aniasy 1, 301 and uses the following Chart of Acoounts Chert of Aceounts for Mechanical Engineers. Inc Cash. Accounts receivable Prepsit insurance Prepaid rent Other sopplies: Bqupment Accumialated depreciatkon: equipenent Land Accounts payable Divileniks payable Interest payable Income tux payable Unearned claent service revenue Notes payable Common stock Retained carnings Dividends Clicent sivice revene Travel expense Office supplibes expense Atvertising expense Salary expense Utility expense Depreciation expense; equipment Interest expense Insurance expense Rent expense Income trx expense Income summary n Common meca. Dividends Travel expente Otice seclies expente Adrertising expense Salay eapensa Utility experse Depreciston expense equipment Interest expense Insunce expense Problem 3.3 (continued) 85 The following transactions occurred during January of 202 January 2: Shareholders bought 5,000 additional shares of Mechanical Engineers, Inc, common stock at $10 per share January 2: Purchased land for $30,000, paying $10,000 down and signing a 6% (annual rate) note payable for the balance. The principal will be paid on January 2,20X4. Interest will be paid monthly on the first of each month beginning Febniary 1,20x2 January 5: Purchased office supplies on account for $10,000. January 6: Paid utility bill for $1,500 previously accrued in December 20X1 as accounts payable. January 7: Paid travel expense of $1,900. January 9 - Collected $47,000 for professional services performed for clients during the first week of January that had not been previously billed or accrued. January 10: Paid advertising expenses of $4,000. January 15: Paid semi-monthly salaries of $26,000 in cash. January 15: Paid dividends of $10,000 that had been declared on December 31,201. January 16: Received payment in advance of $21,000 from clients for mechanical engineering services to be performed later in the January or in early February 202. January 24: Billed clients $24,000 for services performed during January (collection expected in early February 20x2). 7. January 26: Collected $28,000 on account from clients. January 27: Collected $48,000 for professional services performed for clients during January that had not been previously billed or accrued. January 28: Paid advertising expenses of $6,000. January 29: Paid travel expense of $2,600. January 31: Paid semi-monthly salaries of $28,000 in cash. January 31: Received invoice for gas and electric utility service during January for $1,900 (which was not paid until February 8, 20X2). January 31: Declared dividends of \$.60 per share payable to shareholders on February 15, 20X2. Note: As of January 31,202, there were 25,000 shares of stock issued and outstanding (based on 20,000 shares issued in prior year plus 5,000 shares issued on January 2,202 ). 84 Problem 3.3 (continued) The compary makes adjusting entries monthly and had the following after closing trial balance as of December 31,201 Mechanical Engineers, Inc: After Closing Trial Balance December 31,201 Thepaid professional liability insurance wos purchased for 58200 en Decenber 1, 2061, ard provides irsuance coverage from Qecenber 1. 20xi, through March 31,200 estimated salvape vatue of the equipment is $4000 and stragh line depreciation is vied. thee months, begiming february 28,2002. "On Decamber 1, 2001,20,000 shares of common stock were issued at $10 per shwe. c) Prepare an unadjusted trail balunce as of Janungy 31.200x2 d) Prepare monthly adjusting journal entries for January 202 for the following itens: and prowides invurance corvenge from December 1, 20X1, throegh March 31, 20X3 2) Prepaid rent was paid on December 1, 20xi, in the amount of $30,000 for the sixmonth period Decermber 1, 20X1, through Xay31,202 3) Equipenent was purchased on December 1, 20x1, for $100,000 which is being depreciated monthly based on an estimuted 1 fe of 8 yean. The estimated salvage: value of the equipment is $4,000 and straight line deprecianon is used. 4) On December 1, 20X1, $60,000 wis borrowed and recorded as a long-term note payable at an annual interest nte of 65. Interest is due every three months. beginuing February 25, 20x2 5) On January 2, 20x2, $20,000 was bortowed and recurded as a lons-tern note puyable at an annual rate of 6%. The principal will be poid on January 2,20X4. Interest will be paid monthly on the first of each month begerning February 1, 20x2 6) Recognized as client service revemue foc client services performed during January $17,000 that had previoosly been recorded upon receipt in advance as unearned client service revenue. 7) A count showed $5,000 worth of otsce supplies on hand on Jantary 31,202. 8) Incorne tax expense is accrued for January 202 based on 40% of net income before taxes for January 202, not puid until a later month in 202. (Be sure to consider the effect of adjusting entries just made ( 1 through 7) on revenue and expense balances in determining net income before taoss. You may wish to complete part " e" of the problem below through adjusting entry of first in order to establish adjusted revenue and expense balances before calculation of income tax at 40%.) e) Post the adjusting joumal entries reconded in part "d" in the genenl ledger. (Use the general ledger accounts provided in part " b " of the problem for this purpose) 5) Prepare an adjusted trial balance at January 31,20x2 8) Prepare an income statement and a statement of retained eamings for the month ended Janivery 31,202, and a statement of firancil position as of January 31,202 h) Based on the financial statements peepared in answer to part (g) above, calculate the following: 1) working capital, 2) current natio, 3) acid test (quick) ratib, arsi 4) the debt ratio. 6. Bripainames Generel Jewrial Date General Ledger Office sopelies Accumblated degreciation eguiprent Accounts pandie Dridands povide Interest parabia aniasy 1, 301 and uses the following Chart of Acoounts Chert of Aceounts for Mechanical Engineers. Inc Cash. Accounts receivable Prepsit insurance Prepaid rent Other sopplies: Bqupment Accumialated depreciatkon: equipenent Land Accounts payable Divileniks payable Interest payable Income tux payable Unearned claent service revenue Notes payable Common stock Retained carnings Dividends Clicent sivice revene Travel expense Office supplibes expense Atvertising expense Salary expense Utility expense Depreciation expense; equipment Interest expense Insurance expense Rent expense Income trx expense Income summary n Common meca. Dividends Travel expente Otice seclies expente Adrertising expense Salay eapensa Utility experse Depreciston expense equipment Interest expense Insunce expense Problem 3.3 (continued) 85 The following transactions occurred during January of 202 January 2: Shareholders bought 5,000 additional shares of Mechanical Engineers, Inc, common stock at $10 per share January 2: Purchased land for $30,000, paying $10,000 down and signing a 6% (annual rate) note payable for the balance. The principal will be paid on January 2,20X4. Interest will be paid monthly on the first of each month beginning Febniary 1,20x2 January 5: Purchased office supplies on account for $10,000. January 6: Paid utility bill for $1,500 previously accrued in December 20X1 as accounts payable. January 7: Paid travel expense of $1,900. January 9 - Collected $47,000 for professional services performed for clients during the first week of January that had not been previously billed or accrued. January 10: Paid advertising expenses of $4,000. January 15: Paid semi-monthly salaries of $26,000 in cash. January 15: Paid dividends of $10,000 that had been declared on December 31,201. January 16: Received payment in advance of $21,000 from clients for mechanical engineering services to be performed later in the January or in early February 202. January 24: Billed clients $24,000 for services performed during January (collection expected in early February 20x2). 7. January 26: Collected $28,000 on account from clients. January 27: Collected $48,000 for professional services performed for clients during January that had not been previously billed or accrued. January 28: Paid advertising expenses of $6,000. January 29: Paid travel expense of $2,600. January 31: Paid semi-monthly salaries of $28,000 in cash. January 31: Received invoice for gas and electric utility service during January for $1,900 (which was not paid until February 8, 20X2). January 31: Declared dividends of \$.60 per share payable to shareholders on February 15, 20X2. Note: As of January 31,202, there were 25,000 shares of stock issued and outstanding (based on 20,000 shares issued in prior year plus 5,000 shares issued on January 2,202 ). 84 Problem 3.3 (continued) The compary makes adjusting entries monthly and had the following after closing trial balance as of December 31,201 Mechanical Engineers, Inc: After Closing Trial Balance December 31,201 Thepaid professional liability insurance wos purchased for 58200 en Decenber 1, 2061, ard provides irsuance coverage from Qecenber 1. 20xi, through March 31,200 estimated salvape vatue of the equipment is $4000 and stragh line depreciation is vied. thee months, begiming february 28,2002. "On Decamber 1, 2001,20,000 shares of common stock were issued at $10 per shwe. c) Prepare an unadjusted trail balunce as of Janungy 31.200x2 d) Prepare monthly adjusting journal entries for January 202 for the following itens: and prowides invurance corvenge from December 1, 20X1, throegh March 31, 20X3 2) Prepaid rent was paid on December 1, 20xi, in the amount of $30,000 for the sixmonth period Decermber 1, 20X1, through Xay31,202 3) Equipenent was purchased on December 1, 20x1, for $100,000 which is being depreciated monthly based on an estimuted 1 fe of 8 yean. The estimated salvage: value of the equipment is $4,000 and straight line deprecianon is used. 4) On December 1, 20X1, $60,000 wis borrowed and recorded as a long-term note payable at an annual interest nte of 65. Interest is due every three months. beginuing February 25, 20x2 5) On January 2, 20x2, $20,000 was bortowed and recurded as a lons-tern note puyable at an annual rate of 6%. The principal will be poid on January 2,20X4. Interest will be paid monthly on the first of each month begerning February 1, 20x2 6) Recognized as client service revemue foc client services performed during January $17,000 that had previoosly been recorded upon receipt in advance as unearned client service revenue. 7) A count showed $5,000 worth of otsce supplies on hand on Jantary 31,202. 8) Incorne tax expense is accrued for January 202 based on 40% of net income before taxes for January 202, not puid until a later month in 202. (Be sure to consider the effect of adjusting entries just made ( 1 through 7) on revenue and expense balances in determining net income before taoss. You may wish to complete part " e" of the problem below through adjusting entry of first in order to establish adjusted revenue and expense balances before calculation of income tax at 40%.) e) Post the adjusting joumal entries reconded in part "d" in the genenl ledger. (Use the general ledger accounts provided in part " b " of the problem for this purpose) 5) Prepare an adjusted trial balance at January 31,20x2 8) Prepare an income statement and a statement of retained eamings for the month ended Janivery 31,202, and a statement of firancil position as of January 31,202 h) Based on the financial statements peepared in answer to part (g) above, calculate the following: 1) working capital, 2) current natio, 3) acid test (quick) ratib, arsi 4) the debt ratio. 6. Bripainames Generel Jewrial Date General Ledger Office sopelies Accumblated degreciation eguiprent Accounts pandie Dridands povide Interest parabia