The following accounting events apply to Mary’s Designs for the year Year 1:

Asset Source Transactions

1. Began operations by acquiring $18,000 of cash from the issue of common stock.
2. Performed services and collected cash of $750.
3. Collected $4,450 of cash in advance for services to be provided over the next 12 months.
4. Provided $11,400 of services on account.
5. Purchased supplies of $360 on account.

Asset Exchange Transactions

6. Purchased $4,600 of land for cash.
7. Collected $7,900 of cash from accounts receivable.
8. Purchased $560 of supplies with cash.
9. Paid $3,600 for one year’s rent in advance.

Asset Use Transactions

10. Paid $3,400 cash for salaries of employees.
11. Paid a cash dividend of $1,600 to the stockholders.
12. Paid $360 of the accounts payable with cash.

Claims Exchange Transactions

13. Placed an advertisement in the local newspaper for $120 on account.
14. Incurred utility expense of $135 on account.

Adjusting Entries

15. Recognized $3,338 of revenue for performing services. The collection of cash for these services occurred in a prior transaction. (See Event 3.)
16. Recorded $1,400 of accrued salary expense at the end of Year 1.
17. Recorded supplies expense. Had $150 of supplies on hand at the end of the accounting period.
18. Recognized three months of expense for prepaid rent that had been used up during the accounting period.

Required
a. Record each of the preceding events in T-accounts.

b. Prepare a before-closing trial balance.

c. Use a horizontal statements model to show how each event affects the balance sheet, income statement, and statement of cash flows. Indicate whether the event increases (+), decreases (−), or does not affect (NA) each element of the financial statements. Also, in the Cash Flow column, use the letters OA to designate operating activity, IA for investing activity, and FA for financing activity. The first event is recorded as an example.

Answer rating: 100% (QA)

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