Question

Reunion, a local walk-in medical practice, had the following account balances at 31 December 2017: Building...

Reunion, a local walk-in medical practice, had the following account balances at 31 December 2017:

Building

R480000

Accumulated depreciation – building

R12000

Cash

R20000

Ordinary shares

R300000

Supplies

R2000

Retained earnings

R190000

The following transactions took place:

- On 1 March, a one-year malpractice insurance policy was purchased for R12 000 in cash.

- On 1 July, R50 000 cash was borrowed from First American Bank. The interest rate on the note payable is 8%. Principal and interest are due in cash in one year.

- Employee salaries in the amount of R23 000 were paid in cash.

- At the end of the year, R1 000 of the supplies remained on hand.

- R100 000 in consulting services was provided for in cash during 2018

- At 31 December, R6000 in employee salaries was accrued.

-On 31 December, R10 000 in cash was received, representing an advance payment for services to be provided in February 2019

- Annual depreciation on the building based on a useful life of 20 years and no salvage value.

Required:

  1. Determine the effect on the accounting equation of the preceding transactions, including any related year-end adjusting entries that may be required.
  2. Prepare an income statement for 2018 ignoring income taxes

Hint: It may be helpful to create a table to reflect the increases and decreases in accounts.

c) Prepare a statement of retained earnings for 2018 assuming no dividends were paid.

d) Prepare a classified balance sheet at 31 December 2018.

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