Chapter 1, Problem 1.53BP

(1)

To determine

Transaction: The economic events which bring about any changes in the financial items of a business, and can be measured in the monetary units are referred to as transactions.

Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relation between resources or assets of a company and claims of resources to creditors and owners.

Accounting equation is expressed as shown below:

$\begin{array}{c}\text{Assets = Liabilities + Equity}\\ \text{Assets = Liabilities+}\left\{\left(\begin{array}{l}\text{Contributed }\\ \text{capital}\end{array}\right)\text{+}\left(\begin{array}{l}\text{Retained }\\ \text{earnings}\end{array}\right)\right\}\\ \text{Assets = Liabilities+}\left\{\left(\begin{array}{l}\text{Common }\\ \text{stock}\end{array}\right)\text{+}\left(\text{Revenues–Expenses–Dividends}\right)\right\}\end{array}$

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.

Statement of retained earnings: This statement reports the beginning retained earnings and all the changes which led to ending retained earnings. Net income from income statement is added to and dividends is deducted from beginning retained earnings to arrive at the end result, ending retained earnings.

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

To analyze: The transactions of AP, using the accounting equation in the given format

(2) (a)

To determine

To prepare: Income statement of AP for the month ended December 31, 2018.

(b)

To determine

To prepare: Statement of retained earnings of AP for the month ended December 31, 2018.

(c)

To determine

To prepare: Balance sheet of AP on December 31, 2018.