Cam and Anna are very satisfied with their first month of operations. Their major effort centered on signing various artists to live performance contracts, and they had more success than they had anticipated. In addition to Charm City, they were able to use their contacts in the music industry to sign twelve other artists. With the tours starting in February, Cam and Anna were eager to hold their first big event. Over the next month, the following transactions occurred.
Feb. 1 Collected advance ticket sales of $28,400 relating to various concerts that were being promoted.
1 Paid $800 to rent office space in February.
2 Paid Equipment Supply Services $1,500, the balance remaining from the January 3 purchase of supplies.
6 Paid $30,150 to secure venues for future concerts.
9 Received $325 related to the festival held on January 25.
12 Purchased $475 of supplies on credit from Equipment Supply Services.
15 Collected $3,400 of ticket sales for the first Charm City concert on the day of the concert.
15 Paid Charm City $9,000 for performing the Feb. 15 concert. (Remember: Front Row
Entertainment records the fees paid to the artist in the Artist Fee Expense account.)
20 Collected advance ticket sales of $10,125 relating to various concerts that were being promoted.
21 Collected $5,100 of ticket sales for the second Charm City concert on the day of the concert.
21 Paid Charm City $12,620 for performing the Feb. 21 concert.
At the end of February, Cam and Anna felt like their business was doing well; however, they decided that they needed to prepare financial statements to better understand the operations of the business. Anna gathered the following information relating to the adjusting entries that needed to be prepared at the end of February.
a. Two months of interest on the note payable is accrued.
b. A count of the supplies revealed that $1,825 of supplies remained on hand at the end of February.
c. Two months of insurance has expired.
d. Depreciation related to the office equipment was $180 per month.
e. The rental of the venues for all four Charm City concerts was paid in advance on January 8.
As of the end of February, Charm City has performed two of the four concerts in the contract.
f. An analysis of the unearned sales revenue account reveals that $8,175 of the balance relates to concerts that have not yet been performed.
g. Neither Cam nor Anna has received their salary of $1,200 each for February.
h. A utility bill of $435 relating to utility service on Front Row Entertainment’s office for January and February was received but not paid by the end of February.
Required:
1. Analyze and journalize the February transactions.
2. Set up T-accounts for each account, and post the transactions to the T-accounts. Be sure to use the balances computed in Chapter 2 as the beginning balances of the T-accounts.
3. Prepare a trial balance at February 28, 2011.
4. Prepare and post the adjusting entries needed at February 28, 2011.
5. By how much would net income be overstated or understated if the adjusting entries were not made?
6. Prepare an income statement and a retained earnings statement for the two-month period ending February 28, 2011. Prepare a classified balance sheet as of February 28, 2011.
7. Prepare the necessary closing entries.