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    Case 4-4 Octane SS - Purwaningrum

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    Purwaningrum Gunantoko
    The document summarizes journal entries for transactions from April 30 to June 30 for a new service station owned by Julio Trevino. It records initial investments, purchases of assets and supplies, cash sales and expenses, accrual adjustments, and closing entries. While the net income for May-June was $3,774, this overstates profitability as it does not account for Trevino's compensation, resulting in an actual loss of $1,800-$1,900 for the period. As a new business, short-term losses are expected and it is too soon to judge the investment's long-term prospects.

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    Case 4-4 Octane SS - Purwaningrum

    Uploaded by

    Purwaningrum Gunantoko
    2K views5 pages
    The document summarizes journal entries for transactions from April 30 to June 30 for a new service station owned by Julio Trevino. It records initial investments, purchases of assets and supplies, cash sales and expenses, accrual adjustments, and closing entries. While the net income for May-June was $3,774, this overstates profitability as it does not account for Trevino's compensation, resulting in an actual loss of $1,800-$1,900 for the period. As a new business, short-term losses are expected and it is too soon to judge the investment's long-term prospects.

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    The document summarizes journal entries for transactions from April 30 to June 30 for a new service station owned by Julio Trevino. It records initial investments, purchases of assets and supplies, cash sales and expenses, accrual adjustments, and closing entries. While the net income for May-June was $3,774, this overstates profitability as it does not account for Trevino's compensation, resulting in an actual loss of $1,800-$1,900 for the period. As a new business, short-term losses are expected and it is too soon to judge the investment's long-term prospects.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    2K views5 pages

    Case 4-4 Octane SS - Purwaningrum

    Uploaded by

    Purwaningrum Gunantoko
    The document summarizes journal entries for transactions from April 30 to June 30 for a new service station owned by Julio Trevino. It records initial investments, purchases of assets and supplies, cash sales and expenses, accrual adjustments, and closing entries. While the net income for May-June was $3,774, this overstates profitability as it does not account for Trevino's compensation, resulting in an actual loss of $1,800-$1,900 for the period. As a new business, short-term losses are expected and it is too soon to judge the investment's long-term prospects.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
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    PURWANINGRUM Octane Service Station FAMA MMFIM IPMI

    Transactions in journal entry, the numbers of which correspond to entries in the T-accounts below. Transactions prior to May 1: (1) Cash Owners Equity (Julio Trevinos Capital) To record the beginning entity. Deposit Cash To record the use of capital to make the required deposit. Equipment Note Payable To record down payment on equipment. Inventories Prepaid Expenses (rental fee) Notes Payable Deposit To record the assets acquired with the deposit. Cash Deposit To record the remaining deposit returned to Trevino on April 30. Cash Owners Equity To record the placement of $7,000 in capital from his bonds convertion. Equipment Cash To purchase office furniture which has a 10-year life. Prepaid Expenses Cash To pay insurance policy providing 1 year coverage, begins May 1. 20,000 20,000 20,000 20,000 12,875 12,875 13,250 1,420 2,575 17,245 2,755 2,755 7,000 7,000

    (2)

    (3)

    (4)

    (5)

    (6)

    (7)

    1,650 1,650 900 900

    (8)

    PURWANINGRUM Octane Service Station FAMA MMFIM IPMI


    Cash transactions between May 1 and June 30: (9) Cash Sales Cash receipts from sales of main business items. Cash Other Revenue Deferred Revenue Cash receipts from rentals of a parking lot business. The $500 was for two months parking (May 15 July 15). Thus, only 3/4 or $375 is recognized as real revenue in this period. Inventories Cash Purchase of main business inventories. Rent expense Cash Cash payment for rent. Labor Expense Cash Cash payment for payroll. Utilities Expense Advertising Miscellaneous Expense Cash Cash payments for utilities, advertising, and miscellaneous. Owners Equity (drawings) Cash Cash payments to Trevino as an investor (owner). 69,510 69,510 500 375 125

    (10)

    (11)

    44,694 44,694 2,018 2,018 9,450 9,450 445 690 355 1,490 6,750 6,750

    (12)

    (13)

    (14)

    (15)

    Entries reflecting the accrual concept: (16) Accounts Receivable Sales Sales on credit from the widows receivable ($143) and the completed waxing job ($56). 199 199

    PURWANINGRUM Octane Service Station FAMA MMFIM IPMI


    (17) Owners Equity Inventories Payment to Octane Oil for the drawings made in the form of merchandise gas & oil. Inventories Accounts Payable Unpaid bills resulting from operation in June for merchandise. Rent Expense Accounts Payable Rent payable figured at $0,04 per gallon on recent delivery of gasoline. Utilities Expense Accounts Payable Utilities for the month of June. Labor Expense Accrued Wages Wages earned on June 29 & 30 Inventory Shrinkage Inventories The shrinkage of inventories due to evaporation,temperature, waste, and other. 79 79

    (18)

    1,804 1,804 75 75

    (19)

    (20)

    425 425 232 232 360 360

    (21)

    (22)

    Adjustment Entries: (23) Rent Expense Prepaid Expenses To adjust rental fee for the month of May. Insurance Expense Prepaid Expense To adjust insurance payment for one year, but only two months have elapsed = 2/12 * $900 = $150 Costs of Sales Inventory To adjust physical inventories that remains a balance of $10,018. Depreciation Expense Accumulated Depreciation To adjust equipment of: Equipment = 2/12 * 1/5 * $12,875 = $429 Furniture = 2/12 * 1/10 * $1,650 = $28 1,420 1,420 150 150

    (24)

    (25)

    49,291 49,291 457 457

    (26)

    PURWANINGRUM Octane Service Station FAMA MMFIM IPMI

    Assets (1) (5) (6) (9) Cash 20,000 (2) 2,755 (7) 7,000 (8) 7,205 69,510 (13) 500 Deposit 20,000 (4) (5) 20,000 1,650 900 44,694 2,018 9,450 1,490 6,750 17,245 2,755

    Liabilities Accounts Payable 1,804 75 425 (4) Notes Payable 2,575 (3) 12,875 Deferred Revenue (10) 125 125 Accrued Wages 232 232

    P/L Accounts Cost of Sales 49,291 49,291 Rent Expense 2,018 75 1,420 3,513

    Labor Expense 9,450 9,682 232 Utilities Expense 445 425 870

    (2)

    Accounts Receivable 199 199 (4) Inventories 13,250 44,694 1,804 (4) (8) Prepaid Expenses 1,420 900 1,420 150 Equipment 12,875 1,650 79 360 49,291 Owners Equity

    Inventory Shrinkage 360 360 Advertising 690 Owners Equity (1) 20,000 (6) 7,000 6,750 27,000 79 4,716 24, 887 690

    Depreciation Expense 457 457 Miscellaneous Expense 355 505 150 Expense & Revenue Summary 49,291 69,709 3,513 375 9,682 870 690 505 360 457 65,368 70,084 4,716

    (3) (7)

    P/L Accounts Sales 69,709 Other Revenue 375 199 199 375

    Accumulated Depreciation 457

    PURWANINGRUM Octane Service Station FAMA MMFIM IPMI

    The posting of these transactions to T-accounts and the closing entries are shown below. Balances are drawn as of May 1 (after transactions 1-8) and June 30 (after transactions 9-26). Question 2 The May-June net income of $3,774 represented an annualized return on Trevinos $20,000 equity investment of 113 percent! However, this is overstated because it makes no provision for Trevinos compensation as manager. His drawings (item 15) were less than his former salary. Thus the stations true profit for these two months is actually a loss of about $1800 or $1900. Since new businesses often experience losses in their first few months, it is really too soon to judge how good an investment the station will be for Mr. Trevino. Preparation of the May 1 and June 30 balance sheets and May-June income statement from these Taccounts is straightforward and will not be shown here. Total assets as of May 1 were $37,300 and as of June 30, $37,848.

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