
Concept explainers
1.
To identify: The effect of transactions on the
1.

Explanation of Solution
Table (1)
Hence, the cash balance is $59,180,
2.
To prepare: The income statement, statement of
2.

Explanation of Solution
Prepare income statement.
S. Electric | ||
Income Statement | ||
For the month ended December 31,20XX | ||
Particulars | Amount ($) | Amount ($) |
Revenue: | ||
Service Revenue | 7,100 | |
Total Revenue | 7,100 | |
Expenses: | ||
Rent Expenses | 1000 | |
Salary Expenses | 1,400 | |
Utilities Expenses | 540 | |
Total Expense | 2,940 | |
Net income | 4,160 |
Table(2)
Hence, net income of .S Electric as on December 31, 20XX is $4,160.
Prepare statement of retained earnings.
S. Electric | |
Retained Earnings Statement | |
For the month ended December 31,20XX | |
Particulars | Amount ($) |
Opening balance | 0 |
Net income | 4,160 |
Total | 4,160 |
Dividends | (950) |
Retained earnings | 3,210 |
Table(3)
Hence, the retained earnings of S Electric as on December 31, 20XX are $3,210.
Prepare balance sheet.
S. Electric | ||
Balance sheet | ||
As on December 31, 20XX | ||
Particulars |
| Amount ($) |
Assets | ||
Cash | 59,180 | |
Accounts Receivables | 900 | |
Office Supplies | 1,150 | |
Office Equipment | 2,530 | |
Electric Equipment | 13,000 | |
Total Assets |
| 76,760 |
Liabilities and | ||
Liabilities | ||
Accounts Payable | 8,550 | |
Stockholder’s Equity | ||
Common Stock | 65,000 | |
Retained earnings | 3,210 | |
Total stockholders’ equity |
| 68,210 |
Total Liabilities and Stockholder’s equity |
| 76,760 |
Table(4)
Hence, the total of the balance sheet of the S Electric as on December 31, 20XX is of $76,760.
3.
To prepare: The statement of
3.

Explanation of Solution
Prepare the cash flow statement.
S. Electric | ||
Statement of Cash Flows | ||
Month Ended December 31, 20XX | ||
Particulars | Amount ($) | Amount ($) |
Cash flow from operating activities | ||
Receipts: | ||
Collections from customers |
| 6,200 |
Payments: |
| |
Supplies | (800) | |
Rent Expenses | (1,000) | |
Salary Expenses | (1,400) | |
Utilities | (540) | (3,740) |
Net cash from operating activities |
| 2,460 |
Cash flow from investing activities |
| |
Purchase of office equipment | (2,530) | |
Purchase of electric equipment | (4,800) | |
Net cash from investing activities |
| (7,330) |
Cash flow from financing activities |
| |
Issued common stock | 65,000 | |
Less: Payment of cash dividends | (950) | |
Net cash from financing activities |
| 64,050 |
Net increase in cash |
| 59,180 |
Cash balance, December 1,20XX |
| 0 |
Cash balance, December 31,20XX |
| 59,180 |
Table(5)
Hence, the cash balance of the S Electric as on December 31, 20XX is $59,180.
4.
To identify: The changes in (a) total assets, (b) total liabilities, and (c) total equity.
4.

Explanation of Solution
If the owner of the company invests $49,000 cash instead of $65,000 for common stock and borrows $16,000 from the bank, then the effect on assets, liabilities and equity is,
- On assets- There is no change in assets, as in both the cases cash balance increases.
- On liabilities- There is an increase of $16,000 in accounts payable account and liability of S electric will increase.
- On equity- The common stock is decreased by $16,000 and common stock are the part of equity so equity decreases by $16,000.
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Chapter 1 Solutions
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