Record adjustments and prepare financial statements. (LO 1, 2, 3, 4)

The accounting records for Sony Snowboard Company, a snowboard repair company, contained the following balances as of December 31, 2006:

The following accounting events apply to Sony's 2007 fiscal year:

a. Jan. 1 The company acquired an additional \(\$ 20,000\) cash from the owners in exchange for common stock.

b. Jan. 1 Sony purchased a computer that cost \(\$ 15,000\) for cash. The computer had a no salvage value and a 3 -year useful life.

c. Mar. 1 The company borrowed \(\$ 10,000\) by issuing a 1 -year note at \(12 \%\).

d. May 1 The company paid \(\$ 2,400\) cash in advance for a 1-year lease for office space.

e. June 1 The company declared and paid dividends to the owners of \(\$ 4,000\) cash.

f. July 1 The company purchased land that cost \(\$ 17,000\) cash.
g. Aug. I Cash payments on accounts payable amounted to \(\$ 6,000\).
h. Aug. 1 Sony received \(\$ 9,600\) cash in advance for 12 months of service to be performed monthly for the next year, beginning on receipt of payment.
i. Sept. 1 Sony sold a parcel of land for \(\$ 13,000\) cash, the amount the company originally paid for it.
j. Oct. 1 Sony purchased \(\$ 795\) of supplies on account.
k. Nov. 1 Sony purchased short-term investments for \(\$ 18,000\). The investments pay a fixed rate of \(6 \%\).
1. Dec. 31 The company earned service revenue on account during the year that amounted to \(\$ 40,000\).
m. Dec. 31 Cash collections from accounts receivable amounted to \(\$ 44,000\).
n. Dec. 31 The company incurred other operating expenses on account during the year of \(\$ 5,450\).
1. Salaries that had been earned by the sales staff but not yet paid amounted to \(\$ 2,300\).
2. Supplies worth \(\$ 180\) were on hand at the end of the period.
Based on the preceding transaction data, there are five additional adjustments (for a total of seven) that need to be made before the financial statements can be prepared.
\section*{Required}

a. Prepare an accounting equation worksheet and record the account balances as of December 31, 2006.

b. Using the worksheet, record the transactions that occurred during 2007 and the necessary adjustments needed at year-end.

c. Prepare all four financial statements for the year ended December 31, 2007 (balance sheet at December 31, 2007).

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Assets Liabilities and shareholders' equity Cash $40,000 Accounts payable $17,000 Accounts receivable 16,500 Common stock 45,000 Land 20,000 Retained earnings 14,500 Totals $76,500 $76,500