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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 $43,000 cash in the company in exchange for its common stock.
		1		The company rented a furnished office and paid $2,300 cash for May’s rent.
		3		The company purchased $1,880 of office equipment on credit.
		5		The company paid $730 cash for this month’s cleaning services.
		8		The company provided consulting services for a client and immediately collected $5,100 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 $3,300 of consulting services on credit.
		25		The company received $3,300 cash payment for the services provided on May 22.
		26		The company paid $1,880 cash for the office equipment purchased on May 3.
		27		The company purchased $85 of office equipment on credit.
		28		The company paid $780 cash for an assistant’s salary for the second half of this month.
		30		The company paid $350 cash for this month’s telephone bill.
		30		The company paid $260 cash for this month’s utilities.
		31		The company paid $1,800 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

Part 2 A

THE GRAM CO. INCOME STATEMENT For Month Ended May 31
Revenues
Consulting services revenue		11100
Expenses
Rent expense	2300
Salaries expense	1560
Cleaning expense	730
Telephone expense	350
Utilities expense	260
Total expense		-5200
Net income		5900

Consulting services revenue = 5100+2700+3300 = 11100

Salaries expense = 780*2 = 1560

Part 2 B

THE GRAM CO. STATEMENT OF RETAINED EARNINGS For Month Ended May 31
Retained earnings - May 1	0
net income	5900
	5900
Dividends	-1800
Retained earnings - May 31	$4100

Part 2 C

THE GRAM CO. BALANCE SHEET May 31
Asset		Liabilities
Cash	45220	Accounts payable	85
Office equipment	1965
		Equity
		Common stock	43000
		Retained earnings	4100
	47185		47185

Office equipment = 85+1880 = 1965

Cash = 11100-2300-730-350-260-1560-1880+43000-1800 = 42780

Part 3

THE GRAM CO. Statement of Cash Flows For Month Ended May 31
Cash flows from operating activities
Cash received from customers	11100
Cash paid for rent	-2300
Cash paid for cleaning	-730
Cash paid for telephone	-350
Cash paid for utilities	-260
Cash paid to employees	-1560
Net cash provided by operating activities		5900
Cash flows from investing activities
Purchase of equipment	-1880
Net cash used by investing activities		-1880
Cash flows from financing activities
Investment by owner	43000
Withdrawal by owner	-1800
Net cash provided by financing activities		41200
Net increase in cash		45220
Cash balance, May 1		0
Cash balance, May 31		45220