Analyzing transactions and preparing financial statements Jackie, Chris, and Cindy started their own consulting firm. They contributed $30,000 each in exchange for 3,000 shares of common stock and borrowed another$ 60,000b y signing a 1O-year note with Tallahassee Capital City Bank. They formed We Do It All Consulting Inc. on January I,2009. The business used available funds to purchase some land with an office building for $105,000 and office equipment and furniture for $25,000. The business also bought a computer system on account from Gateway Inc. for $21,500; payment was due at the beginning of the following year. (LO 3, 5) .

· During the first year of business, We Do It A11 Consulting earned $185,000 in service revenue but had collected only $163,000; the remaining $22,000 was due early the next year.

· Salary expenses for the year were $55,000, of which the company paid $45,000 in cash during the year; the remaining $10,000 was due the first day of the next year.

· The company paid operating expenses of $27,500 in cash during the year.

· Interest expense for the year was $3,500 but was not due until the note matured.

· The company invested $ 18,000 of cash in a certificate of deposit at the end of the year.

· we Do It All consulting declared and paid dividends of $4,800 during the year.


a. Show how each transaction affects the accounting equation.

b. Prepare the four basic financial statements for the year ended December 31, 2009. (The balance sheet at December 31,2009.)

c. Calculate the current ratio at December 3l , 2009. What does this ratio measure? Discuss the implications of we Do It All consulting current ratio.