Concept explainers
1.
To prepare:
The table showing accounts given related to assets, liabilities, and equity.
1.
Explanation of Solution
Show the classification of the accounts under assets, liabilities, and equity as follow:
Table (1)
Hence, Cash, Accounts receivable, Office Supplies, Office Equipment, and Electrical Equipment accounts will come under assets, Accounts Payable account will be treated as liability and the Common Stock, Dividends, Revenue and Expenses accounts will come under equity.
2.
To identify:
The effect of transactions on the
2.
Explanation of Solution
Table (2)
Hence, the cash balance is $59,180, accounts receivables is $900, office supplies is $1,150, office equipment is $2,530, electrical equipment is$13,000, accounts payable is $8,550, common stock is $65,000, dividend is $950, revenue is $7,100 and expenses is $2,940.
3.
To prepare:
The income statement, statement of
3.
Explanation of Solution
Prepare income statement.
S Company | ||
---|---|---|
Income Statement | ||
For the month ended December 31, 20XX | ||
Particulars | Amount ($) |
Amount ($) |
Revenue: | ||
Service Revenue | 7,100 | |
Total Revenue | 7,100 | |
Expenses: | ||
Rent Expenses | 1000 | |
Salary Expenses | 1,400 | |
Utilities Expenses | 540 | |
Total Expense | 2,940 | |
Net income | 4,160 |
Table (3)
Hence, net income of .S Company as on December 31, 20XX is $4,160.
Prepare statement of retained earnings.
S Company | |
---|---|
Retained Earnings Statement | |
For the Month Ended December 31, 20XX | |
Particulars | Amount ($) |
Opening balance of retained earnings | 0 |
Net income | 4,160 |
Total | 4,160 |
Dividends | (950) |
Ending balance of retained earnings | 3,210 |
Table (4)
Hence, the retained earnings of S Company as on December 31, 20XX are $3,210.
Prepare the cash flow statement.
S Company | ||
---|---|---|
Statement of Cash Flows | ||
Month Ended December 31, 20XX | ||
Particulars | Amount ($) |
Amount ($) |
Cash flow from operating activities | ||
Receipts: | ||
Collections from customers | 6,200 | |
Payments: | ||
Supplies | (800) | |
Rent Expenses | (1,000) | |
Salary Expenses | (1,400) | |
Utilities | (540) | (3,740) |
Net cash from operating activities | 2,460 | |
Cash flow from investing activities | ||
Purchase of office equipment | (2,530) | |
Purchase of electric equipment | (4,800) | |
Net cash from investing activities | (7,330) | |
Cash flow from financing activities | ||
Issued common stock | 65,000 | |
Less: Payment of cash dividends | (950) | |
Net cash from financing activities | 64,050 | |
Net increase in cash | 59,180 | |
Cash balance, December 1,20XX | 0 | |
Cash balance, December 31,20XX | 59,180 |
Table (5)
Hence, the cash balance of the S Company as on December 31, 20XX is $59,180.
Prepare balance sheet.
S Company | ||
---|---|---|
Balance sheet | ||
As on December 31, 20XX | ||
Particulars | Amount ($) |
Amount ($) |
Assets | ||
Cash | 59,180 | |
Accounts Receivables | 900 | |
Office Supplies | 1,150 | |
Office Equipment | 2,530 | |
Electric Equipment | 13,000 | |
Total Assets | 76,760 | |
Liabilities and |
||
Liabilities | ||
Accounts Payable | 8,550 | |
Stockholder’s Equity | ||
Common Stock | 65,000 | |
Retained earnings | 3,210 | |
Total stockholders’ equity | 68,210 | |
Total Liabilities and Stockholder’s equity | 76,760 |
Table (6)
Hence, the total of the balance sheet of the S Company as on December 31, 20XX is of $76,760.
4.
To identify:
The changes in (a) total assets, (b) total liabilities, and (c) total equity.
4.
Explanation of Solution
If the owner of the company invests $49,000 cash instead of $65,000 for common stock and borrows $16,000 from the bank, then the effect on assets, liabilities and equity is,
• On assets- There is no change in assets, as in both the cases cash balance increases.
• On liabilities- There is an increase of $16,000 in accounts payable account and liability of S electric will increase.
• On equity- The common stock is decreased by $16,000 and common stock is the part of equity so equity decreases by $16,000.
Hence, the liability will increase by $16,000 and common stock will decrease by $16,000.
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