Question

Problem 2

Analyzing transactions and preparing financial statements

Samy Samer started a new business and completed these transactions during December.

Dec. 1		Samy Samer transferred $65,000 cash from a personal savings account to a checking account in the name of Samer Electric.
2		The company rented office space and paid $1,000 cash for the December rent.
3		The company purchased $13,000 of electrical equipment by paying $4,800 cash and agreeing to pay the $8,200 balance in 30 days.
5		The company purchased office supplies by paying $800 cash.
6		The company completed electrical work and immediately collected $1,200 cash for these services.
8		The company purchased $2,530 of office equipment on credit.
15		The company completed electrical work on credit in the amount of $5,000.
18		The company purchased $350 of office supplies on credit.
20		The company paid $2,530 cash for the office equipment purchased on December 8.
24		The company billed a client $900 for electrical work completed; the balance is due in 30 days.
28		The company received $5,000 cash for the work completed on December 15.
29		The company paid the assistant’s salary of $1,400 cash for this month.
30		The company paid $540 cash for this month’s utility bill.
31		Samy Samer withdrew $950 cash from the company for personal use.

Required

1. Arrange the following asset, liability, and equity titles in a table like Exhibit 1.9: Cash; Accounts Receivable; Office Supplies; Office Equipment; Electrical Equipment; Accounts Payable; S. Samer, Capital; S. Samer, Withdrawals; Revenues; and Expenses.
2. Use additions and subtractions to show the effects of each transaction on the accounts in the accounting equation. Show new balances after each transaction.
3. Use the increases and decreases in the columns of the table from part 2 to prepare an income statement and a statement of owner’s equity — each of these for the current month. Also prepare a balance sheet as of the end of the month.

Analysis Component

1. Assume that the owner investment transaction on December 1 was $49,000 cash instead of $65,000 and that Samer Electric obtained another $16,000 in cash by borrowing it from a bank. Explain the effect of this change on total assets, total liabilities, and total equity.

Check (2) Ending balances: Cash, $59,180, Accounts Payable, $8,550 (3) Net income, $4,160; Total assets, $76,760

Answer 1

Date Assets + Electrical E LIABILITIES Accounts + Cash + accounts + Office Office Rectualele supplies Guipment Equipment EQUITY + + Capital + Recensies - Expenses -bxawesings Payable . 0 -1000 - 1000 - 0 1ooo 0 - 1000 0 0 O O + = -0 -0 = -o 0 - 1000 0 - 1000 0 1000 + o Decl +65000 t 0 Decz. (1000 + 0 Balance 64000 + 0 Deu B. (4800) + 0 Balance 59200 + 0 De 5. 1800) + 0 Balance 58 400 t 0 Dec 6. 1200 + o Balance 59600+ 0 Dec B. 0 to Balance 59600 t о de 15. 0 + 5ooo Balance 59600 + 5000 Deu 18. 0 + Balance 59600 + 5000 De a. (2530) + 0 Balance 57070 + 5000 Dec 24. to + 900 Balance 570 70 + 5900 Dec 28. + 5000 - 5000 Balance 62070 + 900 Dec 29 (1400) + O. Balance 60670 t 900 Dec 30 (540) t Balance 50130 t 900 De 31 1950) + Balance 159 180 + 900 to + O + 0 O to + 0 + 0 0 + 0 + o 0 0 + 0 + 0 + 13000 + 8200 + 0 to + 13000 8200 + 800 to to to + 800 + 0 + 13000 8200 to to to t 0 +800 to +13000 8200 to +2530 + O +2530 + 800 +2530 + 13000 10730 to + 0 to +800 +2530 + 13000 10730 + 350 to + O + 350 + liso +2530 + 13000= I 1080 to to = [2530) + 1150 + 2530 +13000 85 so to to to 0 + 1150 + 2530 + 13000 8550 to to 0 + 1150 + 2530 + 13000 8550 to to 0 +1150 + 13000 8550 + 0 0 + 1150 +2530 + 13000 8550 + 0 teo to 0 + 1150 + 2530 + 13000 = 8550 + 65000 t 0 + 0 + 0 + 65000 t 0 to + o +65000 + 0 + 0 + 0 + 65000 t 0 + 0 + 1200 +65000 + 1200 + O + o + 65000 + 1200 + 0 + 5000 + 65000 + 6200 to + 65000 + 6200 + 0 + 0 + 65000 + 6200 + o + 9.00 +65000 + 7100 + 0 + 0 + 65000 + 7100 t o + 0 + 65000 + 7100 + t 0 + 65000 + Hoo 0 to t 65000 + 7oo FO - 0 - 0 0 FO - 0 to + o to - 1000 0 1000 - 0 - 1000 - 0 -1000 - 2400 - 2400 - 540 - 2940 - 0 - 2940 10 0 +2530 + O -0 - 0 0 o 0 0 -0 - 0 - 950 - 950 to +

Samer Electric Income Statement for the Month ended 31 Decembele, XXX Amt. 7 loo Revenues Less : Expenses Rent Expense 1000 1900 540 Tom utility Expenses Dalary Experise Expenses Net Income (2940) 4 160

Samer Electric of owner's os at lecemeber 31, XXX”. Dec 1 Add: Net Income 65000 4160 69160 (950) 68210 Less: Withdrawls Samer

Balance sheet as at Dec 31, 20XX Amt. Assets Liabilities Ant Accounta layakle 59180 900 1150 Capital 65000 1950) & Drawings (+) Net Income 4160 8550 Cash Account Receivable Office Supplies Office Eqliiprest 9530 68210 Electrical Equipment 13000 76760 76760

=> If the owner invests $49000 cash instead of $65000 cash in business and takes loan from bank of $16000 then the total assets of the business will remain unaffected but the amount of liability will increase by the amount of borrowings from bank that is $ 16000 and the amount of capital will decrease by $16000....!!