Saira Morrow operates Dressage Riding Academy, Inc. The academy’s primary sources of revenue are riding fees and lesson fees, which are provided on a cash basis. Saira also boards horses for owners, who are billed monthly for boarding fees. In a few cases, boarders pay in advance of expected use. For its revenue transactions, the academy maintains these accounts: Cash, Accounts Receivable, Unearned Service Revenue, and Service Revenue.

The academy owns 10 horses, a stable, a riding corral, riding equipment, and offi ce equipment. These assets are accounted for in the following accounts: Horses, Buildings, and Equipment.

The academy employs stable helpers and an offi ce employee, who receive weekly salaries. At the end of each month, the mail usually brings bills for advertising, utilities, and veterinary service. Other expenses include feed for the horses and insurance. For its expenses, the academy maintains the following accounts: Supplies, Prepaid Insurance, Accounts Payable, Salaries and Wages Expense, Advertising Expense, Utilities Expense, Maintenance and Repairs Expense, Supplies Expense, and Insurance Expense.

Saira’s sole source of personal income is dividends from the academy. Thus, the corporation declares and pays periodic dividends. To account for stockholders’ equity in the business and dividends, two accounts are maintained: Common Stock and Dividends.

During the fi rst month of operations, an inexperienced bookkeeper was employed.

Saira asks you to review the following eight entries of the 50 entries made during the month. In each case, the explanation for the entry is correct. LO9 May 1 Cash 15,000 Unearned Service Revenue 15,000

(Issued common stock in exchange for

$15,000 cash)

5 Cash 250 Service Revenue 250

(Received $250 cash for lesson fees)

7 Cash 500 Service Revenue 500

(Received $500 for boarding of horses beginning June 1)

9 Supplies Expense 1,500 Cash 1,500

(Purchased estimated 5 months’ supply of feed and hay for $1,500 on account 14 Equipment 80 Cash 800 (Purchased desk and other offi ce equipment for $800 cash)
15 Salaries and Wages Expense 400 Cash 400 (Issued check to Saira Morrow for personal use)
20 Cash 145 Service Revenue 154 (Received $154 cash for riding fees)
31 Maintenance and Repairs Expense 75 Accounts Receivable 75 (Received bill of $75 from carpenter for repair services performed)
Instructions With the class divided into groups, answer the following.

(a) For each journal entry that is correct, so state. For each journal entry that is incorrect, prepare the entry that should have been made by the bookkeeper.

(b) Which of the incorrect entries would prevent the trial balance from balancing?

(c) What was the correct net income for May, assuming the bookkeeper originally reported net income of $4,500 after posting all 50 entries?

(d) What was the correct cash balance at May 31, assuming the bookkeeper reported a balance of $12,475 after posting all 50 entries?