Option #1: Accounting Cycle
Part A
Listed below are the transactions for Ajayi Art, Inc. for the month of July:
- July 1 Ajayi Art, Inc. is started with an investment of $250,000 cash.
- July 1 Ajayi purchases office equipment for $22,250 by signing a 10% note (interest and principal to be paid over the next 12 months).
- July 6 Pays rent for the art gallery in advance for the next three months with a check for $3,000.
- July 8 Purchases art supplies from Wacky Art Co. on credit for $10,300.
- July 9 Receipt of $3,500 from a customer who has commissioned a piece of custom art to be completed by the end of the year.
- July 11 Pays miscellaneous office expenses totaling $375 in cash.
- July 13 Bills customers $4,300 for art classes provided in June.
- July 15 Pays $3,500 to Wacky Art Co.
- July 20 Receives $1,900 from customers on account.
- July 30 Ajayi records $3,800 in salaries for the month of July. Paychecks will be disbursed to employees on August 2nd.
- Enter the transactions shown above in appropriate general ledger accounts (use T-accounts). Use the following ledger accounts: Cash, Accounts Receivable, Supplies on Hand, Office Equipment, Accumulated Depreciation, Accounts Payable, Common Stock, Service Revenue, Rent Expense, Miscellaneous Office Expense, Office Salaries Expense, Supplies Expense, Depreciation Expense, and Income Summary.
- Prepare an unadjusted trial balance.
- Record depreciation using a 5-year life on the office equipment, the straight-line method, and no salvage value. Round to whole numbers. Also, record an adjustment for art supplies used in the amount of $1,510 and record interest expense for the note.
- Prepare an adjusted trial balance.
- Prepare an income statement, a statement of retained earnings, and an unclassified balance sheet.
- Prepare closing entries.
Part B
In a one-page memo conforming to the CSU-Global Guide to Writing and APA, provide an explanation to the management team on July’s financial performance.
