Exercise 3: Beverly Crusher Is A Licensed CPA During The Fir

Exercise 3 1beverly Crusher Is A Licensed Cpa During The First Month

Analyze and document the journal entries for Beverly Crusher's first month of business transactions, including investments, expenses, revenue, and asset purchases. Additionally, prepare adjusting journal entries for Andy Roddick’s business at the end of August 2014 based on accrued expenses and estimated bills.

Paper For Above instruction

Beverly Crusher, a licensed CPA operating a sole proprietorship, experienced several transactions during her first month of business in April. These transactions encompassed initial investments, employment arrangements, purchases, revenue generation, and asset acquisitions. Properly journalizing the entries for these transactions is essential to maintain accurate accounting records.

On April 2, Beverly invested $32,000 in cash and equipment valued at $14,000 into her new business. This investment increases the Business Bank Account and Equipment Asset account simultaneously. The journal entry debits Cash and Equipment and credits Beverly’s Capital account. These foundational transactions establish the initial assets and owner’s equity.

Shortly after, Beverly hired a secretary-receptionist at a salary of $290 weekly, payable monthly. This employment expense will accrue over the month and will be recorded as a liability if unpaid at month-end. On April 7, she paid $600 for office rent, which is an expense that reduces her cash account. Recording this payment reduces cash and increases Rent Expense.

In terms of services rendered, Beverly completed a tax assignment on April 11, billing her client $1,100. This revenue is recognized when earned, regardless of the client’s payment status. On April 12, she received an advance of $3,200 on a future management consulting engagement, which increases Cash and Unearned Revenue, a liability until earned.

Further, Beverly received $2,300 cash on April 17 for services completed for Ferengi Co., recognized immediately as Service Revenue. She paid insurance expense of $110 on April 21, decreasing cash and increasing Insurance Expense. At the end of April, she paid her secretary-receptionist $1,160 for the month, which reduces cash and is classified as Salaries and Wages Expense.

A supplies inventory check indicated that supplies costing $700 had been purchased, but only $120 worth remained unused, implying the consumption of $580. Supplies are an asset and should be reduced by the used amount, with the rest remaining in Supplies asset account. Additionally, Beverly purchased a new computer for $6,100 with personal funds for business use. The equipment asset increases accordingly.

To ensure accurate financial reporting, each of these transactions must be journalized in the general journal using appropriate debits and credits, following standard accounting principles. This process maintains the integrity of financial statements and facilitates proper tracking of assets, liabilities, and equity.

In parallel, Andy Roddick's business, Ace Computer Services, requires adjusting entries at August 31, 2014. These adjustments account for accrued expenses, unbilled utility bills, interest on a mortgage, and unpaid telephone bills. Recognizing these expenses ensures financial statements reflect expenses incurred within the period, aligning with the accrual basis of accounting.

First, Roddick owed $1,900 in salaries and wages on August 31 that will be paid on September 1. This must be recorded as Salaries and Wages Expense with a credit to Salaries and Wages Payable, increasing liabilities. Second, an estimated utility bill of approximately $600 for August must be accrued by debiting Utility Expense and crediting Utilities Payable.

Third, a mortgage loan of $30,000 was obtained on August 1 with an 8% annual interest rate. Accruing interest for August involves calculating the monthly interest (Loan amount × Annual rate ÷ 12 months) and recording the interest expense and interest payable. Fourth, an unpaid telephone bill of $117 for August should be accrued by debiting Telephone Expense and crediting Accounts Payable.

Implementing these journal entries ensures expenses are recognized in the appropriate period, providing an accurate depiction of the business's financial position. Maintaining diligent records, including these adjustments, supports reliable financial reporting, compliance with accounting standards, and informed decision-making for business owners and stakeholders.

References

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