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The company uses the following accounts: Cash Capital Stock Accounts Receivable Inventory Retained Earnings Prepaid Rent Dividends Unexpired Insurance Income Summary Office Supplies Sales Rental
The company uses the following accounts:
- Cash Capital Stock
- Accounts Receivable
- Inventory Retained Earnings
- Prepaid Rent Dividends
- Unexpired Insurance Income Summary
- Office Supplies Sales
- Rental Equipment Salaries Expense
- Accumulated Depreciation: Computer Equipment Repair Expense
- Cable Expense
- Notes Payable Utilities Expense
- Accounts Payable Rent Expense
- Interest Payable Office Supplies Expense
- Salaries Payable Depreciation Expense
- Dividends Payable Interest Expense
- Unearned Sales
The company performs adjusting entries monthly. Closing entries are performed annually on May 31.
During May, the corporation entered into the following transactions:
- May 1: Issued 40,000 shares of capital stock in exchange for a total of $400,000 cash.
- May 1: Purchased a piece of equipment to be used in the operations of the business for $300,000 that will assist with a more efficient production. Paid $100,000 cash and issued a two-year note payable for $200,000. The note plus all 24 months of accrued interest are due April 30, 2017. The interest rate on the note is 5%.
- May 1: Paid $15,000 to SSR as three months advance rent on the warehouse used in daily manufacturing.
- May 4: Paid salaries in May totaling $27,000. (Ignore payroll taxes.)
- May 8: Purchased office supplies (e.g., copy paper, ink toner, pens, etc.) on account from Office Depot, $4,200. Payment due in 30 days.
- May 15: Excluding the Wilmington General advance, fees earned during the first 15 days of May amounted to $95,100, of which $47,000 was received in cash. The remaining amount will be customer purchases on account.
- May 18: Purchased on account from Parts Plus, Inc., $1,700 in parts needed to repair a server for a local law firm. (Debit an expense account.) Payment is due in 10 days.
- May 23: Collected $22,000 of the accounts receivable recorded on May 15.
- May 26: Paid salaries in May totaling $27,000. (Ignore payroll taxes.)
- May 27: Paid the account payable to Parts Plus., $1,700.
- May 28: Declared a dividend of 10 cents per share, payable on June 15, 2015.
- May 29: Paid the May utilities in the amount of $985.
- May 31: Purchased a 24-month warranty insurance policy for $24,000. This policy protects the company against liability for defects and warranties for the computer equipment that is sold and leased. The policy goes into effect on June 1, 2015.
- May 31: Paid monthly cable bill of 684 to Suddenlink.
- May 31: Collected Sales earned during the second half of May, which amounted to $120,700 and of which $86,300 was received in cash. The remaining amount is customer purchases on account.
Data for Adjusting Entries
- The advance payment of rent on May 1 covered a period of three months.
- The annual interest rate on the note payable is 5 percent.
- The machine purchased May 1, 2015 is being depreciated by the straight-line method over a period of five years.
- Office supplies on hand at May 31 are estimated at $440.
- Employee salaries earned by employees since the last payroll date (May 26) amounted to $9,642 at the month end.
Instructions
Complete the following for this assignment:
- Prepare 3 profitability ratios, 3 liquidity ratios, and 2 solvency ratios (be sure to show your calculations).
- After completing the accounting cycle and financial analysis, summarize the results in a double-spaced paper of 1-2 pages. The paper should be properly developed and formatted according to APA formatting guidelines.
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