Question

Khaled established his company on March 1,2017. During the first month of operations the following transactions occurred:

March

1 Invested $100,000 cash in new business

2 Purchased furniture for $10,000 cash

3 Purchased office equipment for $5,000 on account from IKEA

4 Paid $2,000 cash utilities

5 Hired a manager at a salary of $4,000 per month, effective April 1

6 Rendered services for $7,000 on account

7 Rendered services for $6,000, received $4,000 cash and the remaining on account

8 Paid $800 for March office rent

9 Purchased land costing $35,000

10 Purchased supplies for $5,000, paid 50% cash and the remaining on account

11 Paid $1,200 cash for a one-year insurance policy

12 Paid $5,000 on account for IKEA (March 3)

13 Received $4,000 cash in advance for future services

14 Received $7,000 on account for services performed on March 6.

15 Took $12,000 from ADCB Bank on a note payable

16 Paid advertising expense $2,500

17 Billed customers $1,800 for services provided

18 Purchased Car for $25,000. Khaled paid $15,000 cash and signed a note payable for the Remaining balance

19 Khaled received dividends of $8,000 cash

20 Performed services for client on account $2,000

21 Collected $2,000 cash for services provided on Match 7

22 Purchased gas and oil for $700 cash

23 Purchased inventory for $1,500 on account

31 Paid $1,250 salaries of the month

Prepare an adjusted trial balance (1pts)

f) Prepare an income statement, owners’ equity statement and a balance sheet after adjustment (3.5pts)

g) Calculate for ADCS the indicated ratios using the adjusted financial statements and compare them with the industry norms. (1pt)

h) Answer the following questions by comparing your answers in part (h) to the industry norms: (1pt)

1. 2.

How liquid is the corporation?

Is the firm financing its assets through debts?

Industry Norms for 2017

Current ratio

Debt to assets ratio

1.5:1 50 %

Answer 1