Accounting in Action Part 2

1-20 11. 10. 9. 8. 7. 6. 5. 4. 3. 2. 1. (a) + +$500 +–120 +$630 +120 +$ 6,180 + + 750 – +$750 6,060 + + +000,000 –140 6,060 + $12,310 + + + +$500 + 500 +0000 + 500 +0000 + 500 + +0000 6,200 + + 500 +0000 + –2,000 8,200 –1,000 + + 500 + +0000 + 9,200 – +5,100 + + 500 + + 4,100 +0000 + 500 +000,000 –500 4,100 + 4,600 + + –400 + + + + + + + + + + + 5,000 +$5,000 + 5,000 +00,000 + 5,000 +00,000 + 5,000 +00,000 + 5,000 +00,000 + 5,000 +00,000 + 5,000 +00,000 + 5,000 +00,000 + 5,000 +00,000 +$5,000 5,000 + + Equipment + –5,000 + + = = = = = = = = = = = = +$250 +0250 +0000 +0250 +0000 + 250 +0000 + 250 +0000 + 250 +0000 + 250 +$250 N. Barone, Capital –400 9,600 9,350 –250 9,600 –140 +750 +$12,060 + 12,060 – + 11,310 + + 11,450 + –2,000 + 13,450 –1,000 + 14,450 – +5,100 + + + +000,000 + + + 10,000 +000,000 $12,310 + + + + + + + + + + Accounts Payable + + 10,000 Supplies +$10,000 + + 10,000 + BARONE REPAIR SHOP +$10,000 Cash Accounts Receivable Service Revenue Utilities Expense Salaries Expense Drawings Service Revenue Adv. Expense Rent Expense Investment SOLUTIONS TO PROBLEMS PROBLEM 1-1A PROBLEM 1-1A (Continued) (b) Ending capital....................................................................................... Add: Drawings.................................................................................... Deduct: Investments ........................................................................ Net income............................................................................................. $12,060 1,000 13,060 10,000 $ 3,060 OR Service revenue($5,100 + $750) .................................. Expenses Salaries ...................................................................... Rent ............................................................................. Advertising ............................................................... Utilities ....................................................................... Net income....................................................... 1-21 $5,850 $2,000 400 250 140 2,790 $3,060 1-22 8. 7. 6. 5. 4. 3. 2. 1,700 6,100 00,000 $5,900 + $15,200 5,900 +10,000 00,000 5,200 + 000,000 5,900 5,200 + 00,000 5,900 –2,900 00,000 8,100 + –1,000 5,900 + 9,100 400 +5,500 + +2,500 6,600 400 00,000 + 7,400 –800 –1,300 +1,300 + 00,000 $1,700 –2,900 + $ 9,000 $29,800 + + + + + + + + + $600 0000 600 0000 600 0000 600 0000 600 0000 600 0000 600 0000 600 0000 $600 + + + + + + + + + $ 8,100 000,000 8,100 000,000 8,100 000,000 8,100 000,000 8,100 000,000 8,100 +2,100 6,000 000,000 6,000 000,000 $ 6,000 +$10,000 = +$10,000 + = = = = = = = = $29,800 $2,170 00,000 2,170 +170 2,000 00,000 2,000 00,000 2,000 00,000 2,000 +1,300 700 00,000 700 –2,900 $3,600 + + + + + + + + + $17,630 000,000 17,630 –170 17,800 Utilities Exp. Adv. Expense Rent Expense –300 Salaries Exp. –900 Drawings Serv. Revenue –1,700 20,700 –1,000 21,700 +8,000 13,700 000,000 13,700 000,000 13,700 000,000 $13,700 Notes Accounts M. Gonzalez Payable + Payable + Capital MARIA GONZALEZ, VETERINARIAN Accounts Office + Receivable + Supplies + Equipment = 1. Cash Bal. (a) PROBLEM 1-2A PROBLEM 1-2A (Continued) (b) MARIA GONZALEZ, VETERINARIAN Income Statement For the Month Ended September 30, 2008 Revenues Service revenue .......................................................... Expenses Salaries expense......................................................... Rent expense ............................................................... Advertising expense.................................................. Utilities expense.......................................................... Total expenses ................................................... Net income............................................................................. $8,000 $1,700 900 300 170 3,070 $4,930 MARIA GONZALEZ, VETERINARIAN Owner’s Equity Statement For the Month Ended September 30, 2008 M. Gonzalez, Capital, September 1................................................ Add: Net income................................................................................ Less: Drawings ................................................................................... M. Gonzalez, Capital, September 30.............................................. 1-23 $13,700 4,930 18,630 1,000 $17,630 PROBLEM 1-2A (Continued) MARIA GONZALEZ, VETERINARIAN Balance Sheet September 30, 2008 Assets Cash ......................................................................................................... Accounts receivable ........................................................................... Supplies .................................................................................................. Office equipment.................................................................................. Total assets................................................................................... Liabilities and Owner’s Equity Liabilities Notes payable............................................................................... Accounts payable ....................................................................... Total liabilities..................................................................... Owner’s equity M. Gonzalez, Capital................................................................... Total liabilities and owner’s equity .............................. 1-24 $15,200 5,900 600 8,100 $29,800 $10,000 2,170 12,170 17,630 $29,800 PROBLEM 1-3A (a) SKYLINE FLYING SCHOOL Income Statement For the Month Ended May 31, 2008 Revenues Lesson revenue .................................................... Expenses Fuel expense......................................................... Rent expense ........................................................ Advertising expense........................................... Insurance expense.............................................. Repair expense..................................................... Total expenses ............................................ Net income...................................................................... $7,500 $2,500 1,200 500 400 400 5,000 $2,500 SKYLINE FLYING SCHOOL Owner’s Equity Statement For the Month Ended May 31, 2008 Jeff Wilkins, Capital, May 1 ....................................... Add: Investments....................................................... Net income......................................................... $ $45,000 2,500 Less: Drawings ............................................................ Jeff Wilkins, Capital, May 31..................................... 0 47,500 47,500 1,500 $46,000 SKYLINE FLYING SCHOOL Balance Sheet May 31, 2008 Assets Cash ......................................................................................................... Accounts receivable........................................................................... Equipment.............................................................................................. Total assets .................................................................................. 1-25 $ 5,600 7,200 64,000 $76,800 PROBLEM 1-3A (Continued) SKYLINE FLYING SCHOOL Balance Sheet (Continued) May 31, 2008 Liabilities and Owner’s Equity Liabilities Notes payable............................................................................... Accounts payable ....................................................................... Total liabilities..................................................................... Owner’s equity Jeff Wilkins, Capital.................................................................... Total liabilities and owner’s equity .............................. (b) $30,000 800 30,800 46,000 $76,800 SKYLINE FLYING SCHOOL Income Statement For the Month Ended May 31, 2008 Revenues Lesson revenue ($7,500 + $900)..................... Expenses Fuel expense ($2,500 + $1,500) ...................... Rent expense........................................................ Advertising expense .......................................... Insurance expense ............................................. Repair expense .................................................... Total expenses............................................ Net income ..................................................................... $8,400 $4,000 1,200 500 400 400 6,500 $1,900 SKYLINE FLYING SCHOOL Owner’s Equity Statement For the Month Ended May 31, 2008 Jeff Wilkins, Capital, May 1....................................... Add: Investments ...................................................... Net income ....................................................... Less: Drawings ........................................................... Jeff Wilkins, Capital, May 31 .................................... 1-26 $ $45,000 1,900 0 46,900 46,900 1,500 $45,400 $10,000) (2,000) (500) June 1 2 3 5 9 12 15 17 20 23 26 29 30 1-27 = MILLER DELIVERIES Liabilities + Owner’s Equity (1,250) ($3,150) 1,500) (500) (250) (100) (1,000) ($ 8,200) + ($4,400) + $150 $150 (500) ($10,000) + $12,000 = ($ 9,500) + $12,000 ($150) ) (100) ( 100) ($150) Utilities Expense Salaries Expense Gasoline Expense Service Revenue Rent Expense Service Revenue Drawings (250) (100) 1,500) (500) 4,400) (200) Investment (1,000) + ( $13,850) ( ( ($10,000) Accounts Delivery Notes Accounts M. Miller, + Receivable + Supplies + Van = Payable + Payable + Capital Assets 1,250) (200) Cash Date (a) PROBLEM 1-4A PROBLEM 1-4A (Continued) (b) MILLER DELIVERIES Income Statement For the Month Ended June 30, 2008 Revenues Service revenue ($4,400 + $1,500)....................... Expenses Salaries expense ....................................................... Rent expense.............................................................. Utilities expense........................................................ Gasoline expense ..................................................... Total expenses.................................................. Net income ........................................................................... (c) $5,900 $1,000 500 250 100 1,850 $4,050 MILLER DELIVERIES Balance Sheet June 30, 2008 Assets Cash ......................................................................................................... Accounts receivable ........................................................................... Supplies .................................................................................................. Delivery van ........................................................................................... Total assets................................................................................... Liabilities and Owner’s Equity Liabilities Notes payable............................................................................... Accounts payable ....................................................................... Total liabilities..................................................................... Owner’s equity M. Miller, Capital.......................................................................... Total liabilities and owner’s equity .............................. 1-28 $ 8,200 3,150 150 12,000 $23,500 $ 9,500 150 9,650 13,850 $23,500 PROBLEM 1-5A (a) (b) Karma Company (a) $ 45,000 (b) 115,000 (c) 10,000 Yates Company (d) $50,000 (e) 62,000 (f) 48,000 McCain Company (g) $120,000 (h) 70,000 (i) 431,000 Dench Company (j) $ 80,000 (k) 250,000 (l) 435,000 YATES COMPANY Owner’s Equity Statement For the Year Ended December 31, 2008 Capital, January 1 ....................................................... Add: Investment ....................................................... Net income....................................................... Less: Drawings .......................................................... Capital, December 31 ................................................ $ 60,000 $15,000 35,000 50,000 110,000 48,000 $ 62,000 (c) The sequence of preparing financial statements is income statement, owner’s equity statement, and balance sheet. The interrelationship of the owner’s equity statement to the other financial statements results from the fact that net income from the income statement is reported in the owner’s equity statement and ending capital reported in the owner’s equity statement is the amount reported for owner’s equity on the balance sheet. 1-29 1-30 10. 9. – +4,000 +$10,800 6,800 + + + +–4,000 +$2,500 + 6,500 + 6,500 + 0,000 + 9,000 + –2,200 + + 0,000 –300 + $16,400 + + + + +0000 +$600 + 600 + 600 +0000 +0000 + 600 +0000 + 600 8. + + 7. + + 6,500 + 0,000 + 6,500 9,500 –200 9,300 + + + + + + + + + +00,000 +$2,500 + 2,500 + 2,500 +00,000 +00,000 + 2,500 +00,000 + 2,500 + 2,500 +00,000 = = = = = = +0000 +$ 0 + 0 +0000 +–300 + 300 +0000 + 300 + 300 +0000 9,600 –300 +000,000 +$16,400 + 16,400 + 18,600 + –2,200 +000,000 + 18,800 + –200 + 18,600 + 9,300 – +9,500 + 9,300 +000,000 + + $16,400 + + + + + 600 +0000 +$6,500 6. + +$600 + = + 300 +0000 + 6,500 – +3,000 + 2,500 +00,000 5. + 7,100 –600 + + = +$300 + 2,500 +00,000 4. + 9,600 +000,000 +$2,500 + = + 7,100 +000,000 Jenny Russo, Capital 3. + + 9,600 + –2,500 Accounts Payable 2. = Office + Equipment = + 10,000 + –400 Supplies +$10,000 + + 10,000 + –400 + MATRIX TRAVEL AGENCY +$10,000 Cash Accounts Receivable 1. (a) Salaries Exp. Drawings Serv. Revenue Adv. Expense Rent Expense Investment PROBLEM 1-1B PROBLEM 1-1B (Continued) (b) Ending capital........................................................................................ Add: Drawings..................................................................................... Deduct: Investments ......................................................................... Net income.............................................................................................. $16,400 200 16,600 10,000 $ 6,600 OR Service revenue ............................................................... Expenses Salaries ...................................................................... Rent ............................................................................. Advertising ............................................................... Net income....................................................... 1-31 $9,500 $2,200 400 300 2,900 $6,600 1-32 8. 7. 6. 5. 4. 3. 2. Bal. 1. (a) $6,100 $2,300 + 00,000 6,100 00,000 00,000 + 2,300 6,100 +2,000 00,000 + 6,100 00,000 6,100 00,000 300 + + –750 1,050 –4,250 5,300 –400 6,100 + 5,700 100 +6,000 + +3,000 2,700 100 00,000 + 5,400 $1,500 –1,400 –2,700 + Cash $4,000 +1,400 $14,900 + + + + + + + + + $500 0000 500 0000 500 0000 500 0000 500 0000 500 0000 500 0000 500 $500 0000 + + + + + + + + + $6,000 00,000 6,000 00,000 6,000 00,000 6,000 00,000 6,000 +1,000 5,000 00,000 5,000 00,000 5,000 $5,000 00,000 +$2,000 = +$2,000 + +00,000 = + 2,000 + = = = = = = = $14,900 $2,350 +250 2,100 00,000 2,100 00,000 2,100 00,000 2,100 +600 1,500 00,000 1,500 –2,700 4,200 $4,200 00,000 + + + + + + + + + Accounts Office Notes Accounts + Receivable + Supplies + Equipment = Payable + Payable + CINDY BELTON, ATTORNEY AT LAW $10,550 –250 10,800 000,000 10,800 –750 11,550 –350 –900 –3,000 15,800 000,000 15,800 +9,000 6,800 000,000 6,800 $ 6,800 000,000 Cindy Belton, Capital Utilities Expense Drawings Advertising Expense Rent Expense Salaries Expense Service Revenue PROBLEM 1-2B PROBLEM 1-2B (Continued) (b) CINDY BELTON, ATTORNEY AT LAW Income Statement For the Month Ended August 31, 2008 Revenues Service revenue ..................................................... Expenses Salaries expense.................................................... Rent expense .......................................................... Advertising expense............................................. Utilities expense..................................................... Total expenses .............................................. Net income........................................................................ $9,000 $3,000 900 350 250 4,500 $4,500 CINDY BELTON, ATTORNEY AT LAW Owner’s Equity Statement For the Month Ended August 31, 2008 Cindy Belton, Capital, August 1...................................................... Add: Net income................................................................................ Less: Drawings ................................................................................... Cindy Belton, Capital, August 31 ................................................... 1-33 $ 6,800 4,500 11,300 750 $10,550 PROBLEM 1-2B (Continued) CINDY BELTON, ATTORNEY AT LAW Balance Sheet August 31, 2008 Assets Cash ......................................................................................................... Accounts receivable ........................................................................... Supplies .................................................................................................. Office equipment.................................................................................. Total assets................................................................................... Liabilities and Owner’s Equity Liabilities Notes payable............................................................................... Accounts payable ....................................................................... Total liabilities..................................................................... Owner’s equity Cindy Belton, Capital ................................................................. Total liabilities and owner’s equity .............................. 1-34 $ 2,300 6,100 500 6,000 $14,900 $ 2,000 2,350 4,350 10,550 $14,900 PROBLEM 1-3B (a) DIVINE COSMETICS CO. Income Statement For the Month Ended June 30, 2008 Revenues Service revenue ................................................... Expenses Supplies expense ................................................ Gas and oil expense ........................................... Advertising expense........................................... Utilities expense................................................... Total expenses ............................................ Net income...................................................................... $6,000 $1,600 800 500 300 3,200 $2,800 DIVINE COSMETICS CO. Owner’s Equity Statement For the Month Ended June 30, 2008 Michelle Bullock, Capital, June 1 ............................ Add: Investments....................................................... Net income......................................................... $ $26,200 2,800 Less: Drawings ............................................................ Michelle Bullock, Capital, June 30 .......................... 0 29,000 29,000 1,200 $27,800 DIVINE COSMETICS CO. Balance Sheet June 30, 2008 Assets Cash ......................................................................................................... Accounts receivable........................................................................... Cosmetic supplies............................................................................... Equipment.............................................................................................. Total assets .................................................................................. 1-35 $11,000 4,000 2,000 25,000 $42,000 PROBLEM 1-3B (Continued) DIVINE COSMETICS CO. Balance Sheet (Continued) June 30, 2008 Liabilities and Owner’s Equity Liabilities Notes payable............................................................................... Accounts payable ....................................................................... Total liabilities..................................................................... Owner’s equity Michelle Bullock, Capital .......................................................... Total liabilities and owner’s equity .............................. (b) $13,000 1,200 14,200 27,800 $42,000 DIVINE COSMETICS CO. Income Statement For the Month Ended June 30, 2008 Revenues Service revenue ($6,000 + $800) .................... Expenses Supplies expense................................................ Gas and oil expense ($800 + $100)................ Advertising expense .......................................... Utilities expense.................................................. Total expenses............................................ Net income ..................................................................... $6,800 $1,600 900 500 300 3,300 $3,500 DIVINE COSMETICS CO. Owner’s Equity Statement For the Month Ended June 30, 2008 Michelle Bullock, Capital, June 1............................ Add: Investments ...................................................... Net income ........................................................ Less: Drawings............................................................ Michelle Bullock, Capital, June 30 ......................... 1-36 $ $26,200 3,500 0 29,700 29,700 1,200 $28,500 ($ 8,000) (800) May 1 2 3 5 9 12 15 17 20 23 26 29 30 1-37 Assets = Liabilities GELLER CONSULTING + Owner’s Equity ($2,300) (3,000) ($5,300) + $500 $500 + $2,800 $2,800 (500) (50) ( 3,000) (700) (5,300) (3,000) (2,800) ( (150) = $5,000 + ($2,800) + ($11,600) $5,000 ($ 500) ($ 8,000) (800) Accounts Office Notes Accounts L. Geller, + Receivable + Supplies + Equipment = Payable + Payable + Capital (150) ($13,800) + (3,000) (500) (3,000) (5,000) (50) (3,000) (700) Cash Date (a) Utilities Expense Advertising Expense Service Revenue Drawings Service Revenue Salaries Expense Investment Rent Expense PROBLEM 1-4B PROBLEM 1-4B (Continued) (b) GELLER CONSULTING Income Statement For the Month Ended May 31, 2008 Revenues Service revenue ($3,000 + $5,300)................... Expenses Salaries expense ................................................... Rent expense.......................................................... Utilities expense.................................................... Advertising expense ............................................ Total expenses.............................................. Net income ....................................................................... (c) $8,300 $3,000 800 150 50 4,000 $4,300 GELLER CONSULTING Balance Sheet May 31, 2008 Assets Cash ......................................................................................................... Accounts receivable ........................................................................... Supplies .................................................................................................. Office equipment.................................................................................. Total assets................................................................................... Liabilities and Owner’s Equity Liabilities Notes payable............................................................................... Accounts payable ....................................................................... Total liabilities..................................................................... Owner’s equity L. Geller, Capital.......................................................................... Total liabilities and owner’s equity .............................. 1-38 $13,800 2,300 500 2,800 $19,400 $ 5,000 2,800 7,800 11,600 $19,400 PROBLEM 1-5B (a) (b) McKane Company (a) $30,000 (b) 95,000 (c) 5,000 Selara Company (d) $40,000 (e) 45,000 (f) 28,000 Gordon Company (g) $124,000 (h) 80,000 (i) 413,000 Hindi Company (j) $ 50,000 (k) 225,000 (l) 460,000 McKANE COMPANY Owner’s Equity Statement For the Year Ended December 31, 2008 Capital, January 1 ......................................................... Add: Investment ......................................................... Net income......................................................... Less: Drawings ............................................................ Capital, December 31 .................................................. $30,000 $ 5,000 15,000 20,000 50,000 10,000 $40,000 (c) The sequence of preparing financial statements is income statement, owner’s equity statement, and balance sheet. The interrelationship of the owner’s equity statement to the other financial statements results from the fact that net income from the income statement is reported in the owner’s equity statement and ending capital reported in the owner’s equity statement is the amount reported for owner’s equity on the balance sheet. 1-39