Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 62

Analyzing the Effects of Transactions Using T-Accounts, Preparing an Unadjusted Trial Balance, and Determining Net Income
Barbara Jones opened Barb's Book Business on February 1, 2013. You have been hired to maintain the company's financial records. The following transactions occurred in February 2013, the first month of operations.
a. Received shareholders' cash contributions totaling 516,000 to form the corporation; issued stock.
b. Paid $2,400 cash for three months' rent for office space.
TIP : For convenience, simply record the full amount of the payment as an asset (Prepaid Rent). At the end of the month, this account will be adjusted to its proper balance.
We will study this adjustment process in Chapter 4, so just leave it as Prepaid Rent for now.
c. Purchased supplies for $300 cash.
d. Signed a promissory note, payable in two years; deposited $10,000 in the company's bank account.
e. Used the money from (d) to purchase equipment for $7,500 and other noncurrent assets for $2,500.
f. Placed an advertisement in the local paper for $425 cash.
g. Made sales totaling $ 1,800; $1,525 was in cash and the rest on accounts receivable.
h. Incurred and paid employee wages of $420.
i. Collected accounts receivable of $50 from customers.
j. Repaired one of the computers for $ 120 cash.
TIP: Most repairs involve costs that do not provide additional future economic benefits.
Required:
1. Set up appropriate T-accounts for Cash, Accounts Receivable, Supplies, Prepaid Rent, Equipment, Other Noncurrent Assets, Notes Payable, Contributed Capital, Service Revenue, Advertising Expense, Wages Expense, and Repair Expense. All accounts begin with zero balances because this is the first month of operations.
TIP: When preparing the T-accounts, you might find it useful to group them by type: assets, liabilities, stockholders' equity, revenues, and expenses.
2. Record in the T-accounts the effects of each transaction for Barb's Book Business in February, referencing each transaction in the accounts with the transaction letter. Show the unadjusted ending balances in the T-accounts.
3. Prepare an unadjusted trial balance at the end of February.
4. Refer to the revenues and expenses shown on the unadjusted trial balance. Based on this information, calculate preliminary net income and write a short memo to Barbara offering your opinion on the results of operations during the first month of business.