
1.
Arrange the asset, liability and equity titles in a table.
1.

Explanation of Solution
The arrangement of asset, liability and equity titles in a table is as follows:
Figure (1)
2.
Create the table showing the effects of each transaction using
2.

Explanation of Solution
The effects of each transaction on the accounts of accounting equation are given bellow:
Figure (2)
3.
Prepare the income statement, statement of
3.

Explanation of Solution
Income statement: Income statement is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time.
Statement of retained earnings: Statement of retained earnings is an equity statement which shows the changes in the
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.
Statement of cash flows: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities. Operating activities include cash inflows and outflows from business operations. Investing activities includes cash inflows and
Prepare income statement:
Company R | ||
Income Statement | ||
For Month Ended December 31 | ||
Particulars | Amount ($) | Amount ($) |
Revenues | ||
Roofing fees earned | 20,800 | |
Expenses | ||
Rent expense | 700 | |
Salaries expense | 1,560 | |
Utilities expense | 295 | |
Total expenses | 2,555 | |
Net income | 18,245 |
Table (1)
Prepare statement of retained earnings:
Company R | |
Statement of Retained Earnings | |
For Month Ended December 31 | |
Particulars | Amount ($) |
Retained earnings, December 1 | 0 |
Add: | |
Net income | 18,245 |
Less: | |
Dividends | 1,800 |
Retained earnings, December 31 | 16,445 |
Table (2)
Prepare balance sheet:
Company R | |||
Balance Sheet | |||
For the year ended December 31,2017 | |||
Assets | Amount ($) | Liabilities | Amount ($) |
Cash | 87,545 | Accounts payable | 7,100 |
5,000 | Equity | ||
Office supplies | 3,700 | Common stock | 80,000 |
Office equipment | 2,300 | Retained earnings | 16,445 |
Roofing equipment | 5,000 | Total equity | 96,445 |
Total assets | 103,545 | Total liabilities and equity | 103,545 |
Table (3)
Prepare statement of cash flows:
Company R | ||
Statement of Cash Flows | ||
For Month Ended July 31 | ||
Particulars | Amount ($) | Amount ($) |
Cash flows from operating activities | ||
Cash received from customers (1) | 15,800 | |
Cash paid for rent | (700) | |
Cash paid for supplies | (600) | |
Cash paid for utilities | (295) | |
Cash paid to employees | (1,560) | |
Net cash provided by operating activities | 12,645 | |
Cash flows from investing activities | ||
Cash paid for roofing equipment | (1,000) | |
Cash paid for office equipment | (2,300) | |
Net cash used by investing activities | (3,300) | |
Cash flows from financing activities | ||
Cash investment from shareholder | 80,000 | |
Cash dividend to shareholder | (1,800) | |
Net cash provided by financing activities | 78,200 | |
Net increase in cash | 87,545 | |
Cash balance, July 1 | 0 | |
87,545 |
Table (4)
Working note:
Calculate the cash received from customers:
4.
Explain the effect of change on total assets, total liabilities and total equity.
4.

Explanation of Solution
If the purchase of roofing equipment on July 3 for $5,000 is acquired through an additional investment of cash by owner, then following is the effect of this change:
(a) Total assets will be greater by $1,000.
(b) Total liabilities will be lesser by $4,000.
(c) Total equity will be $5,000 greater.
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Chapter 1 Solutions
FINANCIAL ACCOUNTING FUND. W/CONNECT
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