Chapter 3, Problem 3.7.2MCP

a.

To determine

Introduction: The users of financial statements review the financial statements of the company and perform appropriate analysis to take appropriate decisions, whenever required.

To prepare: Income statement for the month of June.

Explanation of Solution

Income statement

Month ending on June 30

Particulars	Sub-total ($)	Total ($)
Revenue (Note 1)		30,750
Less: Expenses
Salaries and wages expense	(5,670)
Rent expense	(2,200)
Gas, electric and water expense	(2,700)
Advertising expense	(900)	(11,470)
Net income		19,280

Note 1: Service revenue

Particulars	$
Revenue earned for services performed in first half of the month	12,350
Add: Revenue earned for services performed in second half of the month	18,400
Ending balance	30,750

b.

To determine

Introduction: The users of financial statements review the financial statements of the company and perform appropriate analysis to take appropriate decisions, whenever required.

To prepare: Statement of retained earnings.

Explanation of Solution

Retained earnings statement

(For the month of June)

Particulars	$
Net income (WN1)	19,280
Less: Cash dividends paid	(6,000)
Retained earnings, ending balance	13,280

WN1: Net income has been computed in part (a).

c.

To determine

Introduction: The users of financial statements review the financial statements of the company and perform appropriate analysis to take appropriate decisions, whenever required.

To prepare: Balance sheet at June 30.

Explanation of Solution

Balance sheet

As on June 30

Liabilities & Equity	$	Assets	$
Equity:		Current assets
Capital stock	30,000	Cash (Note 1)	44,580
Retained earnings, ending balance (WN2)	13,280	Accounts receivable (Note 2)	18,400
Total equity (A)	43,280	Total current assets (a)	62,980
Liabilities		Non-current assets
Current liabilities		Computer	12,000
Accounts payable	9,500	Total non-current assets (b)	12,000
Rent payable	2,200
Total current liabilities (a)	11,700
Long-term liabilities
Promissory note	20,000
Total long-term liabilities (b)	20,000
Total liabilities [(B) = (a) + (b)]	31,700
Total liabilities and equity [(A) + (B)]	74,980	Total assets [(a) + (b)]	74,980

Note 1: Cash account

Particulars	$
Received from issue of shares of $10,000 to each of 3 the owners	30,000
Less: Paid as down payment for computer	(2,500)
Add: Received from issue of promissory note	20,000
Less: Paid for advertising expense	(900)
Add: Received from customers on account for first half of service revenue	12,350
Less: Paid gas, electric and water expenses	(2,700)
Less: Paid salaries and wages expense	(5,670)
Less: Paid cash dividends	(6,000)
Ending balance	44,580

Note 2: Accounts receivable

Particulars	$
Revenue earned for services performed in first half of the month	12,350
Less: Cash received from customers on account	(12,350)
Revenue earned for services performed in second half of the month	18,400
Ending balance	18,400

Refer to part (b) for the computation of retained earnings, ending balance.