The following are transactions of Albert Sing, an interior design consultant, for the month of September 2020.
Sept. 1 Albert Sing began business as an interior design consultant, investing $31,000 for 5,000 common shares of the company, A. S. Design Limited.
2 Purchased equipment from Green Jacket Co. for $17,280.
4 Paid rent for office space for the next three months at $680 per month.
7 Hired a part-time secretary, Michael Bradley, at $300 per week.
8 Purchased supplies on account from Mann Corp. for $1,142.
9 Received cash of $1,690 from clients for services performed.
10 Paid office expenses, $430.
14 Invoiced clients for services rendered, $5,120. 18 Paid Mann Corp. on account, $600.
19 Paid a dividend of $1.00 per share on the 5,000 outstanding shares. 20 Received $980 from clients on account.
21 Paid Michael Bradley two weeks of salary, $600.
28 Invoiced clients for services rendered, $2,110.
29 Paid the September telephone bill of $135 and office expenses of $85.
At September 30, the following information is available.
1. The equipment has a useful life of five years and an estimated residual value of $1,500. Straight-line depreciation is appropriate.
2. One week’s salary is owing to Michael Bradley.
3. Supplies of $825 remain on hand. 4. Two months of rent has been paid in advance.
5. The invoice for electricity for September of $195 has been received, but not paid.
Instructions
a. Prepare journal entries to record the transaction entries for September. Set up a T account for the Cash account and post all cash transactions to the account. Determine the balance of Cash at September 30, 2020.
b. Prepare any required adjusting entries at September 30, 2020.
c. Prepare an adjusted trial balance at September 30, 2020.
d. Prepare a statement of financial position and income statement for the month ended September 30, 2020. Ignore income taxes.
e. Prepare a statement of cash flows for the month of September 2020. Use the indirect method for the cash flows from operating activities.
f. Recast the cash flow from operating activities section using the direct method.
g. Compare the statement of cash flows in parts (e) and (f) with the Cash account prepared in part (a) above.
h. As a creditor, what might you consider to be alarming that is revealed by the statement of cash flows prepared using the indirect method as required in part (e) above? Is this trend as easy to notice when the statement is prepared using the direct method as required in part (f) above?
