Question

This company is an American multinational information technology company. In this assignment, you are going to complete the entire accounting cycle for the last month of the physical year ending May 31, 2015:

The company uses the following accounts:

• Cash Capital Stock
• Accounts Receivable
• Inventory Retained Earnings
• Prepaid Rent Dividends
• Unexpired Insurance Income Summary
• Office Supplies Sales
• Rental Equipment Salaries Expense
• Accumulated Depreciation: Computer Equipment Repair Expense
• Cable Expense
• Notes Payable Utilities Expense
• Accounts Payable Rent Expense
• Interest Payable Office Supplies Expense
• Salaries Payable Depreciation Expense
• Dividends Payable Interest Expense
• Unearned Sales

The company performs adjusting entries monthly. Closing entries are performed annually on May 31.

During May, the corporation entered into the following transactions:

• May 1: Issued 40,000 shares of capital stock in exchange for a total of $400,000 cash.
• May 1: Purchased a piece of equipment to be used in the operations of the business for $300,000 that will assist with a more efficient production. Paid $100,000 cash and issued a two-year note payable for $200,000. The note plus all 24 months of accrued interest are due April 30, 2017. The interest rate on the note is 5%.
• May 1: Paid $15,000 to SSR as three months’ advance rent on the warehouse used in daily manufacturing.
• May 4: Paid salaries in May totaling $27,000. (Ignore payroll taxes.)
• May 8: Purchased office supplies (e.g., copy paper, ink toner, pens, etc.) on account from Office Depot, $4,200. Payment due in 30 days.
• May 15: Excluding the Wilmington General advance, fees earned during the first 15 days of May amounted to $95,100, of which $47,000 was received in cash. The remaining amount will be customer purchases on account.
• May 18: Purchased on account from Parts Plus, Inc., $1,700 in parts needed to repair a server for a local law firm. (Debit an expense account.) Payment is due in 10 days.
• May 23: Collected $22,000 of the accounts receivable recorded on May 15.
• May 26: Paid salaries in May totaling $27,000. (Ignore payroll taxes.)
• May 27: Paid the account payable to Parts Plus., $1,700.
• May 28: Declared a dividend of 10 cents per share, payable on June 15, 2015.
• May 29: Paid the May utilities in the amount of $985.
• May 31: Purchased a 24-month warranty insurance policy for $24,000. This policy protects the company against liability for defects and warranties for the computer equipment that is sold and leased. The policy goes into effect on June 1, 2015.
• May 31: Paid monthly cable bill of 684 to Suddenlink.
• May 31: Collected Sales earned during the second half of May, which amounted to $120,700 and of which $86,300 was received in cash. The remaining amount is customer purchases on account.

Data for Adjusting Entries

1. The advance payment of rent on May 1 covered a period of three months.
2. The annual interest rate on the note payable is 5 percent.
3. The machine purchased May 1, 2015 is being depreciated by the straight-line method over a period of five years.
4. Office supplies on hand at May 31 are estimated at $440.
5. Employee salaries earned by employees since the last payroll date (May 26) amounted to $9,642 at the month end.

Instructions

Complete the following for this assignment:

• Journalize the May transactions.
• Prepare an unadjusted trial balance.
• Prepare the necessary adjusting entries for May.
• Prepare an adjusted trial balance.
• Prepare a balance sheet, an income statement, and a statement of retained earnings for the year ended May 31, 2015.
• Prepare closing entries.
• Prepare a post-closing trial balance. The post-closing trial balance should reveal only permanent accounts that remain open for the next accounting period.
• Prepare 3 profitability ratios, 3 liquidity ratios, and 2 solvency ratios (be sure to show your calculations).
• After completing the accounting cycle and financial analysis, summarize the results in a double-spaced paper of 1-2 pages. The paper should be properly developed and formatted according to APA formatting guidelines.

Answer 1

American multinational information technology company Journal Enteries Date Particulars 1.5.2015 Cash a/c Dr. To Common Stock (Common Stock issued) Debit in $ Credit in $ 400000 400000 1.5.2015 Dr. 300000 Equipment a/c To Cash To Note Payable (Equipment purchased) 100000 200000 Dr. 15000 1.5.2015 Prepaid Rent a/c To Cash (3 months rent paid) 15000 4.5.2015 Dr. 27000 Salaries Expense a/c To Cash (Salaries paid) 27000 Dr. 4200 8.5.2015 Supplies a/c To Accounts Payable (Supplies on account) 4200 Dr. 47000 48100 15.5.2015 Cash a/c Accounts Receivable a/c Dr. To Service Revenue (Services provided) 95100 Dr. 1700 18.5.2015 Computer Equipment Repair Expense a/c To Accounts Payable (Parts used for repair) 1700 22000 23.5.2015 Cash a/c Dr. To Accounts Receivable (Cash from debtors) 22000 Dr. 27000 26.5.2015 Salaries Expense a/c To Cash (Salaries paid) 27000 Dr. 1700 27.5.2015 Accounts Payable a/c To Cash (Creditors paid) 1700 4000 28.5.2015 Dividend a/c Dr. To Cash (Dividend paid) 40000 x 0.10 4000 Dr. 985 29.5.2015 Utilities Expense a/c To Cash (Expense paid) 985 Dr. 684 31.5.2015 Cable Expense a/c To Cash (Expense paid) 684 Dr. 86300 34400 31.5.2015 Cash a/c Accounts Receivable a/c Dr. To Service Revenue (Services provided) 120700

Adjusting Enteries Date Particulars 31.5.2015 Rent Expense a/c To Prepaid Rent (Rent expensed) Dr. Debit in $ Credit in $ 5000 5000 833 31.5.2015 Interest Expense a/c Dr. To Interest Payable (Interest accrued) 200000 x 5% x 1/12 833 5000 31.5.2015 Depreciation Expense a/c Dr. To Accumulated Depreciation - Equip (To record depreciation) 300000 / ( 5x12) 5000 Dr. 3760 31.5.2015 Supplies Expense a/c To Supplies (Supplies expensed) 3760 Dr. 9642 31.5.2015 Salaries Expense a/c To Salaries Payable (Salary accrued) 9642 Closing Enteries Date Particulars 31.5.2015 Income Summary a/c Dr. To Computer Equipment Repair Expense To Salaries Expense To Utilities Expense To Cable Expense To Rent Expense To Depreciation Expense To Supplies Expense To Interest Expense (Expense accounts closed) Debit in $ Credit in $ 81604 1700 63642 985 684 5000 5000 3760 833 Dr. 215800 31.5.2015 Service Revenue a/c To Income Summary (Revenue accounts closed) 215800 Dr. 134196 31.5.2015 Income Summary a/c To Retained Earnings (Profits transferred) 134196 4000 31.5.2015 Retained Earniings a/c To Dividend (Dividends charged) 4000

Worksheet For the Month ending 31.5.2015 Particulars Cash Accounts Receivable Prepaid Rent Supplies Equipment Accumulated Depreciation - Equip Accounts Payable Interest Payable Salaries Payable Note Payable Common Stock Retained Earnings Dividend Service Revenue Computer Equipment Repair Expense Salaries Expense Utilities Expense Cable Expense Rent Expense Depreciation Expense Supplies Expense Interest Expense Totals Unadjusted Adjustments Adjusted Post Closing Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ 378931 378931 378931 60500 60500 60500 15000 5000 10000 10000 4200 3760 440 440 300000 300000 300000 5000 5000 5000 4200 4200 4200 833 833 833 9642 9642 9642 200000 200000 200000 400000 400000 400000 130196 4000 4000 215800 215800 1700 1700 54000 9642 63642 985 985 684 684 5000 5000 5000 5000 3760 3760 833 833 820000 820000 24235 24235 835475835475749871 749871 215800 Statement of Income For the Month ending 31.5.2015 Service Revenue Less: Computer Equipment Repair Expense Salaries Expense Utilities Expense Cable Expense Rent Expense Depreciation Expense Supplies Expense Interest Expense Net Income 1700 63642 985 684 5000 5000 3760 833 81604 134196 Statement of Retained Earnings For the Month ending 31.5.2015 Net Income Dividend 134196 -4000 130196

Balance sheet As at 31.5.2015 Assets Amounts in $ Amounts in $ Liabilities Amounts in $ Amounts in $ Current Assets Current Liabilities Cash 378931 Accounts Payable 4200 Accounts Receivable 60500 Interest Payable 833 Prepaid Rent 10000 Salaries Payable 9642 14675 Supplies 440 449871 Non Current Liabilities Non Current Assets Note Payable 200000 Equipment 300000 Accumulated Deprecia -5000 295000 Shareholders Equity Common Stock 400000 Retained Earniings 130196 530196 Total Assets 744871 Total Liabilities & Equity 744871