1.
Prepare journal entries for the given transactions.
1.
Explanation of Solution
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Prepare journal entries for the given transactions.
Transaction on June 1:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 1 | Cash | 111 | 15,000 | ||
AV, Capital | 311 | 15,000 | ||||
(Record cash invested in the business by AV) |
Table (1)
Description:
- Cash is an asset account. Since cash is invested in the business, asset account increased, and an increase in asset is debited.
- AV, Capital is an equity account. Since cash is contributed as capital by the owner, equity value increased, and an increase in equity is credited.
Transaction on June 1:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 1 | Spa Equipment | 128 | 3,158 | ||
AV, Capital | 311 | 3,158 | ||||
(Record equipment invested in the business by AV) |
Table (2)
Description:
- Spa Equipment is an asset account. Since equipment is invested in the business, asset account increased, and an increase in asset is debited.
- AV, Capital is an equity account. Since equipment is contributed as capital by the owner, equity value increased, and an increase in equity is credited.
Transaction on June 3:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 3 | Prepaid Insurance | 117 | 960 | ||
Cash | 111 | 960 | ||||
(Record payment of insurance in advance) |
Table (3)
Description:
- Prepaid Insurance is an asset account. Since insurance is paid in advance, it is recorded as asset until it is consumed. So, asset value is increased, and an increase in asset is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 3:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 3 | Spa Equipment | 128 | 4,235 | ||
Cash | 111 | 2,000 | ||||
Accounts Payable | 211 | 2,235 | ||||
(Record purchase of equipment) |
Table (4)
Description:
- Spa Equipment is an asset account. Since equipment is bought, asset account increased, and an increase in asset is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
- Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on June 3:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 3 | Rent Expense | 612 | 1,650 | ||
Cash | 111 | 1,650 | ||||
(Record payment of rent expense) |
Table (5)
Description:
- Rent Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 3:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 3 | Spa Supplies | 115 | 492 | ||
Accounts Payable | 211 | 492 | ||||
(Record purchase of supplies) |
Table (6)
Description:
- Spa Supplies is an asset account. Since supplies are bought, asset account increased, and an increase in asset is debited.
- Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on June 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 5 | Office Supplies | 114 | 248 | ||
Cash | 111 | 248 | ||||
(Record purchase of supplies) |
Table (7)
Description:
- Office Supplies is an asset account. Since supplies are bought, asset account increased, and an increase in asset is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 5 | Promotional Expense | 630 | 112 | ||
Cash | 111 | 112 | ||||
(Record payment for promotional items) |
Table (8)
Description:
- Promotional Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 5 | Office Equipment | 124 | 318 | ||
Accounts Payable | 211 | 318 | ||||
(Record purchase of equipment) |
Table (9)
Description:
- Office Equipment is an asset account. Since equipment is bought, asset account increased, and an increase in asset is debited.
- Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on June 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 5 | Advertising Expense | 616 | 397 | ||
Accounts Payable | 211 | 397 | ||||
(Record receipt of advertising expense bill) |
Table (10)
Description:
- Advertising Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on June 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 5 | Office Equipment | 124 | 832 | ||
Accounts Payable | 211 | 832 | ||||
(Record purchase of equipment) |
Table (11)
Description:
- Office Equipment is an asset account. Since equipment is bought, asset account increased, and an increase in asset is debited.
- Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on June 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 5 | Office Supplies | 114 | 120 | ||
Accounts Payable | 211 | 120 | ||||
(Record purchase of supplies) |
Table (12)
Description:
- Office Supplies is an asset account. Since supplies are bought, asset account increased, and an increase in asset is debited.
- Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on June 7:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 7 | Wages Expense | 611 | 1,847.50 | ||
Cash | 111 | 1,847.50 | ||||
(Record payment of wages expense) |
Table (13)
Description:
- Wages Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 7:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 7 | Cash | 111 | 2,630 | ||
Income from Services | 411 | 2,630 | ||||
(Record services performed for cash) |
Table (14)
Description:
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on June 7:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 7 | Accounts Receivable | 113 | 325 | ||
Income from Services | 411 | 325 | ||||
(Record services performed on account) |
Table (15)
Description:
- Accounts Receivable is an asset account. The amount is increased because amount to be received increased, and an increase in asset is debited.
- Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on June 11:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 11 | Accounts Payable | 211 | 873 | ||
Cash | 111 | 873 | ||||
(Record cash paid on account) |
Table (16)
Description:
- Accounts Payable is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 14:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 14 | Cash | 111 | 3,703 | ||
Income from Services | 411 | 3,703 | ||||
(Record services performed for cash) |
Table (17)
Description:
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on June 14:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 14 | Accounts Receivable | 113 | 486 | ||
Income from Services | 411 | 486 | ||||
(Record services performed on account) |
Table (18)
Description:
- Accounts Receivable is an asset account. The amount is increased because amount to be received increased, and an increase in asset is debited.
- Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on June 14:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 14 | Wages Expense | 611 | 1,847.50 | ||
Cash | 111 | 1,847.50 | ||||
(Record payment of wages expense) |
Table (19)
Description:
- Wages Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 18:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 18 | Accounts Payable | 211 | 1,200 | ||
Cash | 111 | 1,200 | ||||
(Record cash paid on account) |
Table (20)
Description:
- Accounts Payable is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 21:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 21 | Cash | 111 | 4,758 | ||
Income from Services | 411 | 4,758 | ||||
(Record services performed for cash) |
Table (21)
Description:
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on June 21:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 21 | Accounts Receivable | 113 | 344 | ||
Income from Services | 411 | 344 | ||||
(Record services performed on account) |
Table (22)
Description:
- Accounts Receivable is an asset account. The amount is increased because amount to be received increased, and an increase in asset is debited.
- Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on June 21:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 21 | Wages Expense | 611 | 1,847.50 | ||
Cash | 111 | 1,847.50 | ||||
(Record payment of wages expense) |
Table (23)
Description:
- Wages Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 25:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 25 | Accounts Payable | 211 | 73 | ||
Cash | 111 | 73 | ||||
(Record cash paid on account) |
Table (24)
Description:
- Accounts Payable is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 28:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 28 | Wages Expense | 611 | 1,847.50 | ||
Cash | 111 | 1,847.50 | ||||
(Record payment of wages expense) |
Table (23)
Description:
- Wages Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 28:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 28 | Laundry Expense | 615 | 84 | ||
Cash | 111 | 84 | ||||
(Record payment of laundry expense) |
Table (24)
Description:
- Laundry Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 30:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 30 | Cash | 111 | 5,992 | ||
Income from Services | 411 | 5,992 | ||||
(Record services performed for cash) |
Table (25)
Description:
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on June 30:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 30 | Accounts Receivable | 113 | 109 | ||
Income from Services | 411 | 109 | ||||
(Record services performed on account) |
Table (26)
Description:
- Accounts Receivable is an asset account. The amount is increased because amount to be received increased, and an increase in asset is debited.
- Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on June 30:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 30 | AV, Drawing | 312 | 1,850 | ||
Cash | 111 | 1,850 | ||||
(Record cash withdrawn by AV for personal use) |
Table (27)
Description:
- AV, Drawing is a contra-capital account. The contra-capital accounts decrease the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is withdrawn, asset account decreased, and a decrease in asset is credited.
Transaction on June 30:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 30 | Utilities Expense | 617 | 225 | ||
Cash | 111 | 225 | ||||
(Record payment of utilities expense) |
Table (28)
Description:
- Utilities Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 31:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 31 | Utilities Expense | 617 | 248 | ||
Cash | 111 | 248 | ||||
(Record payment of utilities expense) |
Table (29)
Description:
- Utilities Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
2.
2.
Explanation of Solution
Ledger: Ledger is a book in which the accounts are summarized and grouped from the transactions recorded in the journal.
Post the journalized transactions in the ledger accounts of the general ledger.
ACCOUNT Cash ACCOUNT NO. 111 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 1 | 1 | 15,000.00 | 15,000.00 | |||
3 | 1 | 960.00 | 14,040.00 | ||||
3 | 1 | 2,000.00 | 12,040.00 | ||||
3 | 1 | 1,650.00 | 10,390.00 | ||||
5 | 1 | 248.00 | 10,142.00 | ||||
5 | 1 | 112.00 | 10,030.00 | ||||
7 | 1 | 1,847.50 | 8,182.50 | ||||
7 | 1 | 2,630.00 | 10,812.50 | ||||
11 | 1 | 873.00 | 9,939.50 | ||||
14 | 1 | 3,703.00 | 13,642.50 | ||||
14 | 1 | 1,847.50 | 11,795.00 | ||||
18 | 1 | 1,200.00 | 10,595.00 | ||||
21 | 1 | 4,758.00 | 15,353.00 | ||||
21 | 1 | 1,847.50 | 13,505.50 | ||||
25 | 1 | 73.00 | 13,432.50 | ||||
28 | 1 | 1,847.50 | 11,585.00 | ||||
28 | 1 | 84.00 | 11,501.00 | ||||
30 | 1 | 5,992.00 | 17,493.00 | ||||
30 | 1 | 1,850.00 | 15,643.00 | ||||
30 | 1 | 225.00 | 15,418.00 | ||||
30 | 1 | 248.00 | 15,170.00 |
Table (30)
ACCOUNT Accounts Receivable ACCOUNT NO. 113 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 7 | 1 | 325.00 | 325.00 | |||
14 | 1 | 486.00 | 811.00 | ||||
21 | 1 | 344.00 | 1,155.00 | ||||
30 | 1 | 109.00 | 1,264.00 |
Table (31)
ACCOUNT Office Supplies ACCOUNT NO. 114 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 5 | 1 | 248 | 248 | |||
5 | 1 | 120 | 368 |
Table (32)
ACCOUNT Spa Supplies ACCOUNT NO. 115 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 3 | 1 | 492 | 492 |
Table (33)
ACCOUNT Prepaid Insurance ACCOUNT NO. 117 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 3 | 1 | 960 | 960 |
Table (34)
ACCOUNT Office Equipment ACCOUNT NO. 124 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 5 | 1 | 318 | 318 | |||
5 | 1 | 832 | 1,150 |
Table (35)
ACCOUNT Spa Equipment ACCOUNT NO. 128 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 1 | 1 | 3,158 | 3,158 | |||
3 | 1 | 4,235 | 7,393 |
Table (36)
ACCOUNT Accounts Payable ACCOUNT NO. 211 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 3 | 1 | 2,235 | 2,235 | |||
3 | 1 | 492 | 2,727 | ||||
5 | 1 | 318 | 3,045 | ||||
5 | 1 | 397 | 3,442 | ||||
5 | 1 | 832 | 4,274 | ||||
5 | 1 | 120 | 4,394 | ||||
11 | 1 | 873 | 3,521 | ||||
18 | 1 | 1,200 | 2,321 | ||||
25 | 1 | 73 | 2,248 |
Table (37)
ACCOUNT AV, Capital ACCOUNT NO. 311 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 1 | 1 | 15,000 | 15,000 | |||
1 | 1 | 3,158 | 18,158 |
Table (38)
ACCOUNT AV, Drawing ACCOUNT NO. 312 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 30 | 1 | 1,850 | 1,850 |
Table (39)
ACCOUNT Income from Services ACCOUNT NO. 411 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 7 | 1 | 2,630 | 2,630 | |||
7 | 1 | 325 | 2,955 | ||||
14 | 1 | 3,703 | 6,658 | ||||
14 | 1 | 486 | 7,144 | ||||
21 | 1 | 4,758 | 11,902 | ||||
21 | 1 | 344 | 12,246 | ||||
30 | 1 | 5,992 | 18,238 | ||||
30 | 1 | 109 | 18,347 |
Table (40)
ACCOUNT Wages Expense ACCOUNT NO. 611 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 7 | 1 | 1,847.50 | 1,847.50 | |||
14 | 1 | 1,847.50 | 3,695.00 | ||||
21 | 1 | 1,847.50 | 5,542.50 | ||||
28 | 1 | 1,847.50 | 7,390.00 |
Table (41)
ACCOUNT Rent Expense ACCOUNT NO. 612 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 3 | 1 | 1,650 | 1,650 |
Table (42)
ACCOUNT Laundry Expense ACCOUNT NO. 615 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 28 | 1 | 84 | 84 |
Table (43)
ACCOUNT Advertising Expense ACCOUNT NO. 616 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 5 | 1 | 397 | 397 |
Table (44)
ACCOUNT Utilities Expense ACCOUNT NO. 617 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 30 | 1 | 225 | 225 | |||
30 | 1 | 248 | 473 |
Table (45)
ACCOUNT Promotional Expense ACCOUNT NO. 630 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 5 | 1 | 112 | 112 |
Table (46)
3.
Prepare the
3.
Explanation of Solution
Trial balance: Trial balance is a summary of all the asset, liability, and equity accounts and their balances.
Prepare the trial balance for ABY Spa as at June 30, 20--, based on the account balances derived in Part (2).
ABY Spa | ||
Trial Balance | ||
October 31, 20-- | ||
Account Title | Debit ($) | Credit ($) |
Cash | $15,170 | |
Accounts Receivable | 1,264 | |
Office Supplies | 368 | |
Spa Supplies | 492 | |
Prepaid Insurance | 960 | |
Office Equipment | 1,150 | |
Spa Equipment | 7,393 | |
Accounts Payable | $2,248 | |
AV, Capital | 18,158 | |
AV, Drawing | 1,850 | |
Income from Services | 18,347 | |
Wages Expense | 7,390 | |
Rent Expense | 1,650 | |
Laundry Expense | 84 | |
Advertising Expense | 397 | |
Utilities Expense | 473 | |
Promotional Expense | 112 | |
Total | $38,753 | $38,753 |
Table (47)
Hence, the debit and credit total of trial balance of ABY Spa at June 30, 20-- is $38,753.
4.
Prepare an income statement of ABY Spa for the month ended June 30, 20--, based on the account balances derived in Part (2).
4.
Explanation of Solution
Income statement: The financial statement which reports revenues and expenses from business operations, and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Prepare an income statement of ABY Spa for the month ended June 30, 20--.
ABY Spa | ||
Income Statement | ||
For the Month Ended June 30, 20-- | ||
Revenues: | ||
Income from Services | $18,347 | |
Expenses: | ||
Wages Expense | $7,390 | |
Rent Expense | 1,650 | |
Laundry Expense | 84 | |
Advertising Expense | 397 | |
Utilities Expense | 473 | |
Promotional Expense | 112 | |
Total expenses | 10,106 | |
Net income | $8,241 |
Table (48)
5.
Prepare a statement of owners’ equity of ABY Spa, based on the account balances derived in Part (2), and net income computed in Part (4).
5.
Explanation of Solution
Statement of owners’ equity: This statement reports the beginning owner’s equity and all the changes which led to ending owners’ equity. Additional capital, net income from income statement is added to, and drawings is deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.
Prepare a statement of owners’ equity for ABY Spa for the month ended June 30, 20--.
ABY Spa | ||
Statement of Owners’ Equity | ||
For the Month Ended June 30, 20-- | ||
AV, Capital, June 1, 20-- | $0 | |
Investments during June | $18,158 | |
Net income for June | 8,241 | |
26,399 | ||
Less: Withdrawals for June | 1,850 | |
Increase in capital | 24,549 | |
AV, Capital, June 30, 20-- | $24,549 |
Table (49)
6.
Prepare a balance sheet for ABY Spa, based on the account balances derived in Part (2), and capital of the owner from the statement of owners’ equity prepared in Part (5).
6.
Explanation of Solution
Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and owners (owners’ equity) over those resources. The resources of the company are assets which include money contributed by owners and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and owners’ equity.
Prepare the balance sheet for ABY Spa as at June 30, 20--.
ABY Spa | ||
Balance Sheet | ||
June 30, 20-- | ||
Assets | ||
Cash | $15,170 | |
Accounts Receivable | 1,264 | |
Office Supplies | 368 | |
Spa Supplies | 492 | |
Prepaid Insurance | 960 | |
Office Equipment | 1,150 | |
Spa Equipment | 7,393 | |
Total assets | $26,797 | |
Liabilities | ||
Accounts Payable | $2,248 | |
Owners’ Equity | ||
AV, Capital | 24,549 | |
Total liabilities and owners’ equity | $26,797 |
Table (50)
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Chapter 3 Solutions
College Accounting (Book Only): A Career Approach
- Bridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor societys annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 196 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00 pm. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is tour hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night. Instead of driving, she could catch a 3:00 p.m. flight that has a round, trip fare of $300. Flying would require her to rent a car for $39 per day and pay an airport parking fee of $25 for the day. The company pays a per diem of $35 for incidentals if the employee spends at least six hours out of town. (The per diem would be for one 24-hour period for either flying or driving.) As a manager, Bridget is responsible for recruiting within a budget and wants to determine which is more economical. Use the information provided to answer these questions. A. What is the total amount of expenses Bridget would include on her expense report if she drives? B. What is the total amount of expenses she would include on her expense report if she flies? C. What is the relevant cost of driving? D. What is the relevant cost of flying? E. What is the differential cost of flying over driving? F. What other factors should Bridget consider in her decision between driving and flying?arrow_forwardHow Is He Doing? Ted Mohr had worked as a mid-level manager for a large retail chain with a regional headquarters in Fairfield County, Connecticut. For over fifteen years he had commuted on I95, and worried that too much of his family time was spent in traffic jams. Two years ago he acted on one of his dreams and relocated to New Hampshire to open a restaurant and novelty shop. The shop had been in its current location for over twelve years and had achieved a reputation for service and a wide range of tourist novelties. Ted ran the operations of the store, and his wife handled all the office and administrative functions. In the past year he had withdrawn $35,000 from the business for living expenses. During next year’s slow season he hoped that he and his wife would be able to take at least four weeks as a vacation. At a business luncheon a professor from the local university spoke about the university’s offer to help small businesses in the state with free consulting from its…arrow_forwardOn March 1, Marquette is approached by the developer of a large subdivision who wants to install an invisible fence in the yard of 1,200 homes he is constructing. The developer will contract with Marquette for the 1,200 fences on the condition that they are delivered within 30 days (March 31). This is not good timing for Marquette since they have recently signed a contract with Home Warehouse, a national home improvement chain and have been working at 100% capacity for several months. If Marquette accepts the builder’s order, it will lose 1,200 units that would normally be sold to one of its existing customers. When they tell the developer that they do not believe they can fill his order, he offers to reimburse the company for his “share” of the fixed manufacturing costs and will pay a $5,000 “bonus” on delivery. Since the sale to the developer will not incur any variable marketing costs, Marquette reconsiders accepting the developer’s order. What impact will accepting this order have…arrow_forward
- Don Masters and two of his colleagues are considering opening a law office in a large metropolitan area that would make inexpensive legal services available to those who could not otherwise afford these services. The intent is to provide easy access for their clients by having the office open360 days per year, 16 hours each day from 7:00 a.m. to 11:00 p.m. The office would be staffed by a lawyer, paralegal, legal secretary, and clerk-receptionist for each of the two 8-hour shifts.In order to determine the feasibility of the project, Don hired a marketing consultant to assist with market projections. The results of this study show that if the firm spends $500,000 onadvertising the first year, the number of new clients expected each day would have the following probability distribution: Number of NewClients per Day Probability 20 0.10 30 0.30 55 0.40…arrow_forwardYour friend, Mark, owns the dog sitting company, Mark’s Dogs, out of his home, watching dogs a maximum of 5 dogs at a time at his home, with the dog owners dropping the dogs at his home. Terms of service require payment in cash or check when the owner retrieves the dog. Mark’s business has grown, and Mark will be moving into an empty storefront which is large enough for him to watch 20 dogs at a time. Regarding this expansion, he will be moving from a cash only business to an accrual-based business. Briefly explain to Mark the dual entry system of accounting. Inform Mark as to the new accounts which are created when a business moves from a cash-only to an accrual business. Would the nature of Mark’s business require any period end adjustments? If so, which ones? If Mark accepts credit cards, will this be recorded as cash?arrow_forwardHenrietta, the owner of a very successful hotel chain in the Southeast, is exploring the possibility of expanding the chain into a city in the Northeast. She incurs $60,000 of expenses associated with this investigation. Based on the regulatory environment for hotels in the city, she decides not to expand. During the year, she also investigates opening a restaurant that will be part of a national restaurant chain. Her expenses for this are $54,400. She proceeds with opening the restaurant, and it begins operations on May 1. Determine the amount that Henrietta can deduct in the current year for investigating these two businesses. In your computations, round the per-month amount to the nearest dollar and use rounded amount in subsequent computations. a. The deductible amount of investigation expenses related to expansion of her hotel chain into another city? b. The deductible amount of investigation expenses related to opening a restaurant?arrow_forward
- Ms. Faye Santos is an accounting major at a Midwestern state university located approximately 60 miles from a major city. Ms. Faye Santos is an accounting major at a Midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan areas and visit their homes regularly on the weekends. Faye, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. She believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Faye has gathered the following investment information. Five used vans would cost a total of $75,000 to purchase and would have a three-year useful life with negligible salvage value. Faye plans to use straight-line depreciation. Ten drivers would have to be employed at a total payroll expense of $48,000. 3. Other annual out-of-pocket expenses…arrow_forwardAfter working for years as a regional manager for a retail organization, Scott Parry opened his own business with Susan Gonzalez, one of his district managers, as his partner. They formed S&S to sell appliances and consumer electronics. Scott and Susan pursued a “clicks and bricks” strategy by renting a building in a busy part of town and adding an electronic storefront. Scott and Susan invested enough money to see them through the first six months. They will hire 15 employees within the next two weeks – three to stock the shelves, four sales representatives, six checkout clerks, and two to develop and maintain the electronic storefront. Scott and Susan will host S&S’s grand opening in five weeks. To meet that deadline, they have to address the following important issues: 16. What business processes are needed, and how should they be carried out? 17. What functionality should be provided on the website?arrow_forwardThe May clinic runs a small office in Columbia. May pays the building owner a rent of 12000 a month which includes all utilities. It all signed a three-year lease. May hires a general practice position at $300 an hour, a nurse at $90 an hour, and a secretary at $60 an hour. May assumes that each patient uses $60 in supplies. In September, the clinic was open for 400 hours, during which all Personnel were available at all times to stuff the clinic. During that time 6000 patients were seen what we're maze fixed, variable, and total cost for the month? Show your workarrow_forward
- Now that Tracy has completed her first year in her business, she would like to expand to another location. She has looked at a property near Ft. Lee. She feels this is a prime location since she could provide cupcakes for events and office celebrations at Ft. Lee. She can purchase the property for $48,000 and believes she can build a building with all of the equipment for an additional $148,000. The estimated sales at the new location is $223,000 with a net operating income of $53,000. The minimum acceptable return for these types of investments is 23%. Tracy remembers studying return on investment and residual income from her college classes but needs you to do the calculations and explain what the numbers mean. A.explaining residual income and return on investment on this new venture. B.Calculate both, explain your calculations, and if this will be a good investment for her. Your paper is to be at least one page.arrow_forwardChris currently works for a software development firm as a programmer / analyst and earns a net salary of $65,000 per year. She is also contemplating opening her own firm (Bit-By-Bit Solutions, Inc.) and is keenly aware of the intense level of competition in her geographic market. If she opens her own firm, she will have to quit her job and use her accumulated savings of $60,000 to secure an office (1 year lease), furniture, and the necessary productive capital (PC's, Servers, Software, etc) (Note: The furniture and productive capital are purchased outright and not leased or rented). Her accumulated savings are currently earning 8 percent per year in a money market growth fund. Given her knowledge of the geographic market in which she would operate, she believes that she can secure and maintain a total of 15 accounts (firms that she produces software and consults for) at an average monthly rate of $15,000 per account per month. In order to adequately service these 15 firms, she will…arrow_forwardOpanka Chemists is the only pharmaceuticals in the Dawhenya and Mr. Efeefee is one of the key Pharmacists who had worked with the company for a decade with special skills which can only be used at Opanka. His net monthly salary was GH¢65,000 and he always goes to Tema to spend the weekends with his family. On 17th April 2020, during a staff meeting, the new head Pharmacist Dr. Osafo announced Mr. Efeefee’s dismissal with immediate effect for insubordination. Mr. Efeefee is deeply hurt and embarrassed by the action of Dr. Osafo.Required: Advice Mr. Efeefee’s with reasons the type of service contract his work fall and the possible remedies are available for him?arrow_forward
- College Accounting (Book Only): A Career ApproachAccountingISBN:9781305084087Author:Cathy J. ScottPublisher:Cengage LearningCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College