Question

Problem 3-2 problem 3-8

lers Billed in (3) Cash is deposited in the bank night depositony 6. Employees are paid weekly paychecks Vendors noted in (2) are paid for the supplies delivered 8. Required Idend not be recorded in the accounts of the company. For each event identify the names of at least two accounts that would be affected. each event as internal (I) or external (E) and indicate whether each event would or i ccounts of the company. For each event that is to be recorded, Problem 3-2 Transaction Analysis and Financial Statements LO3 st Roll ing Along Inc. was organized on May 1 by two college students who recognized an Ju ortunity to make money while spending their days at a beach along Lake Michigan. The two repreneurs plan to rent bicycles and in-line skates to weekend visitors to the lakefront. The following transactions occurred during the first month of operations: Received contribution of $9,000 from each of the two principal owners of the new business in exchange for shares of stock. Purchased ten bicycles for $300 each on an open account. The company has 30 days to pay for the bicycles Registered as a vendor with the city and paid the $15 monthly fee Purchased 20 pairs of in-line skates at $125 per pair, 20 helmets at $50 each, and 20 sets of protective gear (knee and elbow pads and wrist guards) at $45 per set for cash. Purchased $100 in miscellaneous supplies on account. The company has 30 days to pay for the supplies Paid $125 bill from local radio station for advertising for the last two weeks of May Customers rented in-line skates and bicycles for cash of $1,800 Billed the local park district $1,200 for in-line skating lessons provided to neighborhood children. The park district is to pay one-half of the bill within five working days and the rest within 30 days ay 1: May 1: May 5: May 9: May 10: May 15: May 17: May 24: May 29: Received 50% of the amount billed to the park district. May 30: Customers rented in-line skates and bicycles for cash of $3,000 May 30: Paid wages of $160 to a friend who helped over the weekend. May 31: Paid the balance due on the bicycles Required a table to summarize the preceding transactions as they affect the accounting equa tion. Use the format in Exhibit 3-1. Identify each transaction with the date Prepare an income statement for the month of May Prepare a classified balance sheet at May 31 Why do you think the two college students decided to incorporate their business rather than operate it as a partnership? 2. Problem 3-3 Transaction Analysis and Financial Statements Expert Consulting Services Inc. was organized on March 1 by two former college roommates. The corporation provides computer consulting services to small businesses. The following trans- actions occurred during the first month of operations: March 2: Received contributions of $20,000 from each of the two principal owners of the in eychange for shares of stock.

Answer 1

Problem 3-8

Ques 1

	Assets				=	Laibilites	Equity
Date	Cash	Accounts receivable	Equpment	Supplies	=	Accounts payable	Capital stock	Retained earnings
05-Jan	$     18,000				=		$          18,000
05-Jan			$          3,000		=	$          3,000
Bal.	$     18,000		$          3,000		=	$          3,000	$          18,000
05-May	$           (15)				=			$              (15)
Bal.	$     17,985		$          3,000		=	$          3,000	$          18,000	$              (15)
05-Sep	$     (4,400)		$          4,400		=
Bal.	$     13,585		$          7,400		=	$          3,000	$          18,000	$              (15)
05-Oct				$          100	=	$              100
Bal.	$     13,585		$          7,400	$          100	=	$          3,100	$          18,000	$              (15)
May-15	$        (125)				=			$           (125)
Bal.	$     13,460		$          7,400	$          100	=	$          3,100	$          18,000	$           (140)
May-17	$       1,800				=			$          1,800
Bal.	$     15,260		$          7,400	$          100	=	$          3,100	$          18,000	$          1,660
May-24		$    1,200			=			$          1,200
Bal.	$     15,260	$    1,200	$          7,400	$          100	=	$          3,100	$          18,000	$          2,860
May-29	$           600	$      (600)			=
Bal.	$     15,860	$        600	$          7,400	$          100	=	$          3,100	$          18,000	$          2,860
May-30	$       3,000				=			$          3,000
Bal.	$     18,860	$        600	$          7,400	$          100	=	$          3,100	$          18,000	$          5,860
May-30	$        (160)				=			$           (160)
Bal.	$     18,700	$        600	$          7,400	$          100	=	$          3,100	$          18,000	$          5,700
May-31	$     (3,000)				=	$        (3,000)
Bal.	$     15,700	$        600	$          7,400	$          100	=	$              100	$          18,000	$          5,700

Ques 2:

Just Rolling Along Inc.
Income Statement
Transactions for the month ending May 31, 2007
Revenues:
Rental Fees	$4,800
Lessons	1,200
Total revenues		$6,000
Expenses:
Registration Fee	15
Advertising	125
Salaries and Wages	160
Total expenses		300
Net income		5,700

Ques 3

Balance sheet
Current assets:
Cash	$15,700
Accounts receivable	600
Supplies	100
Total Current Assets		$16,400
Property, plant, and equipment:
Land		7,400
Total Assets		$23,800
Liabilities
Current Liabilities:
Accounts Payable	$100
Total liabilities		$100
Stockholders’ Equity
Capital stock	$18,000
Retained Earnings	5,700
Total stockholders’ equity		$23,700
Total liabilities and stockholders’ equity		$23,800

Ques 4

Incorporating a business limits the liability of the stockholders’ and liability could be a concern that the two college students due to the business they are in. In this business they will each only be responsible for the amounts they have invested into the business which is $9,000 each.

Problem 3-8

	Accounts	Accounts
	Debited	Credited	General jounral
a.	1	10	cash (Dr.)
			Common stock (cr.)
b.	5	1, 9	Automobiles
			Cash
			Notes payable
c.	6	9	Land
			Notes payable
d.	3	7	Office supplies
			Accounts payable
e.	2	12	Accounts receivable
			service revenue
f.	1	2	Cash
			Accounts receivable
g.	13	1	Wages and salaries expense
			cash
h.	14	1	SELLING expense
			cash
i.	15	7	Utilties expense
			Accounts payable
j.	16	8	Income tax expense
			Income tax payable