Question

Required information [The following information applies to the questions displayed below.] Ricky's Piano Rebuilding Company has been operating for one year. On January 1, at the start of its second year, its income statement accounts had zero balances and its balance sheet account balances were as follows: Cash Accounts Receivable Supplies Equipment Land Building $ 6,000 Accounts Payable 25,000 Deferred Revenue (deposits) 1,200 Notes Payable (long-term) 8,000 Common Stock 6,000 Retained Earnings 22,000 $ 8,000 3,200 40,000 8,000 9,000 Following are the January transactions: a. Received a $500 deposit from a customer who wanted her plano rebuilt in February b. Rented a part of the building to a bicycle repair shop: $300 rent received for January c. Delivered five rebuilt pianos to customers who paid $14,500 in cash. d. Delivered two rebuilt pianos to customers for $7.000 charged on account. e. Received $6.000 from customers as payment on their accounts f. Received an electric and gas utility bill for $350 for January services to be paid in February g. Ordered $800 in supplies. h. Paid $1,700 on account in January 1. Paid $10.000 in wages to employees in January for work done this month. 1. Received and paid cash for the supplies in (9) 5-a. Prepare an income statement for the month ended and at January 31,

5a

5b

5c

Answer 1

Answer 5 a.

RICKY'S PIANO REBUILDING COMPANY

Income Statement

For the Month Ended January 31

Revenues
Rent Revenue	300
Service Revenue (Working Note)	21,500
Total Revenues	21,800
Expenses
Salaries & Wages	10,000
Utilities Expense	350
Total Expenses	10,350
Net Income	$11,450

Working Note:

Service Revenue = Cash sales + Sales on account

= 14,500 + 7,000 = 21,500

Answer 5b.

RICKY'S PIANO REBUILDING COMPANY

Income Statement

For the Month Ended January 31

Statement of Retained Earnings

Retained Earnings, Jan 1	$9,000
Add: Net Income	11,450
Less: : Dividends	0
Retained Earnings, January 31	$20,450

Answer 5c.

RICKY'S PIANO REBUILDING COMPANY

Balance Sheet

At January 31

Assets
Current Assets
Cash (Working Note 1)	$ 14,800
Accounts Receivable (Working Note 2)	26,000
Supplies (Working Note 3)	2,000
Total Current Assets	42,800
Equipment	8,000
Land	6,000
Buildings	22,000
Total Assets	$78,800
Liabilities
Current Liabilities
Accounts Payable (Working Note 4)	6,650
Deferred Revenue (Working Note 5)	3,700
Total Current Liabilities	10,350
Notes Payable (long-term)	40,000
Total Liabilities	50,350
Stockholders' Equity
Common Stock	8,000
Retained Earnings	20,450
Total Stockholders' Equity	28,450
Total Liabilities and Stockholders' Equity	$78,800

Working Note 1: Cash

Cash balance Beginning	6,000
Add: Deposit received from customer (point a.)	500
Add: Rent received (point b.)	300
Add: Cash collection from the customer on cash sales (point c.)	14,500
Add: Cash collection from the customer on account (point e.)	6,000
Less: Cash paid on account (point h.)	(1,700)
Less: Cash paid to employees (point i.)	(10,000)
Less: Cash paid for supplies (point j.)	(800)
Cash balance (ending)	14,800

Working Note 2:

Accounts Receivable = Beginning Bal + Revenue on account - Cash collection from the customer on account

= 25,000 + 7,000 - 6,000 = 26,000

Working Note 3:

Supplies = Beginning Bal + Received during the year

= 1,200 + 800 = 2,000

Working Note 4: Accounts Payable

Beginning balance	8,000
Add: Utility bill (point f)	350
Add: Supplies purchase on account (point e.)	800
Less: Cash paid on account (point h.)	(1,700)
Less: Cash paid for supplies (point j.)	(800)
Accounts Payable (ending)	6,650

Working Note 5

Deferred Revenue = Beginning Bal + Deposit recived

= 3,200 + 500 = 3,700