Question

5,5,6 Serial Exercise Exercise 3-40 continues the Olivia Matthews, Certified Public Accountant, Professional Corporation (P.C.), situation begun in Exercise 2-37 of Chapter 2. E3-40. (Learning Objectives 3, 4, 5, 6: Adjust the accounts; construct the financial state- ments; close the books; analyze and evaluate liquidity and debt-paying ability) Refer to Exercise 2-37 of Chapter 2. Start from the trial balance and the posted T-accounts that Olivia Matthews, Certified Public Accountant, Professional Corporation (P.C.), prepared for her accounting practice at May 18, 2018. A professional corporation is not subject to income tax. Later in May, the business completed these transactions: May 21 22 26 28 31 Received $2,400 in advance for tax work to be performed over the next 30 days. Hired an assistant to be paid on the 15th day of each month. Paid $900 for the supplies purchased on May 5. Collected $3,100 from the client on May 18. Declared and pail dividends of $1,200. Requirements 1. Journalize the transactions of May 21 through 31. 2. Post the May 21 to 31 transactions to the T-accounts, keying all items by date. 3. Prepare an Excel spreadsheet showing the unadjusted trial balance at May 31. Set up the worksheet to prepare the adjusted trial balance as seen in Exhibit 3-9 on page 138. 4. At May 31, Matthews gathers the following information for the adjusting entries: a. Accrued service revenue, $2,000. b. Earned $800 of the service revenue collected in advance on May 21. c. Supplies on hand, $300. d. Depreciation expense equipment, $30; furniture, $100. e. Accrued expense for assistant's salary, $900. Refer to the Excel spreadsheet you prepared in Requirement 3. Make these adjustments in the adjustments columns and complete the adjusted trial balance at May 31. 5. Journalize and post the adjusting entries. Denote each adjusting amount as Adj and an account balance as Bal. 6. Prepare the single-step income statement and statement of retained earnings of Olivia Matthews, Certified Public Accountant, P.C., for the month ended May 31 and the classified balance sheet at that date. 7. Journalize and post the closing entries at May 31. Denote each closing amount as Clo and an account balance as Bal. 8. Calculate the net working capital, current ratio, and the debt ratio of Olivia Matthews, Certified Public Accountant, P.C., and determine if they indicate a strong or weak financial position.

Answer 1

1.

Date	General Journal	Debit	Credit
		$	$
May 21	Cash	2,400
	Unearned Revenue		2,400
May 22	No journal entry required	0	0
May 26	Accounts Payable	900
	Cash		900
May 28	Cash	3,100
	Accounts Receivable		3,100
May 31	Dividends	1,200
	Cash		1,200

3.

Olivia Matthews, Certified Public Accountant Unadjusted Trial Balance May 31
Account Titles	Debit	Credit
	$	$
Cash	12,950
Accounts Receivable	0
Supplies	900
Equipment	1,800
Furniture	6,000
Accounts Payable		6,000
Unearned Revenue		2,400
Common Stock		12,000
Dividends	1,200
Service Revenue		3,700
Utilities Expense	750
Rent Expense	500
Salary Expense	0
Totals	$ 24,100	$ 24,100

4.

No.	General Journal	Debit	Credit
		$	$
a.	Accounts Receivable	2,000
	Service Revenue		2,000
b.	Unearned Revenue	800
	Service Revenue		800
c.	Supplies Expense	600
	Supplies		600
d.	Depreciation Expense	130
	Accumulated Depreciation : Equipment		30
	Accumulated Depreciation : Furniture		100
e.	Salaries Expense	900
	Salaries Payable		900

Olivia Mathews, Certified Public Accountant Adjusted Trial Balance May 31
Account Titles	Debit	Credit
	$	$
Cash	12,950
Accounts Receivable	2,000
Supplies	300
Equipment	1,800
Accumulated Depreciation : Equipment		30
Furniture	6,000
Accumulated Depreciation : Furniture		100
Accounts Payable		6,000
Salaries Payable		900
Unearned Revenue		1,600
Common Stock		12,000
Dividends	1,200
Service Revenue		6,500
Utilities Expense	750
Depreciation Expense	130
Rent Expense	500
Salary Expense	900
Supplies Expense	600
Totals	$ 27,130	$ 27,130