Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 3 Accrual Accounting Concepts 137

Wizard Health Care, Inc., is owned and operated by Dr. Chandra Rains, the sole stockholder.

During January 2007, Wizard Health Care entered into the following transactions:

Jan. 1 Received $8,100 from Goulash Company as rent for the use of a vacant office in

Wizard Health Care’s building. Goulash paid the rent six months in advance.

1 Paid $3,600 for an insurance premium on a one-year, general business policy.

4 Purchased supplies of $950 on account.

5 Collected $9,000 for services provided to customers on account.

11 Paid creditors $1,600 on account.

18 Invested an additional $45,000 in the business in exchange for capital stock.

20 Billed patients $24,800 for services provided on account.

25 Received $6,800 for services provided to customers who paid cash.

29 Paid expenses as follows: wages, $12,600; utilities, $3,500; rent on medical

equipment, $2,700; interest, $250; and miscellaneous, $650.

29 Paid dividends of $2,000 to stockholders (Dr. Rains).

Instructions

Analyze and record the January transactions for Wizard Health Care, Inc., using the integrated

financial statement framework. Record each transaction by date and show the balance for each

item after each transaction. The January 1, 2007, balances for the balance sheet are shown below.

ACCOUNTING APPLICATION PROBLEMS

Problem 3-1A

Accrual basis accounting

Goal 2

GENERAL LEDGER

Problem 3-2A

Adjustment process

Goal 3

GENERAL LEDGER

Problem 3-3A

Financial statements

Goals4, 6

1. Net income, $12,635

GENERAL LEDGER

Stockholders’
Assets  Liabilities  Equity
Accts. Pre. Acc. Accts. Un. Wages Notes Capital Ret.
Cash  Rec. Ins.Supp.BuildingDep. Land  Pay. Rev. Pay.  Pay.  Stock  Earn.
Bal., Jan. 1 10,400 13,500 360 560 90,000 7,200 45,000 3,800 0 0 36,000 45,000 67,820

Adjustment data for Wizard Health Care, Inc., for January are as follows:

1. Insurance expired, $300.


2. Supplies on hand on January 31, $585.


3. Depreciation on building, $1,800.


4. Unearned rent revenue earned, $1,350.


5. Wages owed employees but not paid, $1,440.


6. Services provided but not billed to patients, $3,850.

Instructions

Based upon the transactions recorded in January for Problem 3-1A, record the adjustments for

January using the integrated financial statement framework.

Data for Wizard Health Care for January are provided in Problems 3-1A and 3-2A.

Instructions

Prepare an income statement, retained earnings statement, and a classified balance sheet for

January. The notes payable is due in 2013.