Question

Palmer Consulting Company

Carson Palmer established Palmer Consulting Company on February 1, 2019, since he retired from the NFL after 15 seasons. He decided it might be time to put his USC degree to use.

The company had the following transactions during February.

1. Feb. 1 – The Company sold shares of common stock for $30,000 cash.
2. Feb. 1 – The Company purchased a one-year insurance policy for $300 in cash.
3. Feb. 1 – The Company purchased office equipment costing $8,000 by signing a 6% note due in two years. The Equipment has a 5 year life and no salvage value. The note requires monthly payments of $225 beginning on March 1^stuntil the balance is paid.
4. Feb. 10 – The Company purchased $735 of office supplies for cash.
5. Feb. 15 – The Company paid legal and registration fees to register their trademark. The fees incurred totaled $4,000, which were paid in cash.
6. Feb. 28 – The Company billed customers $5,500 for consulting services performed.
7. Feb. 28 – The Company paid $1,450 for employee’s salary.
8. Feb. 28 – Since the company had a good month Carson declared a $1,000 dividend to be paid on March 10th.

Additional Information:

1. On February 28^th, the company took an inventory of the supplies and found that they had $500 of supplies on hand.
2. Buildings and Equipment purchased before the 15^thof the month are depreciated for a whole month using the straight-line method.
3. On March 3^rdreceived the February utilities bill for $188.

Required:  

1. Journalize the transactions.
2. Prepare the adjusting entries.
3. Post all entries to the accounts.
4. Prepare a Single-Step Income Statement, Retained Earnings Statement and a Classified Balance Sheet for his first month of operations. Discuss the company’s profitability, liquidity and solvency.
5. Prepare the closing entries.

Be sure to round all your answers.  No pennies!

Check Digit for Balance Sheet:

Total Assets = $41,657

Net Income = $3,429

Answer 1

a	Journal Entries
Date	Description	Debit	Credit
1-Feb	Cash	$30,000
	Common Stock		$30,000
	(To record common stock issued for cash)
1-Feb	Prepaid Insurance	$300
	Cash		$4,500
	(To record insurance premium paid for 12 months insurance policy)
1-Feb	Office Equipment	$8,000
	Note Payable		$8,000
	(To record purchase of office equipment by signing 6% note due in two years)
10-Feb	Office Supplies	$735
	Cash		$735
	(To record cash paid for office supplies)
15-Feb	Trademark	$4,000
	Cash		$4,000
	(To record legal and registration fees paid for trademark)
28-Feb	Accounts receivable	$5,500
	Service Revenue		$5,500
	(To record services performed on account)
28-Feb	Salaries expenses	$1,450
	Cash		$1,450
	(To record cash paid for salaries.)
28-Feb	Retained Earnings	$1,000
	Dividend payable		$1,000
	(To record dividend declared)
	Adjusting Journal Entries
Date	Description	Debit	Credit
28-Feb	Supplies expense	$235
	Office supplies		$235
	(To record supplies used during the month)
	(735-500 = $235)
28-Feb	Depreciation expense	$133
	Accumulated Depreciation-Equipment		$133
	(To record depreciation on equipment for one month)
	(8000/5 years = 1600/12 = 133)
28-Feb	Utilities expense	$188
	Utilties payable		$188
	(To record utilities bill for the month)
28-Feb	Insurance Expense	$25
	Prepaid Insurance		$25
	(To record insurance expense for 1 month)
	(300/12 = $25)
28-Feb	Interest expense	$40
	Interest payable		$40
	(To record interest for the month on note payable)
	(8000 x 6% x 1/12 = $40)
d	Income Statement
	Particulars	Amount
	Service Revenue		$5,500
	Expenses:
	Salaries expense	$1,450
	Depreciation expense	$133
	Insurance expense	$25
	Utilities expense	$188
	Supplies expense	$235
	Interest expense	$40
	Total operating expenses		$2,071
	Net Income		$3,429
	Retained earnings statement
	Particulars	Amount
	Retained earnings, 2/1	$0
	Add: Net income	$3,429
	Less: Dividend payable	($1,000)
	Retained earnings, 2/28	$2,429
	Balance Sheet
	as of February 28
	ASSETS	Amount
	Current Assets:
	Cash	$23,515
	Accounts receivable	$5,500
	Office Supplies	$500
	Prepaid Insurance	$275
	Total Current Assets		$29,790
	Non-current assets:
	Office Equipment	$8,000
	Accumulated Depreciation-Equipment	($133)	$7,867
	Intangibles Assets:
	Trademark		$4,000
	Total Assets		$41,657
	LIABILITIES AND STOCKHOLDERS EQUITY
	Current Liabilities:
	Utilities payable	$188
	Interest payable	$40
	Dividend payable	$1,000
	Total Current assets		$1,228
	Long term liabilities:
	Notes payable		$8,000
	Stockholder's Equity
	Common Stock	$30,000
	Retained Earnings	$2,429
	Total Stockholder's Equity		$32,429
	Total Liabilities and stockholder's equity		$41,657
	Required e
	Closing entries
Date	Description	Debit	Credit
28-Feb	Service revenue	$5,500
	Income Summary		$5,500
	(To close the revenue for the month)
28-Feb	Income Summary	$2,071
	Salaries expense		$1,450
	Depreciation expense		$133
	Insurance expense		$25
	Utilities expense		$188
	Supplies expense		$235
	Interest expense		$40
	(To close expenses for the month)
28-Feb	Income Summary	$3,429
	Retained earnings		$3,429
	(To close profit for the month)