Chapter 1, Problem 7PSA

Gabi Gram started The Gram Co., a new business that began operations on May 1. The Gram Co. Completed the following transactions during its first month of operations.
May 1 G. Gram invested $40,000 cash in the company in exchange for its common stock.
1 The company rented a furnished office and paid $2,200 cash for May's rent.
3 The company purchased $1,890 of office equipment on credit.
5 The company paid $750 cash for this month's cleaning services.
8 The company provided consulting services for a client and immediately collected $5,400 cash
12 The company provided $2,500 of consulting services for a client on credit.
15 The company paid $750 cash for an assistant's salary for the first half of this month.
20 The company received $2,500 cash payment for the services provided on May 12.
22 The company provided $3,200 of consulting services on credit.
25 The company received $3,200 cash payment for the services provided on May 22.
26 The company paid $1,890 cash for the office equipment purchased on May 3.
27 The company purchased $80 of office equipment on credit.
28 The company paid $750 cash for an assistant’s salary for the second half of the this month.
30 The company paid $300 cash for this month’s telephone bill.
30 The company paid $280 cash for this month’s utilities.
31 The company paid $1,400 cash in dividends to the owner (sole shareholder).

Required
1. Create the following table similar to the one in Exhibit 1.9.
Enter the effects of each transaction on the accounts of the accounting equation by recording dollar increase and decreases in the appropriate columns. Do not determine new account balances after each transaction. Determine the final total for each account and verify that the equation is in balance.
2. Prepare the income statement and the statement of retained earnings for the month of May, and the balance sheet as of May 31.
3. Prepare the statement of cash flows for the month of May.

Summary Introduction

Introduction: Cash Flow Analysis is a technique used by the company to know the overall worth of the company as well as its subsidiary or branches. Cash flow analysis helps in analyzing the company’s cash outflow and inflow through different activities like financing activities, investing activities, operating activities. This analysis shows how the company generates money or revenue for its working.   

To determine: To create asset liability and equity table.

Answer to Problem 7PSA

Explanation of Solution

	Assets			Liabilities	Equity
Date(May)	Cash	Account Receivable	Office Equipment	Account Payable	Common Stock	Dividends	Revenue	Expenses
1	4000				4000
1	-2200							2200
3			1890	1890
5	-750							750
8	5400						5400
12		2500					2500
15	-750							750
20	2500	-2500
22		3200
25	3200	-3200
26	-1890			1890
27				80				80
28	-750							750
30	-300							300
30	-280							280
31	-1400					1400
	42780	0	1890	80	40000	1400	11100	5110

Summary Introduction

Introduction: Cash Flow Analysis is a technique used by the company to know the overall worth of the company as well as its subsidiary or branches. Cash flow analysis helps in analyzing the company’s cash outflow and inflow through different activities like financing activities, investing activities, operating activities. This analysis shows how the company generates money or revenue for its working.   

To prepare: Income statement and statement of retain earning.

Answer to Problem 7PSA

Net income is $5990, retain earnings of May $4590, total assets and liability is 44,670.

Explanation of Solution

Income statement for the month of May

G companyIncome statement for the month ended May 31
Particular	Amount $	Amount $
Revenue:
Consulting service revenue		11100
Less Expenses
Advertisement Expense	80
Rent Expense	2200
Cleaning Expense	750
Salaries Expense	1500
Telephones Expense	300
Utility Expense	280
Total Expenses		5110
Net Income		5990

Statement of retain earning

G companyIncome statement for the month ended May 31
Particular	Amount $	Amount $
Retain earning May 1		0
Add: Net income		5990
Less Dividend		1400
Retain earning May 31		4590

Balance sheet

G companyBalance sheetFor the month ended may 31
Assets		Liability
Particular	Amount	Particular	Amount
Current Assets		Current liabilities
Cash	42,780	Advertisement expense payable	80
		Total Current Liabilities	80
Total Current assets	42,780	Shareholder’s equity
Fixed Assets		Common stock	40,000
Office equipment	1,890	Retain Earning	4,590
Total fixed Assets	1,890	Total shareholder’s equity	44,590
Total Assets	44,670	Total liabilities	44,670

Summary Introduction

Introduction: Cash Flow Analysis is a technique used by the company to know the overall worth of the company as well as its subsidiary or branches. Cash flow analysis helps in analyzing the company’s cash outflow and inflow through different activities like financing activities, investing activities, operating activities. This analysis shows how the company generates money or revenue for its working.   

To determine: the cash flow statement.

Answer to Problem 7PSA

Total of cash flow statement is 51,100

Explanation of Solution

Company’s cash flow statement

G companyCash flow statement for the month ended May 31
Dr		Cr
Beginning Bal	40000	Rent expense	2200
Revenue	5400	Cleaning expense	750
Account Receivable	2500	Salaries Experience	750
Account Receivable	3200	Account	1890
		Salaries Expense	750
		Telephone expense	300
		Utilities expense	280
		Dividends	1400
		Ending Bal	42780
	51,100		51,100