Demetrius Carver hired an attorney to help him start Carver Repair Service Company. On March 1, Carver deposited $14,375 in a bank account in the name of the company. When the company paid the attorney's bill of $875, the attorney advised the company to hire an accountant to keep its records. Carver was so busy that it was March 31 before he hired you to straighten out his records.
Your first task is to develop a trial balance based on the March transactions, which are described in the next two paragraphs.
After the business began and the company had paid the attorney's bill, the company borrowed $6,250 from the bank. It later paid $325, including interest of $75, on this loan. It also purchased a used pickup truck in the company's name, paying $3,125 down and financing $9,250. The first payment on the truck is due April 15. The company then rented an office and paid three months' rent, $1,125, in advance. Credit purchases of office equipment of $1,000 and repair tools of $625 must be paid by April 10.
In March, Carver Repair Service completed repairs of $1,625, of which $500 were cash transactions. Of the credit transactions, $375 were collected during March, and $750 remained to be collected at the end of March. The company paid wages of $562 to its employees. On March 31, the company received a $93 bill for the March utilities expense and a $62 check from a customer for work to be completed in April. A customer requested a repair on March 31 to be done the following week and agreed to pay $250 for it. The company is considering recording this agreement as revenue in March to make the business look better.
1. Record all of the transactions for March in journal form. Label each of the entries alphabetically.
2. Set up T accounts. Then post the entries to the T accounts. Identify each posting with the letter corresponding to the transaction.
3. Determine the balance of each account.
4. Prepare a trial balance for Carver Repair Service Company as of March 31.
5. Demetrius Carver is unsure how to evaluate the trial balance. The Cash account balance is $15,550, which exceeds the original investment of $14,375 by $1,175. Did the company make a profit of $1,175? Explain why the Cash account is not an indicator of business earnings, Cite specific examples to show why it is difficult to determine net income by looking solely at figures in the trial balance.
6. What are the ethical implications of recording the repair order received on March 31 as revenue in March?