Question

Problem 1-1A Sunland Company was started on May 1. A summary of May transactions is presented below Stockholders invested $15,500 cash in the business in exchange for common stock. Purchased equipment for $6,000 cash Paid $200 cash for May office rent 1 2. 3. Paid $500 cash for supplies. 4. Incurred $150 of advertising costs in the Beacon News on account. 5. Received $5,200 in cash from customers for repair service. 6. Declared and paid a $1,600 cash dividend. 7. Paid part-time employee salaries $800 8. Paid utility bills $160. Performed repair services worth $1,040 on account. Collected cash of $120 for services billed in transaction (10). 9. 10. 11

Answer 1

The table will be prepared in the following manner:

	ASSETS				LIABILITIES	EQUITY	RETAINED EARNINGS
	Cash	AR	Supplies	Equipment	AP	Common Stock	Revenues	Expenses	Dividends
1	15500					15500
2	-6000			6000
3	-200							200
4	-500		500
5					150			150
6	5200						5200
7	-1600								1600
8	-800							800
9	-160							160
10		1040					1040
11	120	-120
Total	11560	920	500	6000	150	15500	6240	1310	1600

Income Statement

For the month of May will be prepared as under:

Revenues.....$6240

Expenses

Rent Expense....$200

Advertisement expense...$150

Salaries....$800

Utilities...$160

Total Expenses....$1310

Net Income....$4930

Notes

When stockholders invest money, cash comes in and company creates a liability towards owners as common stock

Purchase of equipment would mean cash going out and equipment coming in

Paying of expenses would mean cash decreasing or going out and expense increasing resulting in decline in net income

Expenses incurred on account would mean a liability getting increased and expense increasing

When service is provided for cash, cash comes in and revenue increases resulting in increase in net income

When service is provided on account an asset (receivable) gets created and revenue increases resulting in increase in net income