Chapter 1, Problem 7PSA

1.

To determine

To identify: The effect of given transactions on the accounting equation.

Explanation of Solution

Table (1)

Hence, the cash balance is $42,780, office equipment is $1,890, accounts payable is $80, common stock is $40,000, dividend is $1,400, revenue is $11,100 and expenses is $5,110.

2.

To determine

To prepare: The income statement, statement of retained earnings and balance sheet.

Explanation of Solution

Prepare income statement.

G. Company
Income Statement
For the month ended May 31,20XX
Particulars	Amount ($)	Amount ($)
Revenue:
Service Revenue	11,100
Total Revenue		11,100
Expenses:
Advertising Expenses	80
Cleaning Expenses	750
Rent Expenses	2200
Salary Expenses	1,500
Telephone Expenses	300
Utilities Expenses	280
Total Expense		5,110
Net income		5,990

Table(2)

Hence, net income of .G Company as on May 31, 20XX is $5,990.

Prepare statement of retained earnings.

G. Company
Retained Earnings Statement
For the month ended May 31,20XX
Particulars	Amount ($)
Opening balance	0
Net income	5,990
Total	5,990
Dividends	(1,400)
Retained earnings	4,590

Table(3)

Hence, the retained earnings of G Company as on May 31, 20XX are $4,590.

Prepare balance sheet.

G. Company
Balance Sheet
As on May 31, 20XX
Particulars		Amount ($)
Assets
Cash		42,780
Equipment		1,890
Total assets		44,670
Liabilities and stockholder’s equity
Liabilities
Accounts payable		80
Stockholder’s equity
Common stock	40,000
Retained earnings	4,590
Total stockholders’ equity		44,590
Total Liabilities and Stockholder’s equity		44,670

Table(4)

Hence, the total of the balance sheet of the G Company as on May 31, 20XX is of $44,670.

3.

To determine

To prepare: The statement of cash flows of the M Company.

Explanation of Solution

Prepare the cash flow statement.

G. Company
Statement of Cash Flows
Month Ended May 31, 20XX
Particulars	Amount ($)	Amount ($)
Cash flow from operating activities
Receipts:
Collections from customers		11,100
Payments:
Cleaning Expenses	(750)
Rent Expenses	(2200)
Salary Expenses	(1,500)
Telephone Expenses	(300)
Utilities	(280)	(5,030)
Net cash from operating activities		6,070
Cash flow from investing activities
Purchase of equipment	(1,890)
Net cash from investing activities		(1,890)
Cash flow from financing activities
Issued common stock	40,000
Less: Payment of cash dividends	(1,400)
Net cash from financing activities		38,600
Net increase in cash		42,780
Cash balance, May 1,20XX		0
Cash balance, May 31,20XX		42,780

Table(5)

Hence, the cash balance of the G Company as on May 31, 20XX is $42,780.