Question

Recording Transactions: [201280Q2012220] Orange Company [the firm] was formed on April 30, Year 1, when five owners each invested $10,000 cash. Also on April 30, Year 1, another person lent $60,000 to the firm to be repaid in full along with $6,000 in interest on April 30, Year 2 During Year 1, the firm purchased supplies inventory on account at a cost of $8,000. In Year 1, 90% of supplies purchased had been paid for. By the end of Year 1, Orange had used 80% of the supplies purchased. In the middle of Year 1, the firm received $220,000 from its first client while performing $190,000 of work for this client. The remainder of the consulting work will be performed in Year 2. Later in Year 1. the firm performed $230,000 in consulting services from different clients while collecting only $180,000 from these clients. The remaining payments will be collected in Year 2 without any interest being adding onto the amounts owed. Orange hired five consultants at a monthly salary of $9,000 each. These five consultants worked for the firm from May 1, Year 1, through December 31, Year 1. The firm pays its employees on the 15th of each month for services rendered during that month. The first payday on May 15th was for 1/2 of one month. The firm rented and moved into an office space on May 1, Year 1, at a monthly cost of $6,000. The two-year contract with the landlord required that the rent be paid on November 1 and May 1 for the six-month periods ending on those dates. The first payment was made as required on November 1, Year 1. All payments have been or will be made as agreed. Required: Determine the proper accounts and cumulative amounts that the firm would report in the financial statements prepared at December 31, Year 1. Calculations not required. The grid on the next page will be helpful in presenting your answers. You need only turn in page 2 showing your answers. Mwh 012220

Answer 1

Account Titles	Debit	Credit
Balance Sheet (Accounts)
Cash	$         93,300		=10000*5+60000-8000*90%+220000+180000-(360000-22500)-48000-24000
Prepaid Rent	$         24,000		=6000*4
Supplies	$            1,600		=8000-6400
Accounts Receivable	$         50,000		=230000-180000
Accounts Payable		$               800	=8000*10%
Unearned Revenue		$         30,000
Interest Payable		$            4,000	=6000*8/12
Salaries Payable		$         22,500	=9000*5*1/2
Loan Payable		$         60,000
Common Stock		$         50,000	=10000*5
Retained Earnings		$            1,600	=420000-4000-6400-360000-48000
Income Statement (Accounts)
Service Revenue		$       420,000	=190000+230000
Interest Expense	$            4,000		=6000*8/12
Supplies Expense	$            6,400		=8000*80%
Salaries Expense	$       360,000		=9000*5*8
Rent Expense	$         48,000		=6000*8