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Problem 1-7A Analyzing transactions and preparing financial statements LO C4, P1, P2

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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 $40,000 cash in the company in exchange for its common stock.
		1		The company rented a furnished office and paid $2,200 cash for May’s rent.
		3		The company purchased $1,890 of office equipment on credit.
		5		The company paid $750 cash for this month’s cleaning services.
		8		The company provided consulting services for a client and immediately collected $5,400 cash.
		12		The company provided $2,500 of consulting services for a client on credit.
		15		The company paid $750 cash for an assistant’s salary for the first half of this month.
		20		The company received $2,500 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 $1,890 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 $750 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		The company paid $1,400 cash in dividends to the owner (sole shareholder).

Problem 1-7A Part 2 and 3

2.1 Prepare income statement for May.

2.2 Prepare statement of retained earnings for May.

2.3 Prepare Balance Sheet for May 31.

3. Prepare statement of cash flows for May. (Cash outflows should be indicated with a minus sign.)

Answer 1

2.1 Prepare income statement as follows: А В G Company 1 2 Income Statement 3 For the Year Ended May 31 4 Revenues 5 Less: Expense for rent 6 Expenses for salaries 7 Expenses for cleaning 8 Expenses for telephone 9 Expenses for utilities 10 Expenses for advertising 11 Net Income $11,100 ($2,200) ($1,500) (S750) (S300) ($280) (S80) $5.990 2.2 Prepare statement of retained earnings as follows: В 1 G Company Statement of Retained Earnings For the month ended May 31 2 3 4 Retained earnings as on May 1 S0 $5,990 ($1,400) $4,590 5 Add: Net Income 6 Less: Dividend 7 Retained earnings as on May 31

2.3 Prepare balance sheet as follows: в C G Company Balance Sheet 2 3 For the Year Ended XXXX Liabilities & Equity $42,780 Accounts payable 4 Assets Amount Amount 5 Cash $80 6 Office Equipment $1,890 Common Stock $40,000 |Retained Earnings S44,670 Total Liabilities & Equity |$44,670 7 S4,590 8 Total assets

Working Note: Prepare cash account as follows: В C D Cash A/c 1 Debit Credit 2 Amount Amount |$40,000 Rent S5,400 Cleaning services S2,500 Assistant salary $3,200 Equipment Salay Telephone bill Utilities $42,780 Dividend $2,200 $750 $750 S1,890 3 Commo stock 4 Consulting services 5 Consulting services 6 Consulting services $750 7 $300 $280 $1,400 10 Balance CO

2.4 Prepare cash flow statement as follows: B A C G Company Cash Flow Statement For the Month Ended May 31 1 2 3 4 Flow of cash flow from activities (operating) 5 Receipt of cash from customer 6 Payment of rent in cash 7 Payment made for cleaning 8 Payment made for telephone expenses 9 Payment made for utilities 10 Payment made to employees in cash 11 Net utilization of cash by operating activities $11,100 ($2,200) _ ($750) ($300) ($280) ($1,500) $6,070 12 13 Cash flow from investing activities 14 Purchase of Equipment for office use 15 Net cash outflow due to investing activities ($1,890) ($1,890) 16 17 Cash flow from financing activities 18 Investment made by the owner 19 Dividend paid in cash 20 beginning cash balance 21 Net change in cash 22 Beginning cash balance 23 Ending cash balance $40,000 ($1,400) $38,600 $42,780 $42,780