Question

Use the following information to record transactions, and prepare financial statements On Jan 1, 2018, TIM, Inc. started as a business entity. A summary of transactions through Dec. 31, 2018 is presented below. 1. Stockholders invested $50,000 in cash in the business. 2. New computer equipment is purchased for $6,000 in cash on January 1. Equipment will be used for 3 years. 3. Office rent for half a year is paid in advance, $8,000. 4. Dividends of $500 paid to existing shareholders. 5. Paid $10,000 to employees for services provided. 6. Paid utility bills, $2000. 7. Provided (and completed) design services on account to customers, $30,000. 8. Collected cash of $2,000 for services billed in 7). Required: a) Prepare a tabular analysis of the transactions by using the Balance Sheet Equation (A=L+ E) through December 31, 2018. Be sure to label your transactions. b) Journalize the transactions c) Prepare the balance sheet as of December 31, 2018. From what part of the BSE table did you get the information to prepare the balance sheet? d) Prepare the income statement for the period from January 1, 2018 through December 31, 2018.

Answer 1

a) Analysis of Transactions Transactions Balance Sheet Equation = Assets = Liabilities + Owners Equity Assets Equipment Prepaid rent Account receivable Total 50000 50000 Cash = Liabiliti + Owners Equity Owners Equity Total 50000 50000 + + -6000 6000 + 50000 = 50000 = 8000 + 50000 50000 45000 -8000 -5000 -10000 1 Stockholders invested cash 2 Purchase of equipment 3 Paid office rent inadvance 4 Paid dividend 5 Paid salary 8 Paid utility bill 6 Provided Services on account 7 Collected cash for service 45000 + -5000 + -10000 -2000 35000 33000 = 63000) = + -2000 30000 35000 33000 63000 30000 + + 2000 -2000 63000 = + 63000 630001 Total 21000 6000 8000 28000 63000) = 0 + 63000

b) Debit Credit 50000 1 50000 6000 N 6000 8000 3 8000 5000 4 Journalof transactions Account titles Cash Common Stock Equipment Cash Prepaid Cash Dividend Cash Salary Expense Cash Utility Expense Cash Account Receivable Service Revenue Cash Account Receivable 5000 10000 Сл 10000 2000 6 2000 30000 7 30000 2000 8 2000

c) 8000 8000 Balance Sheet as on 31 December 2018 (After Income Statement) Assets Liabilities Current Assets Current liabilities Cash 21000 Rent Payable Account Receivable 28000 Total Current liabilities Total Current assets 49000 Owners Equity Non Current assets Common Stock Equipment 6000 Less Accumulaed Depreciation -2000 4000 Retained Earnings 5000 Total 58000 Total 50000 58000

d) Income Statement for the period ending 31 December 2018 Income Service Revenue 300001 Less Operating expenses: Office rent expense 16000 Salary expense 10000 Utility Expense 2000 Depreciaion on equipment 2000 Total Operating expenses -30000 Net Income 0 Rent paid is only 6 months, so rent expense 16000 Depreciation on equipment = 6000/3= 2000