Chapter 3, Problem 3.13AMCP

Journal Entries and a Balance Sheet

Krittersbegone Inc. was organized on July 1 by a group of technicians to provide termite inspections and treatment to homeowners and small businesses. The following transactions occurred during the first month of business:

July 2: Received contributions of $3,000 from each of the six owners in exchange for shares of stock.

July 3: Paid $1,000 rent for the month of July.

July 5: Purchased flashlights, tools, spray equipment, and ladders for $18,000, with a down payment of $5,000 and the balance due in 30 days.

July 17: Paid a $200 bill for the distribution of door-to-door advertising.

July 28: Paid August rent and July utilities to the landlord in the amounts of $1,000 and $450, respectively.

July 30: Received $8,000 in cash from homeowners for services performed during the month. In addition, billed $7,500 to other customers for services performed during the month. Billings are due in 30 days.

July 30: Paid commissions of $9,500 to the technicians for July.

Required

1. Prepare journal entries on the books of Krittersbegone to record the transactions entered into during the month. Ignore depreciation expense.
2. Prepare a classified balance sheet dated July 31. From the balance sheet, what cash inflow and what cash outflow can you predict in the month of August? Who would be interested in the cash flow information? Why?