On January 1, Pulse Recording Studio (PRS) had the following account balances.

The following transactions occurred during January.

a. Received $2,500 cash on 1/1 from customers on account for recording services completed in December.

b. Wrote checks on 1/2 totaling $4,000 for amounts owed on account at the end of December.

c. Purchased and received supplies on account on 1/3, at a total cost of $200.

d. Completed $4,000 of recording sessions on 1/4 that customers had paid for in advance in December.

e. Received $5,000 cash on 1/5 from customers for recording sessions started and completed in January.

f. Wrote a check on 1/6 for $4,000 for an amount owed on account.

g. Converted $1,000 of cash equivalents into cash on 1/7.

h. On 1/15, completed EFTs for $1,500 for employees’ salaries and wages for the first half of January.

i. Received $3,000 cash on 1/31 from customers for recording sessions to start in February.

Required:

1. Prepare journal entries for the January transactions.

2. Enter the January 1 balances into T-accounts, post the journal entries from requirement 1, and calculate January 31 balances. (If you are completing this requirement in Connect, this requirement will be completed for you.)

3. Use the January 31 balance in Cash from requirement 2 and the following information to prepare a bank reconciliation. PRS’s bank reported a January 31 balance of $6,300.

j. The bank deducted $500 for an NSF check from a customer deposited on January 5.

k. The check written January 6 has not cleared the bank, but the January 2 payment has cleared.

l. The cash received and deposited on January 31 was not processed by the bank until February 1.

m. The bank added $5 cash to the account for interest earned in January.

n. The bank deducted $5 for service charges.

4. Prepare journal entries for items (j)-(n) from the bank reconciliation, if applicable, and post them to the T-accounts. If a journal entry is not required for one or more of the reconciling items, indicate “no journal entry required.” (If you are using Connect, journal entries will be automatically posted after you enter them.)

5. Prepare adjusting journal entries on 1/31, using the following information.

o. Depreciation for the month is $200.

p. Salaries and wages totaling $1,500 have not yet been recorded for January 16–31.

q. Prepaid Rent will be fully used up by March 31.

r. Supplies on hand at January 31 were $500.

s. Received $600 invoice for January electricity charged on account to be paid in February but is not yet recorded.

t. Interest on the promissory note of $60 for January has not yet been recorded or paid. 

u. Income tax of $1,000 on January income has not yet been recorded or paid.

6. Post the adjusting journal entries from requirement 5 to the T-accounts and prepare an adjusted trial balance. (If you are completing this requirement in Connect, it will be completed for you using your previous answers.)

7. Prepare an income statement for January and a classified balance sheet at January 31. Report PRS’s cash and cash equivalents as a single line on the balance sheet.

8. Calculate the current ratio at January 31 and indicate whether PRS has met its loan covenant that requires a minimum current ratio of 1.2.

9. Calculate the net profit margin and indicate whether PRS has achieved its objective of 10 percent.

Transcribed Image Text:

Accounts Payable Accounts Receivable Accumulated Depreciation-Equipment Cash Cash Equivalents Common Stock Deferred Revenue Equipment Notes Payable (long-term) Prepaid Rent Retained Eamings Supplies $ 8,500 $ 4,000 30,000 12,000 3,000 5,300 7,000 6,000 3,800 1,500 10,000 500