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 $41,000 cash in the company in exchange for its common stock.

1 The company rented a furnished office and paid $2,600 cash for May's rent.

3 The company purchased $1,940 of office equipment on credit.

5 The company paid $740 cash for this month's cleaning services.

8 The company provided consulting services for a client and immediately collected $5,200 cash.

12 The company provided $2,600 of consulting services for a client on credit.

15 The company paid $720 cash for an assistant's salary for the first half of this month.

20 The company received $2,600 cash payment for the services provided on May 12 .

22 The company provided $3,400 of consulting services on credit.

25 The company received $3,400 cash payment for the services provided on May 22 .

26 The company paid $1,940 cash for the office equipment purchased on May 3 .

27 The company purchased $80 of office equipment on credit.

28 The company paid $720 cash for an assistant's salary for the second half of this month.

30 The company paid $400 cash for this month's telephone bill.

30 The company paid $270 cash for this month's utilities.

31 The company paid $1,400 cash in dividends to the owner (sole shareholder).

2-a. Prepare income statement for May.

2-b. Prepare statement of retained earnings for May.

2-c. Prepare balance sheet for May 31 .

3. Prepare statement of cash flows for May.

Answer 1

2-a) Income Statement

THE GRAM CO.
Income Statement
For Month Ended May 31
Revenues:
Consulting fees revenue ($5200+2600+3400)		$11200
Expenses:
Salary expense ($720+720)	1440
Cleaning expense	740
Telephone expense	400
Utilities expense	270
Rent expense	2600
Total expenses		5450
Net income		$5750

2-b) Statement of Retained Earnings

THE GRAM CO.
Statement of Retained earnings
For Month Ended May 31
Retained earnings, May 1	$0
Add: Net income	5750
	5750
Less: Dividends	-1400
Retained earnings, May 31	$4350

2-c) Balance Sheet

THE GRAM CO.
Balance Sheet
May 31
Assets		Liabilities
Cash	$43410	Accounts payable	$80
Accounts receivable	0
Office equipment	2020	Equity
		Common stock	41000
		Retained earnings	4350
Total assets	$45430	Total liabilities and equity	$45430

Cash= $41000-2600-740+5200-720+2600+3400-1940-720-400-270-1400= $43410

Accounts receivable= $2600-2600+3400-3400= $0

Office equipment= $1940+80= $2020

Accounts payable= $1940-1940+80= $80

Common stock= $41000

3) Cash Flow Statement

THE GRAM CO.
Statement of Cash Flows
For Month Ended May 31
Cash flow from Operating activities:
Cash received from customers ($5200+2600+3400)	$11200
Cash paid for rent	-2600
Cash paid for cleaning services	-740
Cash paid to employees (720+720)	-1440
Cash paid for telephone	-400
Cash paid for utilities	-270
Net cash provided by operating activities		$5750
Cash flow from Investing activities:
Purchase of office equipment	-1940
Net cash used in investing activities		-1940
Cash flow from financing activities:
Investment by shareholder	41000
Dividend paid	-1400
Net cash provided by financing activities		39600
Net increase (decrease) in cash ($5750-1940+39600)		$43410
Add: Beginning cash balance		0
Ending cash balance		$43410