Chapter 1, Problem 9PSB

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 Roofing Equipment accounts will come under assets, Accounts Payable and Notes Payable accounts 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

Show the effect of transactions as follow:

Table (2)

Hence, the cash balance is $87,545,accounts receivables is $5,000, office supplies is $3,700, office equipment is $2,300, roofing equipment is $5,000, accounts payable is $7,100, common stock is $80,000, dividend is $1,800, revenue is $20,800 and expenses is $2,555.

3.

To determine

To prepare:

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

Explanation of Solution

Prepare income statement.

R Company
Income Statement
For the Month Ended July 31, 20XX
Particulars	Amount ($)	Amount ($)
Revenue:
Service Revenue	20,800
Total Revenue		20,800
Expenses:
Rent Expenses	700
Salary Expenses	1,560
Utilities Expenses	295
Total Expense		2,555
Net income		18,245

Table (3)

Hence, net income of .R Company as on July 31, 20XX is $18,245.

Prepare statement of retained earnings

R Company
Retained Earnings Statement
For the Month Ended July 31, 20XX
Particulars	Amount ($)
Opening balance of retained earnings	0
Net income	18,245
Total	18,245
Dividends	(1,800)
Ending closing of retained earnings	16,445

Table (4)

Hence, the retained earnings of R Company as on July 31, 20XX are $16,445.

Prepare the cash flow statement.

R Company
Statement of Cash Flows
Month Ended July 31, 20XX
Particulars	Amount ($)	Amount ($)
Cash flow from operating activities
Receipts:
Collections from customers		15,800
Payments:
Supplies	(600)
Rent Expenses	(700)
Salary Expenses	(1,560)
Utilities	(295)	(3,155)
Net cash from operating activities		12,645
Cash flow from investing activities
Purchase of office equipment	(2,300)
Purchase of Roofing equipment	(1,000)
Net cash from investing activities		(3,300)
Cash flow from financing activities
Issued common stock	80,000
Less: Payment of cash dividends	(1,800)
Net cash from financing activities		78,200
Net increase in cash		87,545
Cash balance, July 1, 20XX		0
Cash balance, July 31, 20XX		87,545

Table (5)

Hence, the cash balance of the R Company as on July 31, 20XX is $87,545.

Prepare balance sheet

R Company
Balance sheet
As on July 31, 20XX
Particulars	Amount ($)	Amount ($)
Assets
Cash		87,545
Accounts Receivables		5,000
Office Supplies		3,700
Office Equipment		2,300
Roofing Equipment		5,000
Total Assets		103,545
Liabilities and Stockholder’s Equity
Liabilities
Accounts Payable		7,100
Stockholder’s Equity
Common Stock	80,000
Retained earnings	16,445
Total stockholders’ equity		96,445
Total Liabilities and Stockholder’s equity		103,545

Table (6)

Hence, the total of the balance sheet of the R Company as on July 31, 20XX is of $103,545.

4.

To determine

To identify:

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

Explanation of Solution

If the company purchase roofing equipment by owner investment instead of cash as mention in question.

• On assets- The asset of the company increases by $1,000.

• On liabilities- The liability of the company decreases by $4,000.

• On equity- The common stock is increased by $5,000 and common stock is the part of equity so equity increases by $5,000.

Thus, the assets and equity both will increase and liability will decrease.