Case Study #1
Succeed Corporation is a business consulting company recently formed by two shareholders.
(a) On February 1, 2016, each shareholder contributed $500 cash in exchange for common stock.
(b) On February 5, 2016, Succeed Corporation purchase office equipment by paying $3,000 cash and signing a $4,000 promissory note payable. $1,000 of the note payable will be due in on December 31, 2016 and the remainder will be due on December 31, 2017.
(c) On February 7, Succeed Corporation set up four client engagements at $2,000 per engagement. Of the four engagements, three were completed between February 10 and 15.
(d) On February 18, 2016, cash was collected for two of the three engagements.
(e) The fourth engagement was scheduled for March, but on February 20, 2016, Succeed Corporation received half of the $2,000 fee.
(f) On February 23, 2016, Succeed Corporation paid $750 for engagement travel related costs.
(g) On February 24, 2016, Succeed Corporation paid $1,500 cash for salaries for the first three weeks in February (for purposes of this case study, ignore all payroll taxes).
(h) The salaries for the last week in February, $500, will be paid on March 1, 2016.
(i) As of February 29, Succeed Corporation has not yet recorded depreciation of $117 on the office equipment.
(j) Succeed Corporation has not yet paid or recorded the $20 interest owed on the promissory note at February 29.
(k) Succeed Corporation is subject to a 15% tax rate of the company's income before taxes.
Required:
(1) Prepare journal entries to record the transactions and adjustments needed. In lieu of recording the entries with the actual dates, please reference each entry with the letter of the transaction as shown above.
(2) Post the journal entries from requirement (1) to T-accounts and calculate ending balances as of February 29, 2016
(3) Prepare an adjusted trial balance based on your T-accounts.
(4) Prepare a balance sheet and income statement as of and for the month ended February 29, 2016.
(5) Calculate the current ratio. What does the current ratio indicate about Succeed Corporation?
To assist you, the following is an alphabetical listing of accounts to be used in your case study. You must use the accounts shown below:
- Accounts receivable
- Accumulation depreciation
- Cash
- Common stock
- Depreciation expense
- Income tax expense
- Income tax payable
- Interest expense
- Interest payable
- Note payable - current portion
- Note payable - long-term
- Office equipment
- Retained earnings
- Salaries payable
- Salary expense
- Service revenue
- Travel expense
- Unearned revenue