E2-16A (Learning Objective 3: Show the impact of business transactions on the ac

Question

E2-16A   (Learning Objective 3: Show the impact of business transactions on the accounting equation) Bob Morin opened a medical practice specializing in surgery. During the first month of operation (August), the business, titled Bob Morin, Professional Corporation (P.C.), experienced the following events he wrote in his journal:

Aug 9: Morin invested $39,000 in the business, which in turn issued its common stock to him.

Aug 9: The business paid cash for land costing $29,000. Morin plans to build an office building on the land.

Aug 12: The business purchased medical supplies for $1,700 on account.

Aug 15: Bob Morin, P.C., officially opened for business.

Aug 15–31: During the rest of the month, Morin treated patients and earned service revenue of $7,600, receiving cash for half the revenue earned.

Aug 15–31: The business paid cash expenses: employee salaries, $1,300; office rent, $700; utilities, $500.

Aug 31: The business sold supplies to another physician for cost of $700.

Aug 31: The business borrowed $12,000, signing a note payable to the bank.

Aug 31: The business paid $800 on account.

Requirements

1.   Analyze the effects of these events on the accounting equation of the medical practice of Bob Morin, P.C.

2.   After completing the analysis, answer these questions about the business.

a.   How much are total assets?

b.   How much does the business expect to collect from patients?

c.   How much does the business owe in total?

d.   How much of the business’s assets does Morin really own?

e.  

How much net income or net loss did the business experience during its first month of operations?

Explanation / Answer

1. Effects of above events on the accounting equation of the medical practice of Bob Morin are as follows:

Bob Morin, P.C.

Journal Entries

Date Particulars Dr. (in $) Cr. (in $)

Aug 9 Cash Account Dr. 39000

To Capital Account 39000

(Being capital introduced to business)

Aug 9 Land Account Dr. 29000

To Cash Account 29000

(Being land purchased for cash)

Aug 12 Medical Supplies Account Dr. 1700

To Creditor 1700

(Being Medical Supplies purchased on credit)

Aug 15-31 Cash Account Dr. 3800

Debtors Account Dr. 3800

To Revenue from Services 7600

Aug 31 Salary Expenses Dr. 1300

Rent Expenses Dr. 700

Utilities Expenses Dr. 500

To Cash Account 2500

(Being Expenses paid in cash)

Aug 31 Cash Account Dr. 700

To Medical Supplies Account 700

(Being Medical Supplies sold another surgeon)

Aug 31 Cash Account Dr. 12000

To Bank Loan Account 12000

(Being money Borrowed from Bank)

Aug 31 Creditor Account Dr. 800

To Cash Account 800

(Being cash paid to creditors)

2. a. Total Asset of Business are:

Land 29000

Medical Supplies 1000

Debtors 3800

Cash 23200

Total Assets $57000

b. Business expect to collect from patients : $3800

c. Business Owings : $12000

d. Business Asset that really Morin Own : $ 45000

e. Net Income of business during its first month of operations :   

Revenue from Service Rendered 7600

Less: Expenses 2500

Net Income $5100

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