
Concept explainers
a.
Introduction: The users of financial statements review the financial statements of the company and perform appropriate analysis to take appropriate decisions, whenever required.
To prepare: Income statement for the month of June.
a.

Explanation of Solution
Income statement
Month ending on June 30
Particulars | Sub-total ($) | Total ($) |
Revenue (Note 1) | 30,750 | |
Less: Expenses | ||
Salaries and wages expense | (5,670) | |
Rent expense | (2,200) | |
Gas, electric and water expense | (2,700) | |
Advertising expense | (900) | (11,470) |
Net income | 19,280 |
Note 1: Service revenue
Particulars | $ |
Revenue earned for services performed in first half of the month | 12,350 |
Add: Revenue earned for services performed in second half of the month | 18,400 |
Ending balance | 30,750 |
b.
Introduction: The users of financial statements review the financial statements of the company and perform appropriate analysis to take appropriate decisions, whenever required.
To prepare: Statement of
b.

Explanation of Solution
Retained earnings statement
(For the month of June)
Particulars | $ |
Net income (WN1) | 19,280 |
Less: Cash dividends paid | (6,000) |
Retained earnings, ending balance | 13,280 |
WN1: Net income has been computed in part (a).
c.
Introduction: The users of financial statements review the financial statements of the company and perform appropriate analysis to take appropriate decisions, whenever required.
To prepare:
c.

Explanation of Solution
Balance sheet
As on June 30
Liabilities & Equity | $ | Assets | $ |
Equity: | Current assets | ||
Capital stock | 30,000 | Cash (Note 1) | 44,580 |
Retained earnings, ending balance (WN2) | 13,280 | 18,400 | |
Total equity (A) | 43,280 | Total current assets (a) | 62,980 |
Liabilities | Non-current assets | ||
Current liabilities | Computer | 12,000 | |
Accounts payable | 9,500 | Total non-current assets (b) | 12,000 |
Rent payable | 2,200 | ||
Total current liabilities (a) | 11,700 | ||
Long-term liabilities | |||
Promissory note | 20,000 | ||
Total long-term liabilities (b) | 20,000 | ||
Total liabilities [(B) = (a) + (b)] | 31,700 | ||
Total liabilities and equity [(A) + (B)] | 74,980 | Total assets [(a) + (b)] | 74,980 |
Note 1: Cash account
Particulars | $ |
Received from issue of shares of $10,000 to each of 3 the owners | 30,000 |
Less: Paid as down payment for computer | (2,500) |
Add: Received from issue of promissory note | 20,000 |
Less: Paid for advertising expense | (900) |
Add: Received from customers on account for first half of service revenue | 12,350 |
Less: Paid gas, electric and water expenses | (2,700) |
Less: Paid salaries and wages expense | (5,670) |
Less: Paid cash dividends | (6,000) |
Ending balance | 44,580 |
Note 2: Accounts receivable
Particulars | $ |
Revenue earned for services performed in first half of the month | 12,350 |
Less: Cash received from customers on account | (12,350) |
Revenue earned for services performed in second half of the month | 18,400 |
Ending balance | 18,400 |
Refer to part (b) for the computation of retained earnings, ending balance.
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