Dr. Cravati, DMD, opened a dental clinic on August 1, current year. The following are the business transactions for August.

Aug. 1 Dr. Cravati invested $280,000 cash in the business in exchange for 1,000 shares of capital stock.

Aug. 4 Land and a building were purchased for $400,000. Of this amount, $60,000 applied to the land and $340,000 to the building. A cash payment of $80,000 was made at the time of the purchase, and a note payable was issued for the remaining balance.

Aug. 9 Medical instruments were purchased for $75,000 cash.

Aug. 16 Office fixtures and equipment were purchased for $25,000. Dr. Cravati paid $10,000 at the time of purchase and agreed to pay the entire remaining balance in 15 days.

Aug. 21 Office supplies expected to last several months were purchased for $4,200 cash.

Aug. 24 Dr. Cravati billed patients $13,000 for services rendered. Of this amount, $1,000 was received in cash, and $12,000 was billed on account (due in 30 days).

Aug. 27 A $450 invoice was received for several newspaper advertisements placed in August. The entire amount is due on September 8.

Aug. 28 Received a $500 payment on the $12,000 account receivable recorded August 24.

Aug. 31 Paid employees $2,200 for salaries earned in August.

A partial list of account titles used by Dr. Cravati includes the following.

Cash...................................Office Fixtures and Equipment

Accounts Receivable................Land

Office Supplies......................Building

Notes Payable........................Service Revenue

Accounts Payable...................Advertising Expense

Capital Stock........................Salary Expense

Medical Instruments

Instructions

a. Analyze the effects that each of these transactions will have on the following six components of the company's financial statements for the month of August. Organize your answer in tabular form, using the column headings shown. Use I for increase, D for decrease, and NE for no effect. The August 1 transaction is provided for you.

b. Prepare journal entries (including explanations) for each transaction.
c. Post each transaction to the appropriate ledger accounts (use the T account format as illustrated in Exhibit 3-8).
d. Prepare a trial balance dated August 31, current year.
e. Using figures from the trial balance prepared in part d, compute total assets, total liabilities, and owners' equity. Did August appear to be a profitable month?

Transcribed Image Text:

Income Statement Balance Sheet Transaction Revenue-Expenses=Net Income Assets=Liabilities +Owners' Equity Aug. 1 NE NE NE NE