Question

Fast Deliveries, Inc. (FDI), was organized in December last year and had limited activity last year. The resulting balance sheet at the beginning of the current year is provided below: $ 500 Assets Cash Accounts Receivable Supplies FAST DELIVERIES, INC. Balance sheet at January 1 Liabilities: $10,900 Accounts Payable 740 Stockholders' Equity 770 Common Stock Retained Earnings $12,410 Total Liabilities and Stockholders' Equity 11,410 500 $12,410 Total Assets Two employees have been hired, at a monthly salary of $2,900 each. The following transactions occurred during January of the current year. Ch. 2 2. 2 January 1 2 3 2 2. 2 2 3 3 3 3 4 5 6 7 B 9 10 16 20 $4,500 is paid for 12 months' insurance starting January 1. (Record as an asset.) $3,600 is paid for 12 months of rent beginning January 1. (Record as an asset.) FDI borrows $28,800 cash from First State Bank at 46 annual interest; this note is payable in two years. A delivery van is purchased using cash. Including tax, the total cost was $19,200. Stockholders contribute $5,000 of additional cash to FDI for its common stock. Additional supplies costing $1,100 are purchased on account and received. $600 of accounts receivable arising from last year's December sales are collected. $500 of accounts payable from December of last year are paid. Performed services for customers on account. Sent invoices totaling $10,500. $7,800 of services are performed for customers who paid immediately in cash. $2,900 of salaries are paid for the first half of the month. PDI receives $3,900 cash from a customer for an advance order for services to be provided later in January and in February. $3,600 is collected from customers on account (see January 9 transaction). 3 25

Answer 1

5a.

FAST DELIVERIES, INC.
Income Statement
For the Month Ended January 31
Revenues
Service Revenue	$20,640
		$20,640
Expenses
Salaries and Wages Expenses	$5,800
Supplies Expenses	$1,660
Interest Expenses	$96
Depreciation Expenses	$400
Utilities	$1,200
Insurance Expenses	$375
Rent Expenses	$300
Total Expenses		$9,831
Net Income for the month		$10,809

5b.

FAST DELIVERIES, INC.
Statement of Retained Earnings
For the Month Ended January 31
Retained earnings, January 1	$500
Add: Net Income for the Month	$10,809
	$11,309
Less: Dividend Paid	$0
Retained earnings, January 31	$11,309

5c.

FAST DELIVERIES, INC.
Balance Sheet
January 31
Assets	Liabilities
Cash	$29,900	Accounts Payable	$1,100
Accounts Receivable	$7,040	Unearned Income: Advance From Customer
Supplies	$210	$1,560
Prepaid Insurance	$4,125	Salary Payable	$2,900
Prepaid Rent	$3,300	Utilities Payable	$1,200
Delivery Van	$18,800	Interest on Loan Payable	$96
		Borrowings	$28,800
		Total Liabilities	$35,656
		Equity
		Common Stock	$11,410
		Add: Additions during the month	$5,000
		Add: Retained Earnings	$11,309
			$27,719
Total Assets	$63,375	Total Liabilities and Equity	$63,375

Working Notes

1	Prepaid Expenses
		Insurance	Rent
	Amount Paid	$4,500	$3,600
	For the month of January	$375	$300
	Closing Balance	$4,125	$3,300

2	Interest on Borrowing
	Borrowings from First State Bank	$28,800
	Interest on Borrowing for the month at 4%
	$28,800 x 4% x 1/12	= $96
3	Depreciation
	Cost of Delivery Van	$19,200
	Useful Life	4 Years
	Salvage Value	0
	Depreciation for the year	$19,200/4	= $4,800
	Depreciation for the month = $4800 /12 =$400 Closing Balance of Asset: Cost of Delivery Van - Depreciation for the Month $19,200 - $400 = $18,800
4	Accounts receivable
	Opening Accounts receivable	$740
	Add: Accounts receivable (January 9)	$10,500
			$11,240
	Less: Receivables collected during the month	$4,200
	Closing Accounts receivable	$7,040
5	Accounts Payable
	Opening Accounts Payable	$500
	Add: Accounts Payable (January 9)	$1,100
			$1,600
	Less: Payablespaid during the month	$500
	Closing Accounts Payable	$1,100

6

Cash
Opening Balance	$10,900.00
Add:
Borrowings	$28,800.00
Additional capital	$5,000.00
Accounts receivable	$600.00
Service income	$7,800.00
Service income	$3,600.00
Advance	$3,900.00
	$60,600.00
Less:
Insurance	$4,500.00
Rent	$3,600.00
Accounts Payable	$500.00
Salaries	$2,900.00
Delivery Van	$19,200.00
	$30,700.00
Closing Balance	$29,900.00