inc.
Income Statement
For the Month Ended March 31, 2006
sales revenue $ 2'ooo
Expenses
C o s t o f g o o d s s o l d . . . . . $ 8 0 0
Depreciationexpense '. 100
Insurance expense 50
I n t e r e s t e x p e n s e . . . 3 0
N e t i n c o m e " ' $ 1 ' o 2 o
980
$ 1,020
Tom's Wear, Inc.
Statem6nt of Changes in Shareholder's Equity For the Month Ended March 31, 2006
Beginning conunon stock . $ 5,000
Common stock issued during the month . 0
Ending common stock $ 5,000
Begiruring retained earnings $ 1,220
Net income for the month 1,020
ff-+#Htr":trilil:::: ::::::: :: :::: :::: :: :: :::::I: ::: ffi
500 A P P E N D I X B . T H E M E C H A N I C S O F A N A C C O U N T I N G S Y S T E M
Tom's Wear, Inc.
Balance Sheet At March 31, 2006
Liabilities and Shareholder's eouitv Current assets
Cash
Accountsreceivable ...
Inventory
P r e p a i d i n s u r a n c e . . . . Total current assets Computer (net of $100
accumulated depreciation) Total assets
Current liabilities
I n t e r e s t p a y a b l e . . . $ 3 0
Notespayable 3,000
Total current liabilities . . 3,030 Shareholder's equity
Common stock 5,000
Retained earnings 2,240
Total shareholder's equity 7,240 Total liabilities and
shareholder'sequity . .$L0,270
$ 3,995 2,000 300
qtr
6,370 3,900 8r0,270
Tom's Wear, Inc.
Statement of Cash Flows For the Month Ended March 31, 2006
Cash from operating activities:
C a s h c o l l e c t e d f r o m c u s t o m e r s . . . $ 1 5 0
Cash paid to vendors (1,800)
Cash paid for operating expense . . . , (50)
Net cash from operating activities $ (1,700)
Cash from investing activities:
Purchase ofasset* $(1,000)
Cash from ffnancing activities:
Net increase (decrease) in cash Beginning cash balance
Ending cash balance
You have seen these exact financial statements before. When we used the accounting equation to keep track of the transactions in Chapter 3, the results were the same as using the general ledger system here. No matter how we do the record keeping, the financial state- ments are the same. The mechanics of any accounting system-stand-alone or integrated with an enterprise resource planning system-must be designed to produce the information needed for the basic financial statements accordins to GAAP.
(1,000) 0
$ (2,700) 6,695
$ 3,995
Key Terms
general ledger system
(p. s76) journal (p. 576)
trial balance (p. 5'77) debit (p. 578) credit (p. 578)
accounting cycle (p. 580) withdrawal (p.582) dividend (p. 582) adjusted trial balance
(p. s86)
temporary accounts (p. 589)
closing the accounts (p. 589) permanent accounts (p. 589) real accounts (p. 589) postclosing trial balance
(p. s91)
A P P E N D I X B . K E Y T E R M S 6 0 1
Answers to YOUR TURN Questions
Your Turn B-1
Shareholder's Account title Expense Revenue Asset Liability equity Accounts payable
Accounts receivable
Advertising expense DR Cash
Depreciation expense DR Furniture and fixtures
Accumulated depreciation Unearned fees
Salary expense DR
Common stock
Rent expense DR
D i v i d e n d s
R e t a i n e d e a r n i n g s (Earned) Fees L a n d
B u i l d i n g
CR (Credit) DR
D R D R
(Contra) CR C R
CR DR C R CR
D R D R
Your Turn B-2
Date Transaction Debit Credit
12131107 Salaries expense Salaries payable To accrue salary expense for December 2007
No expense will be recognized in January 2008, It was recognized in December 2007 , but will be paid in January 2008.
Transaction Debit Credit
300
113108 Salaries payable
Cash
To record the cash payment of salaries payable
300
300
Your Turn B-3
Date Transaction Debit Credit
12131107 Revenue account
R e t a i n e d e a r n i n g s To close the revenue account to retained earnings
s,000
s,000
Date Transaction Debit Credit
12131107 Retained earnings
Expense account To close the expense account to retained earnings
3,000
3,000
6 0 2 A P P E N D I X B . T H E M E C H A N I C S o F A N A c c o U N T I N G S Y S T E M
Questions
1. What is the general ledger system and what are its advantages?
2. What is an account?
3. What is the trial balance?
4. Which accounts are pennanent and which are temporary?
5. What is the normal balance in each of these accounts?
Accounts receivable Cash
Accounts payable Supplies expense
Common stock Distributions (dividends)
Retained earnings Inventory
Sales revenue Bonds payable
Salary expense Cost ofgoods sold
6. What are the basic steps in the accounting cycle?
7. Can accounting transactions be recorded directly into the general ledger accounts?
What is the advantage of using a journal first?
8. Is a credit a good thing or a bad thing? Explain.
9. What are adjusting entries and why are they necessary?
Multiple-Choice Questions
1. Evans Company completes a service engagement and bills a customer $50,000 on June 19,2006. Included in thejournal entry to record this transaction will be a:
a. Debit to cash, $50,000.
b. Credit to cash, $50,000.
c. Credit to accounts receivable, $50,000.
d. Credit to service revenue. $50.000.
2. Atrial balance is a:
a. List of all the accounts with a six-digit account number used by a business.
b. Place to record increases and decreases to a particular financial statement item's balance.
c. Chronological list of all recorded transactions.
d. List ofall the accounts used by the business along with each account's debit or credit balance at a point in time.
3. Bob Frederick, the owner of a delivery business, wants to know the balance of cash, accounts receivable, and sales on April 15 of the current period. Bob should look at what part of his accounting system?
a. Thejournal.
b. The ledger.
c. The balance sheet.
d. The subsidiaryjournal.
4. What is accomplished by preparing a trial balance?
a. A firm can make sure the debits equal the credits in the accounting system.
b. A firm can make sure there are no errors in the accounting system.
c. A firm can identify accruals and deferrals.
d. All of the above.
5. The data needed to prepare a trial balance comes from the:
a. Journal.
b. Ledger.
c. Balance sheet.
d. Post-closing income statement.
6. If the income statement includes revenues earned even if the cash has not been col- lected from customers yet, it means that the:
a. Closing entries have not been completed yet.
b. Journal has errors in it.
c. Accrual basis of accounting is being used.
d. Adjusting entries have not been done yet.
APPENDIX B . SHORT EXERCISES 603 7. Myers Company pays its employees every Friday for a 5-day workweek (Monday
through Friday). The employees earn $3,000 per day of work. If the company pays
\!"
the employees $15,000 on Friday, October 3, 2008, the entry into the journal would include:
a. A debit to wages expense for $15,000.
b. A debit to cash for $15.000.
c. A credit to wages payable for $15,000.
d. A debit to cash for $3.000.
8. Jules, Inc.hadaJune l,20Oibalanceof offrcesuppliesof $l00.DuringJune,thecom- pany purchased $900 more of the office supplies in exchange for cash. On June 30, 200'7 the supplies were counted and it was determined that $200 worth of office sup- plies were left unused. The adjustingjournal entry should include a:
a. Debit to supplies expense of $800.
b. Debit to office supplies of $900.
c. Credit to cash for $200.
d. Credit to supplies expense of $800.
9. Why should closing entries be completed at the end of each period?
a. Because certain accounts are not needed in the future.
b. Because it allows the trial balance and financial statements to be prepared.
c. Because all accounts must begin the next period at zero.
d. Because temporary accounts need to start the next period with a zero balance.
10. Which account below should NOT be closed?
a. Accounts receivable.
b. Interest revenue.
c. Sales revenue.
d. Wages expense.
Short Exercises
SEB-I. Normal account balances. Given the following accounts, tell whether the normal balance of each account is a debit (DR) or credit (CR). (LO 1)
1. Interest receivable 2. -Accounts payable
3. - Sonia Bostic, Capital account 4. Service revenue
5. - Prepaid rent 6. -Supplies inventory 7. -Insurance expense 8. - Income tax expense 9. -Salaries payable 10. - Retained earnings
SEB-2. Recognize revenue and recording journal entries. Indicate which of the following events would result in recognizing revenue for the year in which the described event takes place; indicate the amount and the account. Give the journal entry that would be made in each case. (Take the selling company's point of view .) (LO I , 2, 3 )
a. DELL, Inc. sold a computer system worth $10,000; the customer financed the purchase because he didn't have any cash.
b. Steel USA is producing 3 tons of steel for American Cans. It costs $4,500 per ton to produce, but American Cans has promised to pay $7,750 per ton when it receives the steel. Steel USA will probably ship it in the near future'
c. Seminole Boosters has received $75,000 in advance ticket sales for next year's football games.
\J d. Comcast Cable collected several accounts that were outstanding from last year.
Usually accounts are collected in advance; but in this case, the customer received the cable services last year but didn't pay until this year.
e. Customers paid over $6,500 in advance for services to be rendered next year.
604 A P P E N D I X B . T H EM E C H A N I C S O F A N A C C O U N T I N G S Y S T E M
SEB-3. Recognize expenses and recording journal entries.Indicate which of the following events would result in recognizing expenses for the year in which the described event takes place; give the journal entry. (Take the ?shirt company's point of view.) (LO 1, 2, 3)
a. T-Shirts Plus, Inc. paid employees $6,000 for work performed during the prior year.
b. T-Shirts Plus, Inc. purchased 15,000 T-shirts for their inventory for $30,000 on account.
c. TShirts Plus, Inc. paid the factory cash for the 15,000 shirts purchased.
d. T-Shirts Plus, Inc. sold 1,500 T-shirts to the FSU Bookstore for $16,500 cash.
e. T:Shirts Plus, Inc. received a utility bill for the last month of the year in the amount of $575 but won't actually pay it until next year.
f. T-Shirts Plus, Inc. paid $8,600 for a2-year insurance policy-for the current year and for next year.
SEB-4. Relate the accounting equation to debits and credits. Below are selected transac- tions for Jenna & Yvonne Enterprises, Inc. that occurred during the month of December.
For each transaction, tell how it affects the accounting equation. Then, tell which accounts will be affected and how. (Ignore adjustments that may be needed on December 31.) For example, Jenna &Yvonne purchased a new computer for $5,000 for cash. It is expected to last for 5 years. Solution: Assets are increased by $5,000 (equipment) and also reduced by $5,000 (cash): debit (increase) equipment, credit (decrease) cash. (LO l)
a. The company issued common stock to investors for $15,000 cash.
b. The company rented a warehouse for $1,500 per month, and paid for 3 months rent on December 1.
c. The company purchased inventory for $4,500 on account.
SEB-S. Record journal entries. The following selected transactions for Ganet & Wilson's Consulting, Inc. occurred during the month of April. Give the journal entry for each. (LO I ) a. The firm provided services to customers for $10,000: Seventy percent were paid
with cash and thirty percent were on account.
b. Garret & Wilson's paid $1,000 for part of a $3,000 purchase made in March on account.
c. The company incurred operating expenses for $800 cash.
d. Garret & Wilson's purchased supplies for $500 cash, to be used during May.
SEB-6. Effect of transactions on cash. How do the following transactions affect Toys, Toys, Toys, Inc.'s cash account? (Tell if it would be a debit or a credit.) (LO 1)
a. Toys, Toys, Toys purchased $6,000 ofbaby cribs for cash.
b. The company sold one of their buildings, allowing the buyer to give them a short-term note for $135,000.
c. The employees were paid $5,400 cash in sales commissions.
d. The firm gave customers $1,500 cash for returned merchandise.
e. Toys, Toys, Toys issued stock to investors for $7,750 cash.
SEB-7. Effect of transactions on the liability and shareholders' equity accourets. How do the following transactions affect the liability and shareholders' equity accounts for Fast Signs, Inc. during 2OO7? (Tell if it would be a debit or a credit.) (LO 1)
a. Fast Signs paid the remainder of a $3,000 loan.
b. The company obtained a loan for $10,000.
c. Fast Signs earned $12,000 in sales for the year.
d. An estimated $2,500 will be due for yearly income taxes, payable in 2008.
SEB-8. Effect of transactions on accounts. Determine how the accounts would be affected.
(increase or decrease and debit or credit) for the following transactions occurring in Janu- ary 2009 for Networking Solutions, Inc. (LO 1)
a. Networking Solutions received $25,000 cash from the owner in exchange for common stock.
b. The company purchased $10,000 ofnew office computers on account.
APPENDIX B . EXERCISES 505 c. The company sold $2,500 of inventory for cash.
d. Networking Solutions paid $4,500 for next year's rent'
e. The company paid $2,000 of the amount owed for the computers' f. The company declared and distributed $500 ofdividends.
SEB-!. Determine permanent or temporory accounts. For each of the following accounts, tell whether it is a permanent account or a temporary account. (LO 4)
1. Cash
2. - fuccounts payable
3. Common stock
4. Sales revenue 5. - Prepaid rent
6. -Merchandise inventory 7. -Insurance expense 8. _ Interest expense 9. -Income taxes payable
10. Common stock
Exercises-Set A
EB-IA. Record transactions to T-accounts. Record the following transactions for Brazwells at Bradford, Inc. in T:accounts and tell how each affects assets, liabilities, or stockholder's equity. The year-end for Brazwells at Bradford, Inc. is June 30. (LO I, 2)
a. On September 1, Brazwells issued a $6,000 note at 72Vo,both interest and principal due in I year.
b, On October 1, Brazwells rented a copy machine and paid 1 year of rent in advance at a:m;te of $200 Per month.
c. On December 30, Brazwells purchased an insurance policy for a term of 1 year, beginning immediately. The cost was $800, paid in cash.
d. On March 1, Brazwells replenished the supply closet with the purchase of $700 worth of supplies for cash. The company started the year with $100 worth of supplies on hand.
e. Over the course ofthe year, Brazwells earned $45,000 of service revenue, collected in cash.
EB-2A. Record adjustments to T-accounts. Use the information from EB-IA, including your answers to a through e to make the necessary adjustments to Brazwells' accounts in preparation for the year-end financial statements. You may need to use the additional infor- mation that follows: (LO 1, 2, 3)
. On hand at year-end was $50 worth of supplies.
EB-3A. Record transactions to T-accounts and prepare unadjusted trial balance. Matt opened his Reading is Fun, Inc., "a bookstore" on April 1, 2008, selling new and used books.
Matt contributed $4,000 in exchange for common stock to start the business. (LO I, 2) a. On April 1, the business buys $3,000 of new books from his supplier with cash.
b. On April 30, customers bring in used books and the business buys them for
$750 cash.
c. On June 30, $1,200 of new books are sold for $3,000. Half of these sales are on account.
d. On June 30, the business sells all the used books for $1,500 cash.
Record the transactions into T-accounts for the new company. Calculate the account bal- ances and prepare an unadjusted trial balance at June 30, 2008.
EB-4A. Record transactions to T-accounts and prepare unadjusted trial balance. The trial balance of Wisteria Lane Productions, Inc. on March l,200l ,lists the company's assets, li- abilities, and shareholders'equity on that date. (LO I,2)
6 0 6 A P P E N D I X B . T H E M E C H A N I c S o F A N A c c o U N T I N G S Y S T E M
Account Title
Cash $1 5,000
Accounts receivable 5,700 Accounts payable
Common stock R e t a i n e d e a r n i n g s Total
BALANCE
D e b i t C r e d i t
$ 3,200 9,000 8,500
$2q4q $29l9q
During March, Wisteria Lane completed the following transactions:
a. The company borrowed $6,000 from the bank with a short-term note payable.
b. Wisteria Lane paid cash of $12,000 to acquire land.
c. The company performed service for a customer and collected the cash of $3,500.
d. Wisteria Lane purchased supplies on credit, $225.
e. The company performed service for a customer on account, $1,800.
Set up T-accounts for the accounts given in the March 1 trial balance. Then post the preceding transactions to the accounts. Calculate the account balances and prepare an unadjusted trial balance at March 31 .
EB-54. Recognize adjusting and closing entries. Use the information from EB4-A to iden- tify the accounts that will likely need to be adjusted before the monthly financial statements are prepared. What additional information would you need in each case to make the appro- priate adjustment? Which accounts will need to be closed at the end of the accounting pe- riod and why? (LO 3, 4)
EB-6A. Record closing entries and compute net income. Given the following adjusted trial balance, record the appropriate closing entries. What is net income for the year? (LO 4)
BRETT'S BAIT & TACKLE, INC.
ADJUSTED TRIAL BALANCE J U N E 3 0 , 2 0 0 9
D e b i t C r e d i t
C a s h $ 1 : , O O O
Accounts receivable 20,000 S u p p l i e s
E q u i p m e n t
Accumulated depreciation Property
Prepaid rent Accounts payable Notes payable Interest payable Common stock R e t a i n e d e a r n i n g s D i v i d e n d s S a l e s
21,500 20,000 54,000 28,000
$ e,000
23,000 25,000 2,000 5 1 , 0 0 0 29,5004 94,000 4,000
Cost of goods sold 45,000
Depreciation expense 3,000 Salaries expense
Totals
1 5 , 0 0 0
$ 2 3 3 , s 0 0 $ 2 3 3 , s 0 0 aRetained earnings at July 1, 2008. (No accounts have been closed.)
APPENDIX B . EXERCISES 607 EB-7A. Record journal entries, adjusting entries, and explain the accounting cycle. The
Problem Solvers Consulting Corporation began business in 2007. The following transac- tions took place during January: (LO I,2, 3,4)
Owners invested $65,000 in exchange for common stock'
The company borrowed $10,000 from a local bank with a I2Vo note and a 6-month term. Both the principal and interest will be repaid in 6 months.
The company purchased computer equipment for $9,360 cash. It should Jan. 1
1 I
last 4 years, with no residual value.
6 Supplies were purchased on account for $550.
8 Office rent of $800 for January was paid in cash.
20 The company received $5,i50 from a customer for services to be per- formed in February.
3l Consulting services performed during January on account totaled $14,000.
31 The company paid salaries of $8,500 to employees.
31 The company paid $400 to the supplies vendor as part of the $550 owed to the vendor from the purchase on January 6. The company only paid part of the invoice because it only used $400 worth of the supplies in January.
Required: Give the journal entry for each transaction. Provide the reason for each entry.
Then, make the necessary adjusting entries at January 31,200'7. What else should be done to finish the accounting cycle for the month?
EB-8A. Record journal entries, post to T-Accounts, and prepare unadjusted trial balance.
Ray & Hawthorne CPAs decided to open their own tax practice, Tax Specialists, Inc. The following transactions are the events which occurred during May 2007, the company's first month: (LO 1,2)
May 1 Ray and Hawthorne each donated $20,000 cash in exchange for common stock. They also signed a note with National Bank for $25,000.
May 2 Tax Specialists paid $28,000 prepaid rent for the first year.
May 11 Offrce equipment was purchased on account for $17,500'
May 16 The company purchased insurance for 2 years with $6,500 cash. The pol- icy was effective June 1.
May 18 A discolored piece of the office equipment arrived and the supplier agreed to remove $3,500 from Tax Specialists' account.
May 25 The company purchased some office furniture on sale worth $10,000 on account.
May 28 Tax Specialist paid off the balance owed on the equipment.
May 30 An office manager was hired at a rate of $110 a day. The start date is June 1.
Required: Give thejournal entry for each transaction. Set up the required T-accounts and post the entries to these accounts. Prepare an unadjusted trial balance'
Exercises-Set B
EB-IB. Record transactions to T-accounts. Record the following transactions for Marilyn Ivory's Pianos & Music, Inc. in T-accounts and tell how each affects assets, liabilities, or shareholders' equity. The year-end for Pianos & Music, Inc. is Decembet 31. (LO l, 2)
a. On March 1, Pianos & Music issued a $15,120 note at Ij%o,both interest and principal due in 1 year.
b. On May 1, Pianos & Music rented a warehouse and paid $8,400 for 2 years of rent in advance.
c. Pianos & Music purchased an insurance policy for a term of 3 years on July 1, beginning immediately. The cost was $5,400, paid in cash.