Chapter 3, Problem 65PA

Record adjustments and prepare financial statements. (LO 1, 2, 3, 4). On May 1, Matt Smith started a consulting business as a corporation. Matt started the business by contributing $20,000 in exchange for common stock. On May 1, he paid three months of rent in advance totaling $1,500. Rent starts May 1. On May 3, Matt purchased supplies for $700 and two computers at a total cost of $3,600. Matt expects the computers to last for two years with no residual value. Matt hired an office assistant, agreeing to pay the assistant $2,000 per month to be paid $1,000 on May 15 and May 31. On May 27, Matt paid $400 for a radio advertisement to run immediately to announce the opening of the business. Matt earned $6,000 revenue in May, of which he collected $4,200 in cash. At the end of the month, Matt had $300 worth of supplies on hand.

Requirements

1. 1. Use an accounting equation worksheet to record the transactions that occurred during the month of May and the adjustments that must be made prior to the preparation of the financial statements for the month ended May 31.
2. 2. Prepare the income statement, statement of changes in shareholder’s equity, and statement of cash flows for Matt’s company for the month ended May 31 and the balance sheet at May 31.