Chapter 3, Problem 17ME

Preparing Accrual Basis Journal Entries and Reporting Financial Statements

Andy’s Autobody Shop has the following balances at the beginning of September: Cash, $10,000; Accounts Receivable, $1,450; Equipment, $40,000; Accounts Payable, $2,000; Common Stock, $20,000; and Retained Earnings, $29,450. Prepare journal entries for the following transactions, which occurred during September; update the account balances for the journal entries; and then prepare an income statement, statement of retained earnings, and classified balance sheet as of and for the month ended September 30. (These financial statements would be considered “preliminary” because they use unadjusted balances.)

1. a. Signed a long-term note and received a $150,000 loan from a local bank.
2. b. Billed a customer $2,000 for repair services just completed. Payment is expected in 45 days.
3. c. Wrote a check for $600 of rent for the current month.
4. d. Received $450 cash on account from a customer for work done last month.
5. e. The company incurred $400 in advertising costs for the current month and is planning to pay these costs next month.