For the past several years, Steffy Lopez has operated a part-time consulting business from his home. As of July 1, 20Y2, Steffy decided to move to rented quarters and to operate the business, which was to be known as Diamond Consulting, on a full-time basis. Diamond entered into the following transactions during July: Jul.1 The following assets were received from Steffy Lopez in exchange for common stock: cash, $13,500; accounts receivable, $20,800; supplies, $3,200; and office equipment, $7,500. There were no liabilities received.
1 Paid two months’ rent on a lease rental contract, $4,800.
2 Paid the premiums on property and casualty insurance policies, $4,500.
4 Received cash from clients as an advance payment for services to be provided, and recorded it as unearned fees, $5,500.
5 Purchased additional office equipment on account from Office Station Co., $6,500.
6 Received cash from clients on account, $15,300.
10 Paid cash for a newspaper advertisement, $400.
12 Paid Office Station Co. for part of the debt incurred on July 5, $5,200.
12 Recorded services provided on account for the period July 1–12, $13,300.
14 Paid receptionist for two weeks’ salary, $1,750.
Record the following transactions on Page 2 of the journal:
Jul.17 Recorded cash from cash clients for fees earned during the period July 1–17, $9,450.
18 Paid cash for supplies, $600.
20 Recorded services provided on account for the period July 13–20, $6,650.
24 Recorded cash from cash clients for fees earned for the period July 17–24, $4,000.
26 Received cash from clients on account, $12,000.
27 Paid receptionist for two weeks’ salary, $1,750.
29 Paid telephone bill for July, $325.
31 Paid electricity bill for July, $675.
31 Recorded cash from cash clients for fees earned for the period July 25–31, $5,200.
31 Recorded services provided on account for the remainder of July, $3,000.
31 Paid dividends, $12,500.
Required:
1. Journalize each transaction in a two-column journal starting on Page 1, referring to the chart of accounts in selecting the accounts to be debited and credited. (Do not insert the account numbers in the journal at this time.)
2. Post the journal to a ledger of four-column accounts. Add the appropriate posting reference to the journal.
3. Prepare an unadjusted trial balance.
4. At the end of July, the following adjustment data were assembled. Analyze and use these data to complete requirements (5) and (6).
A. Insurance expired during July is $375.
B. Supplies on hand on July 31 are $1,525.
C. Depreciation of office equipment for July is $750.
D. Accrued receptionist salary on July 31 is $175.
E. Rent expired during July is $2,400.
F. Unearned fees on July 31 are $2,750.
5. (Optional) On your own paper or spreadsheet, enter the unadjusted trial balance on an end-of-period work sheet and complete the work sheet.
6.
A. Journalize the adjusting entries on page 3 of the journal. Adjusting entries are recorded on July 31.
7. Prepare an adjusted trial balance.
8.
A. Prepare an income statement for the month ended July 31, 2018. Be sure to complete the statement heading.
B. Prepare a retained earnings statement for the month ended July 31, 2018.
C. Prepare a balance sheet as of July 31, 2018.
A. Journalize the closing entries on page 4 of the journal. Refer to the Chart of Accounts for exact wording of account titles.
B. Post the closing entries, inserting balances in the accounts affected.
10. Prepare a post-closing trial balance.
What is the effect on earnings per share of each alternative, assuming that profits before interest and taxes will be 20% of total assets?
What will be the debt ratio (TL/TA) under each alternative? Do not round intermediate calculations. Round your answers to the nearest whole number.