Chapter 2, Problem 1CTP

The following account balances are for William Giese, Certified Public Accountant, as of April 30, 2019.

INSTRUCTIONS

Using the accounting equation form, determine the balance for William Giese, Capital, April 1, 2019. Prepare an income statement for the month of April, a statement of owner’s equity, and a balance sheet as of April 30, 2019. List the expenses on the income statement in alphabetical order.

Analyze: What net change in owner’s equity occurred during the month of April?

To determine

Calculate the amount of WG, Capital at April 1, 2019 by using accounting equation.

Explanation of Solution

Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relation between resources or assets of a company and claims of resources to creditors and owners. Accounting equation is expressed as shown below:

$\text{Assets = Liabilities + Owners' Equity}$

Calculate the amount of WG, Capital at April 1, 2019 by using accounting equation.

$\begin{array}{c}\text{Assets = }\text{Liabilities }\text{+ Owners' Equity}\\ \text{Cash}\text{+}\text{Accounts}\text{Receivable}\text{+}\text{Machinery}\text{=}\text{Accounts}\text{Payable}\text{+}\left(\begin{array}{l}\text{WG,Capital}-\text{WG,Drawing}\\ +\text{Revenue}-\text{Expenses}\end{array}\right)\\ \$60,000+\$24,000+\$42,000=\$26,400+\left(\begin{array}{l}\text{WG,Capital}-\$13,600\\ +\$53,600-\$42,980\end{array}\right)\\ \$126,000=\$23,420+\text{WG,Capital}\\ \text{WG,Capital}=\$126,000-\$23,420\\ =\$102,580\end{array}$

Working notes: Calculate the amount of total expenses.

$\begin{array}{c}\text{Expenses = }\left(\begin{array}{l}\text{Advertising expense +Maintenance expense }\\ \text{+ Salaries Expense}\end{array}\right)\\ =\$7,780+\$9,200+\$26,000\\ =\$42,980\end{array}$

Hence, the amount of WG, Capital at April 1, 2019 is $102,580.

To determine

Prepare an income statement and a statement of owner’s equity for WG, Certified Public Accountant for the month of April and a balance sheet at April 30, 2019 from the information given.

Explanation of Solution

Income statement: Income statement is a financial statement that shows the net income or net loss by deducting the expenses from the revenues and vice versa.

Prepare an income statement for WG, Certified Public Accountant for the month of April.

WG, Certified Public Accountant
Income Statement
For the Month ended April 30, 2019
Fees earned		$53,600
Expenses
Advertising expense	$7,780
Maintenance expense	$9,200
Salaries expense	$26,000
Total expenses		$42,980
Net income		$10,620

Table (1)

Statement of owner's’ equity: This statement reports the beginning owner’s equity and all the changes which led to ending owner's’ equity. Additional capital, net income from income statement is added to and net loss from income statement and drawings are deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.

Prepare a statement of owner’s equity for WG, Certified Public Accountant for the month of April.

WG, Certified Public Accountant
Statement of Owner's Equity
For the Month ended April 30, 2019
WG Capital, April 1, 2019		$102,580
Net income for the month of April	$10,620
Withdrawals	$(13,600)
Decrease in Capital		$(2,980)
WG Capital, April 30, 2019		$99,600

Table (2)

Balance Sheet: Balance Sheet summarizes the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Prepare a balance sheet for WG, Certified Public Accountant at April 30, 2019.

WG, Certified Public Accountant
Balance Sheet
At April 30, 2019
Assets
Cash	$60,000
Accounts Receivable	24,000
Machinery	42,000
Total assets	$126,000
Liabilities
Accounts Payable	$26,400
Owners’ Equity
WG, capital, April 30, 2019	99,600
Total liabilities and owners’ equity	$126,000

Table (3)

Analyze: The owner’s equity is decreased by $2,980$\left(\$102,580-\$99,600\right)$.