Chapter 1, Problem 9PSA

1.

To determine

To prepare:

The table showing accounts given related to assets, liabilities, and equity.

Explanation of Solution

Show the classification of the accounts under assets, liabilities, and equity as follow:

Table (1)

Hence, Cash, Accounts receivable, Office Supplies, Office Equipment, and Electrical Equipment accounts will come under assets, Accounts Payable account will be treated as liability and the Common Stock, Dividends, Revenue and Expenses accounts will come under equity.

2.

To determine

To identify:

The effect of transactions on the accounting equation.

Explanation of Solution

Table (2)

Hence, the cash balance is $59,180, accounts receivables is $900, office supplies is $1,150, office equipment is $2,530, electrical equipment is$13,000, accounts payable is $8,550, common stock is $65,000, dividend is $950, revenue is $7,100 and expenses is $2,940.

3.

To determine

To prepare:

The income statement, statement of retained earnings, statement of cash flows and balance sheet for the month of December 31,20XX.

Explanation of Solution

Prepare income statement.

S Company
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 (3)

Hence, net income of .S Company as on December 31, 20XX is $4,160.

Prepare statement of retained earnings.

S Company
Retained Earnings Statement
For the Month Ended December 31, 20XX
Particulars	Amount ($)
Opening balance of retained earnings	0
Net income	4,160
Total	4,160
Dividends	(950)
Ending balance of retained earnings	3,210

Table (4)

Hence, the retained earnings of S Company as on December 31, 20XX are $3,210.

Prepare the cash flow statement.

S Company
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 Company as on December 31, 20XX is $59,180.

Prepare balance sheet.

S Company
Balance sheet
As on December 31, 20XX
Particulars	Amount ($)	Amount ($)
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 Stockholder’s Equity
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 (6)

Hence, the total of the balance sheet of the S Company as on December 31, 20XX is of $76,760.

4.

To determine

To identify:

The changes in (a) total assets, (b) total liabilities, and (c) total equity.

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 is the part of equity so equity decreases by $16,000.

Hence, the liability will increase by $16,000 and common stock will decrease by $16,000.