Question

Jennifer White recently formed Southwest Land Design to fill a need for designing, installing and maintaining natural, desert oriented residential landscaping. In January of this year, its first month of operations, the following transactions occurred.

1. White invests $200,000 of her own money into the company. 2. Purchased an office building for $150,000 in cash. The building is valued at $110,000, and the remainder of the value is assigned to the land.

3. Signed a three-year promissory note at the bank for $125,000.

4. Purchased office equipment at a cost of $50,000, paying $10,000 down and agreeing to pay the remainder in 10 days.

5. Paid wages and salaries of $13,000 for the first half of the month. Office employees are paid twice per month.

6. Paid the balance on the office equipment from transaction #4.

7. Sold $54,000 of advertising during the first month. Customers have until the 15th of the following month to pay their bills.

8. Paid wages and salaries of $15,000 for the second half of the month.

9. Recorded $3,500 in commissions earned by the sales people during the month. They will be paid on the fifth of the following month.

10. White draws $10,000 from the company as her salary for the month.

Complete the accounting equation worksheet for transactions 1-10.

Total the worksheet and verify that Assets = Liabilities + Equity.

AND

In proper order and form, prepare an income statement, statement of owner’s equity

and balance sheet.

Southwest Land Design

Transactions for January

ASSETS

LIABILITIES

EQUITY

Accounts

Office

Accounts

Commissions

Notes

#

Cash

Receivable

Land

Equipment

Building

=

Payable

Payable

Payable

+

Amount

Description

1.

=

+

2.

=

+

3.

=

+

4.

=

+

5.

=

+

6.

=

+

7.

=

+

8.

=

+

9.

=

+

10.

=

+

Totals

=

+

Answer 1

	ASSETS						LIABILITIES				EQUITY
		Accounts		Office			Accounts	Commissions	Notes
#	Cash	Receivable	Land	Equipment	Building	=	Payable	Payable	Payable	+	Amount	Description
1.	200000					=				+	200000	Owner brings in capital in the form of cash
2.	-150000		40000		110000	=				+		Company buys land and buildings for cash
3.	125000					=			125000	+		Borrows on signing promissory note
4.	-10000			50000		=	40000			+		Purchases office equipment by paying cash for $10000 and on account for the balance.
5.	-13000					=				+	-13000	Pays wages for the first half of the month
6.	-40000					=	-40000			+		Settles accounts payable
7.		54000				=				+	54000	Renders advertising services on account
8.	-15000					=				+	-15000	Pays wages for the second half of the month
9.						=		-3500		+	-3500	Employees earn commissions for the month; to be paid in the following month
10.	-10000					=				+	-10000	White withdraws cash as salary for the month
	87000	54000	40000	50000	110000		0	-3500	125000		212500
	Accounting equation: Assets = Liabilities+Equity
	Assets = 87000+54000+40000+50000+110000 =				341000
	Liabilities = 3500+125000+212500 =				341000

INCOME STATEMENT
Service revenue		54000
Expenses:
Wages	28000
Sales commission	3500
Salary to White	10000
Total expenses		41500
Net income		12500
STATEMENT OF OWNER'S EQUITY
Beginning balance		0
Cash brought in	200000
Net income	12500	212500
Ending balance		212500
BALANCE SHEET
ASSETS
Current Assets:
Cash	87000
Accounts receivable	54000
Total current assets		141000
Non-current assets:
Equipment	50000
Buildings	110000
Land	40000
Total non-current assets		200000
Total assets		341000
TOTAL LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Accounts payable	0
Commissions payable	3500
Total current liabilities		3500
Long term notes payable		125000
Total liabilities		128500
Owner's equity		212500
Total liabilities and owner's equity		341000