Dr. Schekter, DVM, opened a veterinary clinic on May 1, 2015. The business transactions for May are shown below:

May 1 Dr. Schekter invested $400,000 cash in the business in exchange for 5,000 shares of capital stock.

May 4 Land and a building were purchased for $250,000. Of this amount, $70,000 applied to the land, and $180,000 to the building. A cash payment of $100,000 was made at the time of the purchase, and a note payable was issued for the remaining balance.

May 9 Medical instruments were purchased for $130,000 cash.

May 16 Office fixtures and equipment were purchased for $50,000. Dr. Schekter paid $20,000 at the time of purchase and agreed to pay the entire remaining balance in
15 days.

May 21 Office supplies expected to last several months were purchased for $5,000 cash.

May 24 Dr. Schekter billed clients $2,200 for services rendered. Of this amount, $1,900 was received in cash, and $300 was billed on account (due in 30 days).

May 27 A $400 invoice was received for several radio advertisements aired in May. The entire amount is due on June 5.

May 28 Received a $100 payment on the $300 account receivable recorded May 24.

May 31 Paid employees $2,800 for salaries earned in May.

A partial list of account titles used by Dr. Schekter includes:

Cash...................................................Notes Payable
Accounts Receivable........................Accounts Payable
Office Supplies.................................Capital Stock
Medical Instruments.......................Veterinary Service Revenue
Office Fixtures and Equipment......Advertising Expense
Land..................................................Salary Expense
Building

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 May. Organize your answer in tabular
form, using the column headings shown below. Use I for increase, D for decrease, and NE for
no effect. The May 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 illustrated in Exhibit 3–8 on page 110).

d. Prepare a trial balance dated May 31, 2015.

e. Using figures from the trial balance prepared in part d, compute total assets, total liabilities, and owners’ equity. Did May appear to be a profitable month?

Transcribed Image Text:

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