Dr. Cravati, DMD., opened a dental clinic on August 1, 2011. The business transactions for August are shown below:

Aug.   1    Dr. Cravati invested $280,000 cash in the business in exchange for 1,000 shares of capital stock.

Aug.   4    Land and a building were purchased for $400,000. Of this amount, $60,000 applied to the land and $340,000 to the building. A cash payment of $80,000 was made at the time of the purchase, and a note payable was issued for the remaining balance.

Aug.   9    Medical instruments were purchased for $75,000 cash.

Aug. 16    Office fixtures and equipment were purchased for $25,000. Dr. Cravati paid $10,000 at the time of purchase and agreed to pay the entire remaining balance in 15 days.

Aug. 21    Office supplies expected to last several months were purchased for $4,200 cash.

Aug. 24    Dr. Cravati billed patients $13,000 for services rendered. Of this amount, $1,000 was received in cash, and $12,000 was billed on account (due in 30 days).

Aug. 27    A $450 invoice was received for several newspaper advertisements placed in August.

The entire amount is due on September 8.

Aug. 28    Received a $500 payment on the $12,000 account receivable recorded August 24.

Aug. 31    Paid employees $2,200 for salaries earned in August. A partial list of account titles used by Dr. Cravati includes:

Cash                               Office Fixtures and Equipment

Accounts Receivable  Land Office Supplies      Building

Notes Payable              Service Revenue Accounts Payable            Advertising Expense Capital Stock               Salary Expense Medical Instruments

 

 

Instructions

a.       Analyze the effects that each of these transactions will have on the following six components of the company’s financial statements for the month of August. Organize your answer in tabu- lar form, using the column headings shown below. Use I for increase, D for decrease, and NE for no effect. The August 1 transaction is provided for you:

 

Â	Income Statement	Â	Balance Sheet
Transaction Aug. 1	Revenue - Expenses = Net Income NE                NE                  NE	Â	Assets = Liabilities + Owners’ Equity I               NE                       I

 

b.       Prepare journal entries (including explanations) for each transaction.

c.       Post each transaction to the appropriate ledger accounts (use the T account format as illus- trated in Exhibit 3–8 on page 108).

d.       Prepare a trial balance dated August 31, 2011.

e.       Using figures from the trial balance prepared in part d, compute total assets, total liabilities, and owners’ equity. Did August appear to be a profitable month?