Question

Gabi Gram started The Gram Co., a new business that began operations on May 1. The Gram Co. completed the following transactions during its first month of operations.

May		1		G. Gram invested $44,500 cash in the company.
		1		The company rented a furnished office and paid $2,600 cash for May’s rent.
		3		The company purchased $4,790 of office equipment on credit.
		5		The company paid $770 cash for this month’s cleaning services.
		8		The company provided consulting services for a client and immediately collected $6,000 cash.
		12		The company provided $2,700 of consulting services for a client on credit.
		15		The company paid $780 cash for an assistant’s salary for the first half of this month.
		20		The company received $2,700 cash payment for the services provided on May 12.
		22		The company provided $3,200 of consulting services on credit.
		25		The company received $3,200 cash payment for the services provided on May 22.
		26		The company paid $4,790 cash for the office equipment purchased on May 3.
		27		The company purchased $80 of advertising in this month’s (May) local paper on credit; cash payment is due June 1.
		28		The company paid $780 cash for an assistant’s salary for the second half of this month.
		30		The company paid $300 cash for this month’s telephone bill.
		30		The company paid $280 cash for this month’s utilities.
		31		G. Gram withdrew $1,600 cash from the company for personal use.

Prepare income statement for May.

Prepare statement of owner's equity for May.

Prepare Balance Sheet for May 31.

Prepare statement of cash flows for May.

Answer 1

The Gram Co. Income Statement For the Month Ended May 31 Revenues 11,900 Service Revenue Expenses Rent expense Salaries expense Office expenses Telephone expense Utilities expense Advertising expense Total Expenses Net Income 2,600 1,560 770 300 280 80 5,590 6,310 Statement of Owners Equity For the Month Ended May 31 Capital, May 1 Add: Investments Add: Net Income 44,500 6,310 50,810 50,810 (1,600) 49,210 Less: Withdrawals Capital, May 31

The Gram Co. Balance Sheet As of May 31 Assets Current Assets Cash Liabilities & Equity Liabilities 44,500 Accounts Payable 80 Property, Plant & Equipment Office Equipment Total Assets Equity 4,790 Capital 49,290 Total Liabilities & Equity 49,210 49,290

Cashflows - Indirect Method

The Gram Co. Cashflow Statement - Indirect method For the Month Ended May 31 Cash flows from from Operating Activities Net income Increase in Accounts Payable Net Cash Provided/(Used) by Operating Activities 6,310 80 6,390 Cash flows from from Investing Activities Purchase of Office Equipment Net Cash Provided/(Used) by Investing Activities (4,790) (4,790) 44,500 (1,600) Cash flows from from Financing Activities Capital invested Withdrawals made Net Cash Provided/(Used) by Financing Activities Net Change in Cash Cash at May 1 Cash at May 31 42,900 44,500 44,500

Cashflows - Direct Method

The Gram Co. Cashflow Statement - Direct method For the Month Ended May 31 11,900 Cash flows from from Operating Activities Cash received from customers Cash payments Cash paid for rent Cash paid for salaries Cash paid for cleaning expenses Cash paid for telephone Cash paid for utilites Total cash payments Net Cash Provided/(Used) by Operating Activities 2,600 1,560 770 300 280 5,510 6,390 Cash flows from from Investing Activities Purchase of Office Equipment Net Cash Provided/(Used) by Investing Activities (4,790) (4,790) 44,500 (1,600) Cash flows from from Financing Activities Capital invested Withdrawals made Net Cash Provided/(Used) by Financing Activities Net Change in Cash Cash at May 1 Cash at May 31 42,900 44,500 44,500

Workings

The Gram Co. Journal entries Date Account 1-May Cash Capital Debit $ 44,500 $ 44,500 $ 2,600 1-May Rent expense Cash $ 2,600 $ 4,790 3-May Office Equipment Accounts Payable $ 4,790 $ 770 5-May Office expenses Cash $ 770 $ 6,000 8-May Cash Service Revenue $ 6,000 $ 2,700 12-May Accounts Receivable Service Revenue $ 2,700 $ 780 15-May Salaries expense Cash $ 780 $ 2,700 20-May Cash Accounts Receivable $ 2,700 $ 3,200 22-May Accounts Receivable Service Revenue $ 3,200 $ 3,200 25-May Cash Accounts Receivable $ 3,200 $ 4,790 26-May Accounts Payable Cash $ 4,790 $ 80 27-May Advertising expense Accounts Payable $ 80 $ 780 28-May Salaries expense Cash $ 780 $ 300 30-May Telephone expense Cash $ 300 $ 280 30-May Utilities expense Cash $ 280 $ 1,600 31-May Withdrawals Cash $ 1,600

The Gram Co. T Accounts Date Debit Date Credit Date Date Credit Date Cash Debit Date Credit Accounts Receivable $ 2,700 20-May $ 2,700 $ 3,200 25-May $ 3,200 Debit Date Office Equipment $ 4,790 Debit Date Credit Accounts Payable $ 4,790 3-May $ 4,790 27-May $ 80 3-May 12-May 22-May 26-May 1-May $ 44,500 8-May $ 6,000 20-May $ 2,700 25-May $ 3,200 1-May 5-May 15-May 26-May 28-May 30-May 30-May 31-May $ $ $ $ $ $ $ $ 2,600 770 780 4,790 780 300 280 1,600 Bal. Bal. $ Bal. $ 4,790 Bal. $ 80 $ 44,500 Capital 1-May Withdrawals $ 1,600 $ 44,500 31-May $ 44,500 Bal. Bal. Service Revenue 8-May 12-May 22-May $ 1,600 Rent expense $ 2,600 1-May Salaries expense 15-May $ 780 28-May $ 780 5-May Office expenses $ 770 $ 6,000 $ 2,700 $ 3,200 $ 11,900 Bal. Bal $ 770 Bal. Telephone expense $ 300 $ 2,600 Utilties expenses $ 280 Bal. $ 1,560 Advertising expense 27-May $ 80 30-May 30-May Bal. $ 300 Bal. $ 280 Bal. $ 80

Trial Balance Debit Credit 44,500 4,790 80 44,500 1,600 The Gram Co. Account Names Cash Accounts Receivable Office Equipment Accounts Payable Capital Withdrawals Service Revenue Rent expense Salaries expense Office expenses Telephone expense Utilities expense Advertising expense Totals 11,900 2,600 1,560 770 300 280 80 56,480 56,480