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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

  1. The advance payment of rent on May 1 covered a period of three months.
  2. The annual interest rate on the note payable is 5 percent.
  3. The machine purchased May 1, 2015 is being depreciated by the straight-line method over a period of five years.
  4. Office supplies on hand at May 31 are estimated at $440.
  5. 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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