Question

Semester Case - My Assistant In August, W.1. decided his goal of a $500 cash balance was a bit too conservative. After all he'd like to be able to spend the money he earns from the business. As a result, he paid himself a salary of $400 for the month of August. Beginning balances reflected below include that payment. During the remainder of the calendar year (September-December). My Assistant, Inc. continued to grow and 500 jobs were completed in total. However, despite efficient scheduling, when his coursework started requiring more of his time around mid-term, W.1. struggled to keep up. As a result, he hired a few of his friends to help him with jobs, and agreed to pay them a fee of $14 per job since they'd have to buy their own gas. He reasoned that he didn't want to give up the new customers and this rate would also allow him to still earn $1 profit on each job. Unfortunately, W.T. quickly found himself with a cash flow problem and realized he'd probably paid them too much. His aunt was kind enough to loan him $500 in October to cover the shortfall. However, she'd like to see a full set of financial statements for July-December During September-December, the following transactions were completed: 1. Received $7.500 in exchange for completing 500 jobs, less a $368 fee due to PayPal. 2. Received $500 from his aunt and signed a note payable. 3. Purchased gas of $875 so he could complete jobs. 4. Paid friends $3.500 for the completion of 250 jobs in September-December. 5. Paid the newspaper $480 for advertising for September-December. Recall that $120 is owed per month. 6. Paid the social media manager $900 for her total fee for September-December. Recall that she is paid $100 each month plus $1 per job scheduled. 7. Paid a salary of $1,000 to himself for the months of September-December. 8. Paid a dividend of $100 to himself in December. For each of the above transactions, 1. Create an accounting equation and record the effects of each accounting event under the appropriate general ledger account headings. Transactions from July-August have been included on the accounting equation provided. 2. For the six months ended December 31. prepare an income statement, statement of changes in stockholders' equity, and a balance sheet dated December 31 for My Assistant, Inc. In preparing the financial statements, aggregate all expenses into one reported total: "Operating Expenses" (relevant for the income statement and statement of cash flows). 3. What was wrong with W.T.'s thinking about how much to pay his friends per job? What should W.1. pay his friends to still earn a profit of $1 on each job?

Answer 1

W.T. Accounting Equation for September - December Stockholders'Equity Common Stock + Retained Earnings Liabilities Assets Notes Payable Cash Issue Stock 100 100 Balance August 1 100 100 Complete jobs Service revenue 900 900 Collection expense -44 -44 Gas/auto expense Purchase gas -150 -150 Advertising Expense Pay newspaper -120 -120 Pay soc. media mgr. Personal service fe -160 -16 Salaries expense Pay self salary Balance Sept 1 -400 -400 126 100 26 1. Complete jobs Service revenue 7500 7500 Collection expense -368 -368 2. Borrow cash 500 500 Gas/auto expense 3. Purchased gas -875 -875 4. Pd. Friends Salaries expense -3500 -3500 5. Pd. Newspaper Advertising Expense -480 -480 6. Pd. social media mgr. Personal service fee -900 -900 7. Pd. self salary Salaries expense -1000 -1000 8. Pd. Dividend -100 Dividend -100 Totals 903 500 100 303

Income Statement For the Six Months Ended December 31 Revenue 8400 Less:Operating expenses 7997 403 Net Income Statement of Changes in Stockholders' Equity For the Six Months Ended December 31 Common Retained Total Stock Earnined Equity Beginning Balance 100 100 Plus: stock issued Plus: net income 403 403 Less:dividends -100 -100 Ending Balance 100 303 403 Balance Sheet As of December 31 Assets Cash 903 Total Assets 903 Liabilities and Stockholders' Equity Liabilities: Notes Payable 500 Total Liabilities Stockholders' Equity: Common Stock 100 Retained Earnings Total Stockholders' Equity 303 403 Total Liabilities and Stockholders' Equity 903

Statement of Cash Flows For the Six Months Ended December 31 Cash flow from operating activities: Cash received from customers 7500 Cash paid for expenses -7223 Net cash from operating activities 277 Cash flow from investing activities: Net cash from investing activities Cash flow from financing activities: Cash receipts from issuing stock 100 Cash receipts from borrowing funds Cash payments for dividends Net cash from financing activities 500 -100 500 Net increase in cash 777 Beginning cash balance 126 Ending cash balance 903