Clown Around, Inc., provides party entertainment for children of all ages. The company’s trial bal- ance dated February 1, 2011, is shown below.

 

CLOWN AROUND, INC. TRIAL BALANCE FEBRUARY 1, 2011

 

 

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            $2,850

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .                 900

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                            $   800

Capital stock  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                              2,000

Retained earnings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                 750

Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               —

Party revenue   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                               1,350

Salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 830

Party food expense  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                240

Travel expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   80

$4,900      $4,900

 

 

Clown Around engaged in the following transactions in February:

Feb.   2     Paid $750 in partial settlement of the outstanding account payable reported in the trial balance dated February 1.

Feb.   6     Collected $900 in full settlement of the outstanding accounts receivable reported in the trial balance dated February 1.

Feb. 18     Billed Sunflower Child Care $175 for clown services. The entire amount is due March 15.

Feb. 26     Billed and collected $480 for performing at several birthday parties.

Feb. 28     Paid clown salaries of $260 for work done in February.

Feb. 28     Recorded and paid $40 for travel expenses incurred in February.

Feb. 28     Declared and paid a $100 dividend to Ralph Jaschob, the company’s only shareholder.

a.       Record the company’s February transactions in general journal form. Include a brief explana- tion of the transaction as part of each journal entry.

b.       Post each entry to the appropriate ledger accounts (use the T account format as illustrated in Exhibit 3–8 on page 108).

 

 

 

       Prepare a trial balance dated February 28, 2011. (Hint: Retained Earnings will be reported at the same amount as it was on February 1. Accounting for changes in the Retained Earnings account resulting from revenue, expense, and dividend activities is discussed in Chapter 5.)

c.        Will the $100 dividend paid February 28 decrease the company’s income? Explain.