CON2-1 (Static) Accounting for the Establishment of a New Business (the Accounting Cycle) LO2-4, 2-5, 2-6 Penny Cassidy has decided to start her business, Pennys Pool Service & Supply, Inc. (PPSS). There is much to do when starting a new business. Here are some transactions that have occurred in PPSS in March. Received $25,000 cash and a large delivery van with a value of $36,000 from Penny, who was given 4,000 shares of $0.05 par value common stock in exchange. Purchased land with a small office and warehouse by paying $10,000 cash and signing a 10-year note payable to the local bank for $80,000. The land has a value of $18,000 and the building's value is $72,000. Use separate accounts for land and buildings. Purchased a new computer equipment from Dell for $2,500 cash, and purchased other office equipment for $4,000, signing a note payable due in six months to the office equipment manufacturer. Hired a receptionist for the office at a salary of $1,500 per month; the receptionist will begin working for PPSS starting in April. Paid $1,000 on the note payable to the bank [in (b) above] at the end of March (ignore interest). Purchased short-term investments in the stock of other companies for $5,000 cash. Ordered $10,000 in inventory from Pool Corporation, Inc., a pool supply wholesaler, to be received in April.

Required:

1. For each of the events, prepare journal entries if a transaction of the business exists, checking that debits equal credits.

2. Use the following T-accounts, and post each of the transactions to determine balances at March 31. Because this is a new business, beginning balances are $0.

3. Prepare a trial balance on March 31 to check that debits equal credits after the transactions are posted to the T-accounts.

4. From the trial balance, prepare a classified balance sheet at March 31 (before the beginning of operations in April).

5. For each of the events, indicate if it is an investing activity (I) or financing activity (F), and the direction (+ for increases; for decreases) and amount of the effect on cash flows using the following structure. Select NE if there is no effect on cash flows.

6. Calculate the current ratio at March 31.

Record the receipt of $25,000 cash and a van valued at $36,000 in exchange for 4,000 shares with a par value of $0.05 per share.

Transaction	General Journal	Debit	Credit
a

Record the purchase of land with a small office by paying $10,000 cash and signing a mortgage note payable for $80,000. The land has a value of $18,000 and the buildings value is $72,000.

Transaction	General Journal	Debit	Credit

Record the purchase of a new computer for $2,500 cash and office furniture for $4,000, signing a short-term note payable in six months.

Transaction	General Journal	Debit	Credit

Record the hiring of a receptionist for a salary of $1,500 per month, starting in April.

Transaction	General Journal	Debit	Credit

Record the payment of $1,000 on the note payable to the bank at the end of March (ignore interest).

Transaction	General Journal	Debit	Credit

Record the purchase of short-term investments in the stock of other companies for $5,000 cash.

Transaction	General Journal	Debit	Credit

• Record the $10,000 order of inventory from Pool Corporation, Inc., a pool supply wholesaler, to be received in April.

Transaction	General Journal	Debit	Credit