Question

Problem 1

Identifying effects of transactions using the accounting equation

Randa Abbas began a professional practice on June 1 and plans to prepare financial statements at the end of each month. During June, Abbas (the owner) completed these transactions:

a. Owner invested $60,000 cash in the company along with equipment that had a $15,000 market value.

b. The company paid $1,500 cash for rent of office space for the month.

c. The company purchased $10,000 of additional equipment on credit (payment due within 30 days).

d. The company completed work for a client and immediately collected the $2,500 cash earned.

e. The company completed work for a client and sent a bill for $8,000 to be received within 30 days.

f. The company purchased additional equipment for $6,000 cash.

g. The company paid an assistant $3,000 cash as wages for the month.

h. The company collected $5,000 cash as a partial payment for the amount owed by the client in transaction e.

i. The company paid $10,000 cash to settle the liability created in transaction c.

j. Owner withdrew $1,000 cash from the company for personal use.

Required

Create a table like the one in Exhibit 1.9, using the following headings for columns: Cash; Accounts Receivable; Equipment; Accounts Payable; R. Abbas, Capital; R. Abbas, Withdrawals; Revenues; and Expenses. Then use additions and subtractions to show the effects of the transactions on individual items of the accounting equation. Show new balances after each transaction

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

4. 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

Randa Abbas Owners Equity R. Abbas, Withdrawals + Revenues - Expenses + 0 0 0 + Rent Expense 1500 1500 0 0 + + 0 1500 0 2500 + Service Revenue 0 1500 Accounting Equation For the period ending June 30 Assets Liabilities + Trans. Cash + Accounts Receivable + Equipment = Accounts Payable + R. Abbas, Capital a. 60000 + + 15000 + 75000 Bal. 60000 0 15000 0 75000 b. - 1500 + + Bal. 58500 0 15000 0 75000 C. + 10000 10000 + Bal. 58500 0 25000 10000 75000 d. 2500 + + + Bal. 61000 0 25000 10000 75000 e. + 8000 + + Bal. 61000 8000 25000 10000 75000 f. -6000 + + 6000 + Bal. 55000 8000 31000 10000 75000 -3000 + + + Bal. 52000 8000 31000 10000 75000 h. 5000 + -5000 + + Bal. 57000 3000 31000 10000 75000 i. -10000 + + -10000 + Bal. 47000 3000 31000 0 75000 j. -1000 + + + Bal. 46000 + 3000 + 31000 0 + 75000 2500 8000 + Service Revenue 0 10500 1500 + 0 10500 1500 + 3000 Wages Expense 0 10500 4500 + 0 10500 4500 + 0 10500 4500 1000 + 1000 + 10500 4500 80000 80000

Samy Samer Accounting Equation For the period ending June 30 Assets Liabilities + Owner's Equity Date Cash + Accounts Receivable + Office Supplies + Office Equipment + Electrical Equipment = Accounts Payable + S. Samer, Capital - S. Samer, Withdrawals + Revenues - Expenses Dec-01 65000 + + + + + 65000 + Bal. 65000 + 0 + 0 + 0 + 0 0 + 65000 0 + 0 0 Dec-02 -1000 + + + + + + + 1000 Rent Expense Bal. 64000 + 0 + 0 + 0 + 0 0 + 65000 0 0 + 0 1000 Dec-03 -4800 + + + + 13000 8200 + + Bal. 59200 + 0 + 0 + 0 + 13000 8200 + 65000 0 + 0 1000 Dec-05 -800 + + 800 + + + + Bal. 58400 + 0 + 800 + 0 + 13000 8200 + 65000 0 + 0 1000 Dec-06 1200 + + + + + + 1200 Service Revenue Bal. 59600 + 0 + 800 + 0 + 13000 8200 + 65000 0 + 1200 1000 Dec-08 + + + 2530 + 2530 + + Bal. 59600 + 0 + + 800 + 2530 + 13000 10730 + 65000 0 + 1200 1000 Dec-15 + 5000 + + + + + 5000 Service Revenue Bal. 59600 + 5000 + 800 + 2530 + 13000 10730 + 65000 0 + 6200 1000 Dec-18 + + 350 + + 350 + + Bal. 59600 5000 + 1150 + 2530 13000 11080 + 65000 0 + 6200 1000 Dec-20 -2530 + + + + -2530 + + Bal. 57070 + 5000 + 1150 + 2530 13000 8550 + 65000 0 + 6200 1000 Dec-24 + 900 + + + + + 900 Service Revenue Bal. 57070 + 5900 + 1150 + 2530 13000 8550 + 65000 0 + 7100 1000 Dec-28 5000 + -5000 + + + + + Bal. 62070 + 900 + 1150 + 2530 13000 8550 + 65000 0 + 7100 1000 Dec-29 - 1400 + + + + + + 1400 Salary Expense Bal. 60670 + 900 + 1150 + 2530 13000 8550 + 65000 0 + 7100 2400 Dec-30 -540 + + + + + 540 Utility Expense Bal. . 60130 + 900 + 1150 + 2530 13000 8550 + 65000 0 + 7100 2940 Dec-31 -950 + + + + 950 + Bal. 59180 + 900 + 1150 + 2530 + 13000 8550 + 65000 950 + 7100 2940 76760 76760 + + + + + + +

7100 Amount Amount Statement of Income For the period ending June 30 Service Revenue Less: Salary Expense Utility Expense Rent Expense Net Income Balance sheet As at Jun 30 Assets Current Assets Cash Accounts Receivable Office Supplies Amount Amount Liabilities Current Liabities 59180 Accounts Payable 900 1150 61230 1400 540 8550 1000 2940 4160 2530 Non Current Assets Office Equipment Electrical Equipment Total Assets 13000 Statement of Owner's Equity For the period ending June 30 S. Samer, Capital Net Income Owners Equity 15530 S. Samer, Capital 76760 Total Liabilities & Equity 68210 65000 76760 4160 69160 -950 S. Samer, Withdrawals 68210