In April 2019, Sarah Jones created a new business, IthacaDeep, Inc., offering therapeutic deep massage for stress reduction, pain management, injury recovery, and relief from muscle strains and tightness experienced by anyone, especially athletes, fitness enthusiasts, runners, and physical laborers. You have been hired to record the transactions occurring in the first month of operations. Received investment of cash by three organizers and issued to them a total of 200 shares of $0.05 par value stock with a market price of $40 per share. Borrowed $20,000 from a local bank, signing a note due in three years, 6 percent interest rate. Signed a one-year lease for a space near a health club, paying $600 for April rent and $1,800 for rent for May, June, and July. Purchased equipment costing $15,200, paying 20 percent in cash and owing the rest on account to the supplier, due in 60 days. Ordered a business computer and printer from Dell for $2,900. Loaned $1,000 to an employee who signed a note due in three months. Purchased supplies for $2,600 on account. Paid Facebook $2,000 as a budget for advertising. (Facebook charges the advertiser’s account per click, drawing down the balance. The average click is $0.27.) Paid $2,400 for 12 months of insurance coverage, with one-twelfth covering April and the rest covering the remainder of the fiscal year (end of March next year). Purchased short-term investments for $10,000 cash. Depreciation for the month of April, $400 Interest accrued on notes payable Supplies of $550 were counted on April 30. Income tax expense was $700 Wages earned for the last week of April but not yet paid $7000 Along with her four other licensed massage therapists, John and his team provided $42,000 of deep tissue service to clients in April who paid half in cash and agreed to pay the rest in May. Paid employees $18,000 in wages for work in the first three weeks of April. At the end of April, received a $310 utility bill for the use of gas and electric in April. The bill will be paid in May. Paid $1,500 on the long-term note owed to the bank (ignore interest). Earned and received $25 in interest on the short-term investments. Sent the team to Boston in April to receive additional specialty training, costing Lehigh Medical $2,100 cash. Received $1,400 from clients for a series of services to be performed beginning in May. Required: Prepare journal entries for each transaction. Create T-accounts and post the effects of the transactions to the T-accounts. Compute the net income (i) under the accrual basis and (ii) under the cash basis method? Prepare the closing entries.

In April 2019, Sarah Jones created a new business, IthacaDeep, Inc., offering therapeutic deep massage for stress reduction, pain management, injury recovery, and relief from muscle strains and tightness experienced by anyone, especially athletes, fitness enthusiasts, runners, and physical laborers. You have been hired to record the transactions occurring in the first month of operations. Received investment of cash by three organizers and issued to them a total of 200 shares of $0.05 par value stock with a market price of $40 per share. Borrowed $20,000 from a local bank, signing a note due in three years, 6 percent interest rate. Signed a one-year lease for a space near a health club, paying $600 for April rent and $1,800 for rent for May, June, and July. Purchased equipment costing $15,200, paying 20 percent in cash and owing the rest on account to the supplier, due in 60 days. Ordered a business computer and printer from Dell for $2,900. Loaned $1,000 to an employee who signed a note due in three months. Purchased supplies for $2,600 on account. Paid Facebook $2,000 as a budget for advertising. (Facebook charges the advertiser’s account per click, drawing down the balance. The average click is $0.27.) Paid $2,400 for 12 months of insurance coverage, with one-twelfth covering April and the rest covering the remainder of the fiscal year (end of March next year). Purchased short-term investments for $10,000 cash. Depreciation for the month of April, $400 Interest accrued on notes payable Supplies of $550 were counted on April 30. Income tax expense was $700 Wages earned for the last week of April but not yet paid $7000 Along with her four other licensed massage therapists, John and his team provided $42,000 of deep tissue service to clients in April who paid half in cash and agreed to pay the rest in May. Paid employees $18,000 in wages for work in the first three weeks of April. At the end of April, received a $310 utility bill for the use of gas and electric in April. The bill will be paid in May. Paid $1,500 on the long-term note owed to the bank (ignore interest). Earned and received $25 in interest on the short-term investments. Sent the team to Boston in April to receive additional specialty training, costing Lehigh Medical $2,100 cash. Received $1,400 from clients for a series of services to be performed beginning in May. Required: Prepare journal entries for each transaction. Create T-accounts and post the effects of the transactions to the T-accounts. Compute the net income (i) under the accrual basis and (ii) under the cash basis method? Prepare the closing entries.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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by anyone, especially athletes, fitness enthusiasts, runners, and physical laborers. You have been hired to record the transactions occurring in the first month of operations.

Received investment of cash by three organizers and issued to them a total of 200 shares of $0.05 par value stock with a market price of $40 per share.
Borrowed $20,000 from a local bank, signing a note due in three years, 6 percent interest rate.
Signed a one-year lease for a space near a health club, paying $600 for April rent and $1,800 for rent for May, June, and July.
Purchased equipment costing $15,200, paying 20 percent in cash and owing the rest on account to the supplier, due in 60 days.
Ordered a business computer and printer from Dell for $2,900.
Loaned $1,000 to an employee who signed a note due in three months.
Purchased supplies for $2,600 on account.
Paid Facebook $2,000 as a budget for advertising. (Facebook charges the advertiser’s account per click, drawing down the balance. The average click is $0.27.)
Paid $2,400 for 12 months of insurance coverage, with one-twelfth covering April and the rest covering the remainder of the fiscal year (end of March next year).
Purchased short-term investments for $10,000 cash.
Depreciation for the month of April, $400
Interest accrued on notes payable
Supplies of $550 were counted on April 30.
Income tax expense was $700
Wages earned for the last week of April but not yet paid $7000
Along with her four other licensed massage therapists, John and his team provided $42,000 of deep tissue service to clients in April who paid half in cash and agreed to pay the rest in May.
Paid employees $18,000 in wages for work in the first three weeks of April.
At the end of April, received a $310 utility bill for the use of gas and electric in April. The bill will be paid in May.
Paid $1,500 on the long-term note owed to the bank (ignore interest).
Earned and received $25 in interest on the short-term investments.
Sent the team to Boston in April to receive additional specialty training, costing Lehigh Medical $2,100 cash.
Received $1,400 from clients for a series of services to be performed beginning in May.

Required:

Prepare journal entries for each transaction.
Create T-accounts and post the effects of the transactions to the T-accounts.
Compute the net income (i) under the accrual basis and (ii) under the cash basis method?
Prepare the closing entries.

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