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On October 1, 2009, Ebrahim launched a computer Services Company called Ebrahim Systems, which is organized as a sole proprietorship and provides consulting services, computer system installations, and custom program development. Ebrahim adopts the calendar year for reporting purposes and expects to prepare the company’s first set of financial statements on December 31, 2009. Ebrahim completed the following transactions during the first three months of operations (ending December 31, 2009).
Ebrahim invested $ 55,000 cash, a $ 20,000 computer system and $ 8,000 of office equipment in the business.
Paid $ 3,200 cash for four months’ rent in advance.
Billed Prime Leasing $ 8,200 for services performed on account.
Hired Suzie Smith as a part time assistant for $ 125 per day as needed.
Billed Prime Leasing another $ 1,400 for services performed on account.
Purchased $ 1,000 of office supplies on account
Received $ 7,000 cash from Prime Leasing on its account.
Paid $ 400 on the account for supplies purchased on 25 October
Paid $ 800 cash to purchase new office supplies.
Paid $ 500 cash for an advertisement in a local newspaper.
Ebrahim withdrew $ 400 cash from the business for personal use.
1 December :
Received $ 10,000 cash from a customer for 2-month consulting services in advance.
Paid Suize Smith’s salary in cash for 15 day’s work.
Paid $ 1200 cash to repair the company’s computer.
The following additional information is available on December 31st 2009. (for preparing adjusting entries at 31 December)
a As of December 31st 2002, Suzie Smith has not been paid for four days of work at $ 125 per day.
b Prepaid rent for three of the four months has expired.
c The office equipment and computer system depreciate by $ 333.33 and $ 133.33 each month. Ebrahim will record the depreciation expense for the first three months till 31 December (from 1 October till 31 December)
d One month of the unearned revenue received from Dade Company has been earned.
e It was determined by a physical count that the ending balance of office supplies on 31 December is $ 300.
f Accrued interest revenue $ 200.
You are required to
1 Prepare journal entries to record each of the above transactions for Ebrahim Systems. Post entries to the accounts in the ledger.
2 Prepare the unadjusted trial balance
3 Prepare all necessary adjusting entries. Post these entries to the accounts in the ledger
4 Prepare an adjusted trial balance as of December 31st 2009.
5 Prepare the income statement for the three months ended December 31st 2009.
6 Prepare a statement of changes in owner’s equity for the three months ended December 31st 2009.
7 Prepare a balance sheet as of December 31st 2009.