Moonlight Bay Inn is incorporated on January 2 2017 by

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Moonlight Bay Inn is incorporated on January 2, 2017, by its three owners, each of whom
contributes $20,000 in cash in exchange for shares of stock in the business. In addition to the
sale of stock, the following transactions are entered into during the month of January:January 2:
A Victorian inn is purchased for $50,000 in cash. An appraisal performed on this date indicates
that the land is worth $15,000, and the remaining balance of the purchase price is attributable to
the house. The owners estimate that the house will have an estimated useful life of 25 years
and an estimated salvage value of $5,000.January 3: A two-year, 12%, $30,000 promissory
note was signed at Second State Bank.Interest and principal will be repaid on the maturity date
of January 3, 2019.January 4: New furniture for the inn is purchased at a cost of $15,000 in
cash. The furniture has an estimated useful life of ten years and no salvage value.January 5: A
24-month property insurance policy is purchased for $6,000 in cash.January 6: An
advertisement for the inn is placed in the local newspaper. Moonlight Bay pays $450 cash for
the ad, which will run in the paper throughout January.January 7: Cleaning supplies are
purchased on account for $950. The bill is payable within 30 days.January 15: Wages of $4,230
for the first half of the month are paid in cash.January 16: A guest mails the business $980 in
cash as a deposit for a room to be rented for two weeks. The guest plans to stay at the inn
during the last week of January and the first week of February.January 31: Cash receipts from
rentals of rooms for the month amount to $8,300.January 31: Cash receipts from operation of
the restaurant for the month amount to $6,600.January 31: Each stockholder is paid $200 in
cash dividends.Required1. Identify and analyze each of the preceding transactions.2. Prepare a
list of accounts and their balances for Moonlight Bay at January 31, 2017. Reflect the recurring
transactions for the month of January but not the necessary month-end adjustments.3. Identify
and analyze the necessary adjustments for each of the following:a. Depreciation of the houseb.
Depreciation of the furniturec. Interest on the promissory noted. Recognition of the expired
portion of the insurancee. Recognition of a portion of the guest's depositf. Wages earned during
the second half of January amount to $5,120 and will be paid onFebruary 3.g. Cleaning supplies
on hand on January 31 amount to $230.h. A gas and electric bill that is received from the city
amounts to $740 and is payable byFebruary 5.i. Income taxes are to be accrued at a rate of
30% of income before taxes.4. Prepare in good form the following financial statements:a.
Income statement for the month ended January 31, 2017b. Statement of retained earnings for
the month ended January 31, 2017c. Balance sheet at January 31, 20175. Assume that you are
the loan officer at Second State Bank. (Refer to the transaction on January 3.) What are your
reactions to Moonlight's first month of operations? Are you comfortable with the loan you made?
Explain your answer.View Solution:
Moonlight Bay Inn is incorporated on January 2 2017 by

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