Rachel Saunders graduated from The Ohio State University College of Veterinary Medicine in 2017. She then worked as a staff veterinarian in a medium-size veterinary practice in Worthington, Ohio, until 2018, when she opened her own practice in nearby Dublin, Ohio.

Dr. Saunders established Dublin Small Animal Clinic (DSAC) on July 1, 2018, by purchasing all its common stock for $125,000. That same day DSAC paid $2,500 to an attorney who prepared DSAC's legal documents and filed incorporation documents with the State of Ohio; paid $90,000 for medical instruments, furniture and equipment; and signed a three-year rent on office space for $5,000 per month, payable the first day of each month and paid that amount.

During July 2018, DSCA received $18,500 from clients for office visits, surgery, medical supplies and drugs. During July, DSCA also paid $1,500 for drugs and medical supplies, $500 for office supplies and $13,750 for wages and benefits (which included $6,500 for Saunders). At the end of July, DSAC had negligible drugs, medical supplies or office supplies in inventory.

Required

1.Record the above activity, and then an income statement for July 2018 and balance sheet as of July 31, 2018.

2.Was DSAC successful during its first month of operation? Explain.

Accrual Accounting

In mid-August Dr. Saunders asked an accountant evaluate her financial statements. The accountant learned that DSAC had billed clients an additional $6,500 for care delivered in July but did not receive payments until August. DSAC also purchased and used an additional $500 of drugs and medical supplies in July but did not pay for them until August. The accountant estimated the instruments, furniture and equipment would last about five years and decided to depreciate those assets over a 60-month period using straight-line depreciation with no salvage value.

Required

1.Record the additional activity. a revised income statement for July 2018 and a revised balance sheet as of July 31, 2018.

2.Reevaluate whether DSAC was successful during its first month of operation.