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Barbara Miracle, Certified Public Accountant, operates as a professional corporation (PC). The business completed these transactions during the first part of August 2016:
Aug 2 Received $10,000 cash from Miracle, and issued common stock to her.
2 Paid monthly office rent, $600.
3 Paid cash for a Dell computer, $2,700, with the computer expected to remain in service for five years.
4 Purchased office furniture on account, $4,500, with the furniture projected to last for five years.
5 Purchased supplies on account, $800.
9 Performed tax services for a client and received cash for the full amount of $1,400.
12 Received and paid utility expenses, $300.
18 Performed consulting services for a client on account, $ 1,900.
1. Journalize the transactions for Barbara Miracle, Certified Public Accountant. Explanations are not required.
2. Post to the T-accounts. Key all items by date and determine the ending balance in each account. Denote an account balance on August 18, 2016, as Bal.
3. Using Excel, prepare a trial balance at August 18, 2016. In the Serial Exercise of Chapter 3, we add transactions for the remainder of August and will require a trial balance at August 31.
October 1 Prepaid insurance for October through rs$3,900.
4 Purchased office furniture for cash,$4,500.
5 Performed services and received cash,$1,000.
8 Paid advertising expense,$500.
11 Performed service on account,$3,200.
19 Purchased computer on account,$1,900.
24 Collected for October 11 service.
26 Paid acoount payable from October 19.
29 Paid salary expense,$800.
31 Adjusted for October insurance expense (see October 1).
31 Earned revenue of $800 that was collected in advance back in September.
31 Recorded October depreciation expense on all fixed assets,$460.
1. Show how each transaction would be handled (in terms of recognizing revenues and expenses) using the cash basis and the accrual basis.
2. Compute October income (loss) before tax under each accounting method.
3. Indicate which measure of net income or net loss is preferable. Use the transactions on October 11 and October 24 to explain.
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