It is the end of April and Natalie has been in touch with her mother. Her mother is curious to know if Natalie has been profitable and if Natalie requires another loan to help finance her business. Natalie too would like to know if she has been profit- able during her first month of operation. Natalie realizes that, in order to determine Santé Smoothies' income, she must first make adjustments. Natalie puts together the following additional information:
1. A count reveals that $105 of supplies remain at the end of April.
2. Natalie was invited to deliver smoothies to a summer barbecue at her local community centre. At the end of the day, she left an invoice for $175 with the facility manager. Natalie had not had time to record this invoice in her accounting records.
3. Because there were so many guests expected to attend the barbecue in item 2, she asked a friend to help with making the smoothies and promised to pay her $12 an hour. The payment to her friend was made on May 4, 2017, for four hours of work.
4. Natalie estimates that all of her equipment will have a useful life of three years or 36 months. (Assume Natalie decides to record a full month's worth of depreciation, regardless of when the equipment was acquired by the business.)
5. Recall that Natalie's mother is charging 3% interest on the note payable extended on April 15. The loan plus interest is to be repaid in 12 months. (Calculate interest to the nearest month.)
Instructions
Using the information that you have gathered through Chapter 2, and based on the new information above, do and answer the following.
(a) Prepare and post the adjusting journal entries. Round all amounts to the nearest dollar.
(b) Prepare an adjusted trial balance.
(c) Prepare an income statement for the month ended April 30, 2017.
(d) Was Santé Smoothies profitable during the first month of operations? Why is it better for Santé Smoothies to measure profit- ability after the adjusting journal entries have been prepared and posted instead of before?
(e) How much cash is available to Natalie to operate her business? Why is the amount of cash different than the amount of profit that Santé Smoothies has earned? What is the most likely reason why Natalie may need to borrow additional money from her mother?