$200$ Accounting Basics Chapter $8$: Comprehensive Exercise

First Month of Operations

$199$

First Month of Operations

The following transactions took place during the first month of operations of Mother Molly's Childcare.

$.$ On May $1,$ Molly invests $$50,000$ to open Mother Molly's Childcare.

On May $2,$ the company spends $$11,000$ on furniture for use in the childcare facility.

On May $2,$ the company purchases $$1,450$ of supplies from a local office supply store on account.

On May $8,$ the company establishes a petty cash fund containing $$400.$

$.$ On May $12,$ the company purchases $$350$ of children's snacks on account. Mother Molly's Childcare treats this as a Miscellaneous Expense.

On May $13,$ the company purchases advertising in a local newspaper for $$505$ cash.

On May $15,$ the company determines that revenue for the first half of the month totaled $$7,350.$ Of this amount, $$4,000$ was paid in cash, while the remainder is owed.

$.$ On May $15,$ the company pays its employees. Gross wages for the first half of the month totaled $$3,000.$ Federal income tax withholding totaled $$337,$ state income tax withholding totaled $$130,$ and life insurance premiums withheld totaled $$65.$ In addition, applicable SUTA and FUTA tax rates for employees of Mother Molly's Childcare are $5\mathrm{.}4\%$ and $0\mathrm{.}6\%$ respectively. No single employee has, to date, reached the Social Security tax, FUTA tax, or SUTA tax threshold.

On May $17,$ the company pays $$800$ of the previously owed amount from the May $2$ purchase of supplies.

On May $19,$ the company receives $$1,200$ of the previously$-$owed amount from the revenue recorded on May $15.$

On May $22,$ the company receives $$2,000$ cash from a customer paying for the next two months of childcare services in advance.

On May $23,$ the life insurance premiums withheld on May $15$ are remitted to the insurance company.

On May $24,$ the company replenishes its petty cash fund, from which $$305$ has been spent. The $$305$ total was comprised of $$157$ of supplies, $$83$ of postage, and $$65$ of miscellaneous expense.

On May $25,$ the company receives $$1,325$ of the previously$-$owed amount from the revenue recorded on May $15.$

On May $29,$ the company pays $$1,620$ cash for monthly rent.

$,$ On May $30,$ the company pays cash of $$220$ for its telephone bill.

On May $30,$ the company pays cash of $$315$ for its utility $($electric$)$ bill.

On May $30,$ the company pays its employees. Gross wages for the first half of the month totaled $$3,500.$ Pediay $30,$ the company pays its employees. Grass wates $$389,$ state income tax withholding totaled $$156,$ and life insurance red

To complete the comprehensive problem for the first month of operations, perform the following:

Record journal entries for each of the transactions of Mother Molly's Childcare during its first month of operations.

Post all journal entries to T$-$Accounts for each account used by Mother Molly's Childcare.

Prepare the Unadjusted Trial Balance.

Record adjusting journal entries based on the following information:

a$.$ A physical count of supplies on May $31$ indicates that supplies worth $$625$ remain in the supply cabinet.

b$.$ $$750$ of the unearned revenue received on May $22$ has been earned as of May $31.$

c$.$ As of May $31,$ the company has provided $$850$ of services for which it has not yet billed the client, and which were not previously recorded.

d$.$ As of May $31,$ employees of Mother Molly's Childcare have worked for one day, and earned wages of $$200.$ They will not receive paychecks for this work until the following month.

Prepare the Adjusted Trial Balance.

Prepare the Income Statement.

Prepare the Statement of Owner's Equity.

Prepare the Balance Sheet.

Record the closing entries.

Prepare the Post$-$Closing Trial Balance.

Prepare a vertical analysis for both the Income Statement and the Balance Sheet.

Calculate the Current Ratio and the Quick Ratio $($Liquidity Ratios$).$

Calculate the Debt Ratio, Equity Ratio, and the Debt$-$to$-$Equity Ratio $($Solvency Ratios$).$

Calculate the Profit Margin and the Return on Assets $($Profitability Ratios$).$