Monthly Transactions, Adjustments, and Financial Statements transactions are entered into during the month of January: owners estimate that the house will have an estimated useful life of 25 years and an estimated salvage value of $5,000. January 3: A two-year, 12%,$30,000 promissory note was signed at Second State Bank. Interest and principal will be repaid on the maturity date of January 3,2019. January 4: New furniture for the inn is purchased at a cost of $15,000 in cash. The furniture has an estimated useful life of ten years and no salvage value. January 5: A 24-month property insurance policy is purchased for $6,000 in cash. January 6: An advertisement for the inn is placed in the local newspaper. Moonlight Bay pays $450 cash for the ad, which will run in the paper throughout January. January 7: Cleaning supplies are purchased on account for $950. The bill is payable within 30 days. January 15: Wages of $4,230 for the first half of the month are paid in cash. January 31: Cash receipts from rentals of rooms for the month amount to $8,300. January 31: Cash receipts from operation of the restaurant for the month amount to $6,600. January 31: Each stockholder is paid $200 in cash dividends. Assume a 360-day year. When required, do not round your intermediate calculations and round your final answers to the nearest whole dollar. Required: 3. Identify and analyze the necessary adjustments for each of the following: a. Depreciation of the house. Use straight line method of depreciation. Activity Accounts Statement(s) b. Depreciation of the furniture. Use straight line method oaccounting depreciation. How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount it will have the effect of decreasing the corresponding financial statement item. d. Recognition of the expired portion of the insurance. How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" a q. Cleaninq supplies on hand on January 31 amount to $230. i. Income taxes are to be accrued at a rate of 30% of income before taxes. 4a. Predare an income statement for the month ended January 31, 2017. 4b. Prepare a statement of retained earnings for the month ended January 31, 2017. If an amount is zero, enter "0". Moonlight Bay Inn Statement of Retained Earnings For the Month Ended January 31,2017 4c. Prepare a balance sheet at January 31, 2017. Moonlight Bay Inn Balance Sheet January 31, 2017 Assets Current assets: Total current assets Property, plant, and equipment: Total property, plant, and equipment Total assets Liabilities Current liabilities: Total current liabilities 5. You are the loan officer at Second State Bank. You have made a loan to Moonlight inn. Upon verifying the financial statements, Which of the statements given below would make you comfortable with the loan you made? a. The inn has shown a profit, but the balance sheet does not show a strong position. The banker should not be comfortable with the loan made. b. The inn has shown a profit and the balace sheet shows a strong position. The banker should be comfortable with the loan made. c. The inn has shown a loss but the balace sheet shows a strong position. The banker should be comfortable with the loan made. d. The inn has shown a loss and the balace sheet does not show a strong position. The banks should not be comfortable with the loan made
