Question

The company had the following transactions during September.

Sept. 1 – The company sold shares of common stock for $30,000 cash.

Sept. 1 – The company purchased a one-year insurance policy for $300 in cash.

Sept. 1 – The company purchased office equipment costing $8,000 by signing a 6% note. The Equipment has a 5 year life and no salvage value. The note requires monthly principal payments of $225 beginning on October 1st until the balance is paid.

Sept. 10 – The company purchased $735 of office supplies for cash.

Sept. 15 – The company paid legal and registration fees to register their trademark which is his nickname “Sanchize.” The fees incurred totaled $4,000, which were paid in cash.

Sept. 29 – The company billed customers $5,500 for consulting services performed.

Sept. 30 – The company paid $1,450 for employee’s salary.

Sept. 30 – Since the company had a good month so Sanchez declared a $1,000 dividend to be paid on October 10th.

Additional Information:

On September 30th, the company took an inventory of the supplies and found that they had $500 of supplies on hand.

Equipment purchased before the 15th of the month are depreciated for a whole month using the straight-line method.

On October 3rd received the September utilities bill for $188.

Required:

Journalize the transactions.

Prepare the adjusting entries.

Post all entries to the accounts.

Prepare a Single-Step Income Statement, Retained Earnings Statement and a Classified Balance Sheet for his first month of operations.

Prepare the closing entries.

Comment on the company’s liquidity, capital structure and financial flexibility and their overall financial position.

Be sure to round all your answers. No pennies!

Check Digit for Balance Sheet:

Total Assets = $41,657

Net Income = $3,429

Answer 1

	Journal entries
Date	Description	Debit $	Credit $
1-Sep	Cash	30,000
	Common Stock	`	30,000
1-Sep	Prepaid insurance	300
	Cash		300
1-Sep	Office Equipment	8,000
	6% Note Payable		8,000
10-Sep	Office supplies	735
	Cash		735
15-Sep	legal and registration fees	4,000
	Cash		4,000
29-Sep	Accounts receivable	5,500
	Service revenue		5,500
30-Sep	Salaries expenses	1,450
	Cash		1,450
30-Sep	Retained Earnings	1,000
	Dividend		1,000
	Adjusting entries;
	Supplies expenses	235
	Office Supplies		235
	Depreciation expenses- Equipment ( $ 8,000 /5 years x 1/12)	133
	Accmulated depreciation - Equipment		133
	Utility expenses	188
	Utility expenses payable		188
	Insurance expenses ( $ 300/12 )	25
	Prepaid insurance		25
	Interest expenses ( $ 8,000 x 6% x 1/12)	40
	Interest payable		40

Income statement
	$	$
Service revenue		5,500
Less: Operating expenses;
Salaries expenses	1,450
Supplies expenses	235
Depreciation expenses- Equipment	133
Utility expenses	188
Insurance expenses	25
Interest expenses	40
Total operating expenses		2,071
Net income ( $ 5,500 - $ 2,071 )		3,429
Statement of retained earnings
	$
Beginning balance of retained earnings	0
Add: Net income	3,429
Less: Dividend declared	(1,000)
Ending balance of retained earnings	2,429

Balance sheet
Equity and liabilities	$	Assets	$
Common Stock	30,000	Office equipment            $ 8,000
Retained Earnings	2,429	Less: Acc.Depre               ($ 133 )	7,867
6% Notes Payable	8,000	Current assets;
		Cash	23,515
Current liabilities;		Accounts receivable	5,500
Proposed dividend	1,000	Office supplies	500
Utility expenses payable	188	Prepaid insurance	275
Interest payable	40
		Misc. Assets;
		legal and registration fees	4,000
TOTAL	41,657	TOTAL	41,657