Question

P1-53B Using the accounting equation for transaction analysis and preparing jectives 4, 5 financial statements Abby Perry recently opened her own law office on December 1, which she operates as a sole proprietorship. The name of the new entity is Abby Perry, Attorney. Perry expe- rienced the following events during the organizing phase of the new business and its first month of operation, December 2018. Some of the events were personal and did nor affect the law practice. Cthers were business transactions and shoud be accounted sets $103,700 for by the business. Sold personal investment in Nike stock, which she had owned for several years, receiving $30,000 cash. Dec. 1 Deposited the $30,000 cash from the sale of the Nike stock in her personal bank account. 2 Deposited $89,000 cash in a new business bank account titled Abby Perry. Attorney. The business gave capital to Perry. Paid $600 cash for ink cartridges for the printer. 5 Purchased computer for the law office, agreeing to pay the account, $8,000, within three months. 7 Received $2,900 cash from customers for services rendered. Received bill from The Lawyer for magazine subscription, $300. (Use Miscellaneous Expense account.) 15 Finished court hearings on behalf of a client and submitted a bill for legal services, $8,000, on account. 23 Paid bill from The Lawyer. 28 Paid utilities, $900. 30 Received $2,800 cash from clients billed on Dec. 23. Perry withdrew cash of $3,000. 31 Requirements 1. Analyze the effects of the preceding events on the accounting equation of Abby Perry, Attorney. Use a format similar to Exhibit 1-5 2. Prepare the following financial statements: a. Income statement. b. Statement of owner's equity. c. Balance sheet. d. Statement of cash flows. 31

Answer 1

Requirement 1 Analyze the effects of the preceding events on the accounting equation of Abby Perry, Attorney. Assets 1 Liabilities Equity Accounts payables = Common stock $89.000 Date Dec 3 Dec 5 - Drawings + Revenue - Expense Accounts | Office Cash + Receivables + Computers $89.000 ($600) $8.000 $2.900 S600 Dec 7 $8,000 $2.900 $300 $300 $8,000 $8.000 ($300) Dec 9 Dec 15 Dec 23 Dec 28 Dec 30 Dec 31 Dec 31 Total $900 ($300) ($900) $2.800 ($3,000) $89,900 (S2.800) $5,200 $8,000 $8,000 $89,000 $3,000 $3,000 $10,900 $1,800 Requirement 2

(a) Income statement as follows: Abby Perry, Attorney Income Statement For the month of December, 31 Amount $10.900 Service Revenue Less: Operating expense: Stationery and cartridge expense Utility expense Miscellaneous expense ($600) ($900) (S300) ($1.800) Net Income $9,100 (6) Statement of owner's equity as follows:

Abby Perry, Attorney Statement of Owner's Equity For the month of December, 31 Amount Beginning Balance $89.000 Add: Net Income $9.100 Less: Drawings ($3,000) Ending Balance $95.100 (c) Balance sheet as follows:

Abby Perry, Attorney Balance Sheet As on December, 31 Assets: Cash $89.900 Accounts Receivables $5,200 Computer $8.000 Total Assets $103.100 Liabilities and Equity's Current Liabilities: Accounts payable $8.000 Equity's: Capital Retained earnings Total liability and capital $89,000 $6.100 $103.100 (d)

Amount Abby Perry, Attorney Statement of Cash Flows For the month of December, 31 Particulars Operating Activities: Net Income Changes in account receivables Changes in account payables Cash flow from operating activities $9,100 ($5,200) $8,000 $11,900 Investing activities: Purchase of computers Cash flow from Investing activities (S8,000) ($8,000) Financing activities: Issuance of capital Drawings Cash flow from Financing activities $89,000 ($3,000) $86,000 $89,900 Net change in cash flows Opening cash balance Ending cash balance $89.900