The following events apply to Montgomery Company for Year 1, its first year of operation: Received cash of $49,000 from the issue of common stock. Performed $68,000 of services on account. Incurred $10,500 of other operating expenses on account. Paid $41,000 cash for salaries expense. Collected $44,500 of accounts receivable. Paid a $5,000 dividend to the stockholders. Performed $11,500 of services for cash. Paid $7,500 of the accounts payable. Required a. Record the preceding transactions in general journal form. b. Post the entries to T-accounts and determine the ending balance in each account. c.

Montgomery Company

a. Journal Entries

Account Title                    Debit       Credit

Cash                              $49,000

Common stock                               $49,000

To record the issue of common stock for cash.

Accounts Receivable     $68,000

Service Revenue                            $68,000

To record the performance of services on account.

Operating Expense        $10,500

Accounts payable                       $10,500

To record operating expenses incurred on account.

Salaries Expense          $41,000

Cash                                            $41,000

To record the payment for salaries expense.

Cash                             $44,500

Accounts Receivable                  $44,500

To record cash collected on account.

Dividends                     $5,000

Cash                                              $5,000

To record the payment of dividend to stockholders.

Cash                           $11,500

Service Revenue                          $11,500

To record the performance of services for cash.

Accounts payable      $7,500

Cash                                                $7,500

To record the payment on account.

b. T-accounts

Cash Account

Account Title                    Debit       Credit

Common stock             $49,000

Salaries expense                          $41,000

Accounts receivable      44,500

Dividends                                         5,000

Service revenue             11,500

Accounts payable                            7,500

Balance                                           51,500

Totals                        $105,000 $105,000

Common Stock

Account Title                    Debit       Credit

Cash                                              $49,000

Accounts Receivable

Account Title                    Debit       Credit

Service Revenue         $68,000

Cash                                               $44,500

Balance                                            23,500

Totals                             68,000     68,000

Service Revenue

Account Title                    Debit       Credit

Accounts receivable                    $68,000

Cash                                                 11,500

Balance                        $79,500

Totals                             79,500    79,500

Accounts Payable

Account Title                    Debit       Credit

Operating Expense                      $10,500

Cash                               $7,500

Balance                            3,000

Totals                           $10,500   $10,500

Operating Expense

Account Title                    Debit       Credit

Accounts payable       $10,500

Salaries Expense

Account Title                    Debit       Credit

Cash                            $41,000

Dividends

Account Title                    Debit       Credit

Cash                             $5,000

c. Trial Balance as of December 31, Year 1:

Account Title                    Debit       Credit

Cash                               $51,500

Common stock                                $49,000

Accounts receivable      23,500

Service revenue                                79,500

Accounts payable                               3,000

Operating expense        10,500

Salaries expense            41,000

Dividends                         5,000

Totals                           $131,500  $131,500

Explanation:

a) Transactions:

Received cash of $49,000 from the issue of common stock.

Performed $68,000 of services on account.

Incurred $10,500 of other operating expenses on account.

Paid $41,000 cash for salaries expense.

Collected $44,500 of accounts receivable.

Paid a $5,000 dividend to the stockholders.

Performed $11,500 of services for cash.

Paid $7,500 of the accounts payable.

b) Journal entries record the transactions for the first time.  General ledger accounts are where the accounts are summarized.  Trial balance shows the list of the account balances extracted from the general ledger.

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