Karla Tanner opened a web consulting business called Linkworks and recorded the following transactions in its first month of operations.
Apr.
1
Tanner invests $80,000 cash along with office equipment valued at $26,000 in the company in exchange for common stock.
Apr.
2
The company prepaid $9,000 cash for twelve months’ rent for office space. The company's policy is record prepaid expenses in balance sheet accounts.
Apr.
3
The company made credit purchases for $8,000 in office equipment and $3,600 in office supplies. Payment is due within 10 days.
Apr.
6
The company completed services for a client and immediately received $4,000 cash.
Apr.
9
The company completed a $6,000 project for a client, who must pay within 30 days.
Apr.
13
The company paid $11,600 cash to settle the account payable created on April 3.
Apr.
19
The company paid $2,400 cash for the premium on a 12-month insurance policy. The company's policy is record prepaid expenses in balance sheet accounts.
Apr.
22
The company received $4,400 cash as partial payment for the work completed on April 9.
Apr.
25
The company completed work for another client for $2,890 on credit.
Apr.
28
The company paid $5,500 cash in dividends.
Apr.
29
The company purchased $600 of additional office supplies on credit.
Apr.
30
The company paid $435 cash for this month’s utility bill.
Descriptions of items that require adjusting entries on April 30, follow.
· a) On April 2, the company prepaid $9,000 cash for twelve months' rent for office space.
· b) The balance in Prepaid insurance represents the premium paid for a 12-month insurance policy the policy's coverage began on April 1.
· c) Office supplies on hand as of April 30 total $1,200.
· d) Straight-line depreciation of office equipment, based on a 5-year life and a $4,000 salvage value, is $500 per month.
· e) The company has completed work for a client, but has not yet billed the $1,800 fee.
· f) Wages due to employees, but not yet paid, as of April 30 total $2,600.
General Journal tab -For each transaction, review the unadjusted balance and prepare the adjusting entry necessary to co
ectly report the revenue earned or the expense incu
ed. After adjusting the accounts, review the general ledger and trial balance for accuracy.
General Ledger tab - Each journal entry is posted automatically to the general ledger. Use the drop-down button to view the unadjusted or adjusted balances.
Trial Balance tab - You may view either the unadjusted or adjusted trial balance by choosing from the dropdown box below. Your choice will determine the reported values on the financial statement tabs.
Income Statement tab - Use the drop-downs to select the accounts properly included on the income statement. The unadjusted or adjusted balances will appear for each account, based on your selection.
Statement of Retained earnings tab - The unadjusted or adjusted balances will appear for each account, based on your selection.
Balance Sheet tab - Use the drop-downs to select the accounts properly included on the balance sheet. The unadjusted or adjusted balances will appear for each account, based on your selection.
Impact on Income tab -For each adjustment, indicate the income statement and balance sheet account affected, and the impact on net income. If an adjustment caused net income to decrease, enter the amount as a negative value. Net income before adjustments can be found on the income statement tab. (Hint: Select unadjusted on the dropdown.)
Part 2
Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her business using the following financial data.
BUSINESS SOLUTIONS
Income Statement
For Three Months Ended March 31, 2020
Computer services revenue
$
24,507
Net sales
18,493
Total revenue
43,000
Cost of goods sold
$
14,952
Depreciation expense—Office equipment
360
Depreciation expense—Computer equipment
1,150
Wages expense
2,850
Insurance expense
535
Rent expense
1,975
Computer supplies expense
1,255
Advertising expense
510
Mileage expense
280
Repairs expense—Compute
920
Total expenses
24,787
Net income
$
18,213
BUSINESS SOLUTIONS
Comparative Balance Sheets
December 31, 2019, and March 31, 2020
Mar. 31, 2020
Dec. 31, 2019
Assets
Cash
$
77,677
$
54,342
Accounts receivable
23,567
5,468
Inventory
624
0
Computer supplies
2,055
560
Prepaid insurance
1,020
1,635
Prepaid rent
755
755
Total cu
ent assets
105,698
62,760
Office equipment
7,200
7,200
Accumulated depreciation—Office equipment
(720
)
(360
)
Computer equipment
19,300
19,300
Accumulated depreciation—Computer equipment
(2,300
)
(1,150
)
Total assets
$
129,178
$
87,750
Liabilities and Equity
Accounts payable
$
0
$
1,200
Wages payable
905
590
Unearned computer service revenue
0
2,400
Total cu
ent liabilities
905
4,190
Equity
Common stock
107,000
76,000
Retained earnings
21,273
7,560
Total liabilities and equity
$
129,178
$
87,750
Required:
Prepare a statement of cash flows for Business Solutions using the indirect method for the three months ended March 31, 2020. Owner Santana Rey contributed $31,000 to the business in exchange for additional stock in the first quarter of 2020 and has received $4,500 in cash dividends. (Amounts to be deducted should be indicated with a minus sign.)