Shane Bakersky, one of your friends started a mental health counseling practice. After opening his new practice, Shane invites you, an accountant to his office. As you and Shane talk, you tell Shane that he is required to keep the books & records for his business separate from his personal record. He is also required to prepare financial statement at the end of the year (or more frequently if he wills). As the conversation goes on, Shane asks you to explain the steps in accounting lifecycle.

After listening to your explanation, Shane requests you to help him with preparation of the

applicable financial statements for his practice. His business had the following transactions in last month:

a. Shane started his business on March 15, 2022. He contributed $5,000 cash to his business. He

also transferred some of his personal assets to his business. These assets are: computer ($2,280); furniture ($4,720); supplies ($750).

b. On March 15, Shane paid rent $4,500 which will cover office rent for three months starting March 15, 2022.

c. On the same day, Shane paid $1,400 attorney's fee for business entity formation. Shane's business ran out of cash and Shane paid $900 from his personal account to cover the attorney's fees.

d. On March 18th, Mila M. came for a consultation and loved Shane's service. She booked two more appointments for next two weeks and paid $750 fee for that day and for her upcoming appointments.

e. On March 31, one of Shane's clients visited his office and loved the desk in the office. She offered to buy that desk. Shane did not want to sell the desk and she doubled up her offer. Finally Shane agreed to sell the desk to her for $12,500. When Shane contributed the furniture to the business, the furniture had a value of $4,000.

Questions

1) What accounting assumptions did you explain to Shane in your discussion?

2) For the transactions above, prepare the month-end adjusted income statement and balance sheet so that Shane can visualize each of the applicable steps of the accounting cycle. (ignore closing, post closing TB & reversing entry)

Thank you!