You have been called in to help Karen Nicole who operates a graphic design business known as Karen’s Designs, Inc. Karen begin operations on January 1, 2023, and had limited activity in her first month. Karen has provided you with the post-closing trial balance as of January 31, 2023.

Account Name	Balance	Balance
Cash	28,800	?
Accounts Receivable	4,500	?
Office Equipment	16,500	?
Accumulated Depreciation: Office Equipment		220
Supplies	2,500	?
Capital Stock	?	49,300
Retained Earnings	?	2,780
	52,300	52,300

Karen’s Designs, Inc. also has the following transactions that took place during the month of February 2023: • Feb 1. Paid three months’ rent in advance on a lease rental contract, $3,600. • Feb 2. Borrowed $20,000 from 1st Bank of Palm Beach and issued a 90 day note payable at 8% annual interest. • Feb 2. Joe Smith, one of Karen’s clients, was unable to make a payment on his account for $1,500. He issued a 60 day note at 12% annual interest to Karen’s Design Inc. • Feb 2. Paid the premiums on property and casualty insurance policies, $1,800. ( The policy is for six months) • Feb 4. Received cash from the Gaines Company as an advance payment for services to be provided and it will be recorded as unearned fees for $4,200. • Feb 5. Purchased a new computer on account from Brown’s Computer Nook for $3,600. The useful life has been determined to be 5 years with no residual value. • Feb 6. Received cash from clients on account for $2,600. • Feb 9. Paid cash to the Mason Tribune for a newspaper advertisement, $240. • Feb 12. Recorded services provided on account to various clients for the period of February 1 thru 12, for $5,700. • Feb 13. Paid Brown’s Computer Nook for part of the liability incurred on Feb 5, $690. • Feb 14. Paid part-time receptionist for two weeks’ salary, $1,100. • Feb 15. Established a line of credit for $10,000 with 1st Bank of Palm Beach. • Feb 17. Paid cash for supplies, $1,000. • Feb 18. Paid $150 for routine maintenance on the office equipment. • Feb 20. Purchased additional office equipment on account from Cabrillo Office Supply store for $2,650. • Feb 20. Recorded services provided on account to various clients for the period of Feb 13-20, $4,360. • Feb 24. Received cash from clients for fees earned during the period of Feb 17 thru 24, $6,100. • Feb 26. Received cash from clients on account from Feb 12 services, $2,200. • Feb 27. Paid part-time receptionist for two weeks salary, $1,100. • Feb 28. Paid telephone bill for February, $370. • Feb 28. Paid electricity bill for February, $515. • Feb 28. Recorded cash from clients for fees earned for the period of Feb 25- 30, $3,450. • Feb 28. Recorded services provided on account for the remainder of Feb, $2,100. • Feb 28. Paid dividends of $2,500. Additional information for Karen’s Designs, Inc. as of Feb 28, 2023: • Insurance expired during Feb is $300. • Supplies on hand on Feb 28 is $2,130. • Monthly depreciation of office equipment is $320. • Accrued receptionist salary on Feb 28 is $200. • Unearned fees on Feb 28 is $3,600.

Required

1. Review the transactions and develop a chart of accounts that Karen’s Designs, Inc. will utilize in the future.

2. Record a series of transactions using the horizontal balance sheet method

3. Prepare the income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Karen’s Designs

Answer rating: 100% (QA)

1 Chart of Accounts The following is a chart of accounts that Karens Designs Inc will utilize in the future Assets Current Assets Cash Accounts Receivable Unearned Fees Supplies Prepaid Rent Prepaid I... View the full answer