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Recording Transactions and Preparing Financial Statements

On September 1, 2005, Kelly Randolf and Paul Simple started a comic book industry newsletter called Comic Times. They produced the first month's edition during September. The following transactions occurred during their first month of operations:

Sept 1: Comic Times, Inc., was formed when Kelly and Paul filed with the State of California and each received common stock in exchange for $10,000 cash.

Sept 1: Applied for a loan with a bank and signed a note for $5,000 due in two years, at 12% annual interest rate.

Sept 1: Purchased a computer for $4,000 cash.

Sept 1: Purchased office supplies on account with Rapid Supplies for $1,500.

Sept 1: Paid $2,400 for a website to be used for the next two years (24 months).

Sept 1: Sold 1,800 one-year subscriptions for cash at $12 each.

Sept 30: Sold 400 more one-year subscriptions for cash at $12 each. These subscriptions begin on October 1.

Sept 30: Paid for the office supplies purchased on September 1 from Rapid Supplies.

Sept 30: Paid $200 for utilities for the month of September.

Sept 30: Paid Kelly and Paul a salary of $400 each for the month of September.

Sept 30: Declared and paid a total dividend of $160.

The following additional information is provided concerning the adjusting entries necessary at the end of September:

A. Interest is accrued at the end of each month.
B. The computer is estimated to last for two years and to have no residual value.
C. At the end of September, office supplies are counted and there are $1,200 of supplies on hand.
D. The website expense is recognized monthly.
E. Revenue is recognized in the period earned.

Required:

1. Journalize the September transactions. (Omit explanations)
2. Journalize adjusting entries for September. Use September 30 as the date for each adjusting entry.
3. Prepare an income statement for Comic Times, Inc. for the month of September.
4. Prepare a statement of changes in stockholders' equity for the month of September.
5. Prepare a balance sheet for Comic Times, Inc. as of September 30, 2005.

Disregard the "Analyze" question at the end of the problem.

Solution Summary

This solution illustrates how to record adjusting entries and prepare a balance sheet, statement of changes in stockholders' equity, and income statement.

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