Question

Semester Case - My Assistant In August, W.1. decided his goal of a $500 cash balance was a bit too conservative. After all, he'd like to be able to spend the money he earns from the business. As a result, he paid himself a salary of $400 for the month of August. Beginning balances reflected below include that payment. During the remainder of the calendar year (September-December), My Assistant, Inc. continued to grow and 500 jobs were completed in total. However, despite efficient scheduling, when his coursework started requiring more of his time around mid-term, W.L. struggled to keep up. As a result, he hired a few of his friends to help him with jobs, and agreed to pay them a fee of $14 per job since they'd have to buy their own gas. He reasoned that he didn't want to give up the new customers and this rate would also allow him to still earn $1 profit on each job. Unfortunately, W.1. quickly found himself with a cash flow problem and realized he'd probably paid them too much. His aunt was kind enough to loan him $500 in October to cover the shortfall. However, she'd like to see a full set of financial statements for July - December. During September-December, the following transactions were completed: 1. Received $7.500 in exchange for completing 500 jobs, less a $368 fee due to PayPal. 2. Received $500 from his aunt and signed a note payable. 3. Purchased gas of $875 so he could complete jobs. 4. Paid friends $3,500 for the completion of 250 jobs in September-December. 5. Paid the newspaper $480 for advertising for September-December. Recall that $120 is owed per month. 6. Paid the social media manager $900 for her total fee for September-December. Recall that she is paid $100 each month plus $1 per job scheduled. 7. Paid a salary of $1,000 to himself for the months of September-December. 8. Paid a dividend of $100 to himself in December. For each of the above transactions, 1. Create an accounting equation and record the effects of each accounting event under the appropriate general ledger account headings. Transactions from July August have been included on the accounting equation provided. 2. For the six months ended December 31. prepare an income statement, statement of changes in stockholders' equity, and a balance sheet dated December 31 for My Assistant, Inc. In preparing the financial statements, aggregate all expenses into one reported total: "Operating Expenses" (relevant for the income statement and statement of cash flows). 3. What was wrong with W.T.'s thinking about how much to pay his friends per job? What should W.1. pay his friends to still earn a profit of $1 on each job?

Answer 1

Solution:

                In August W.T Has cash balance of $500. Then he paid himself a salary of $ 400. Therefore, the remaining $100 was put back into business for running the operations.

                During Sep -Dec he has done 500 jobs in total. He received $7500 in exchange for completing 500 jobs. From this we can infer that the total revenue generated is $7500.

Profit & Loss Account from Sep – Dec

Revenue	$7,500
Fee due to PayPal	$(368)
Net Revenue	$7,132
Purchase	$(875)
Expenses
Salary paid to friends	$(3,500)
Paid to Newspaper	$(480)
Paid to social media manager	$(900)
Salary paid to himself	$(1,000)
Total Operating expenses	$(5,880)
Net profit	$377
Dividend paid	$(100)
Retained earnings	$277

Balance Sheet for the period Sep – Dec:

The company was already having a net cash balance of $100 at the end of Aug month. He has borrowed a cash of $500 from his aunt. The retained earning cash is $277 at the end of Dec 31. Therefore, the total cash is 100 + 500 + 277 = $877

My Assistant, Inc. Balance Sheet as of December 31
Assets
Cash	$877
Total assets
Liabilities and stockholders’ Equity
Liabilities:
Notes payable	$500
Total Liabilities	$500
Stockholders’ Equity:
Common stock	$100
Retained Earnings	$277
Total Stockholders’ Equity	$377
Total Liabilities and stockholders’ Equity	$877

3. W.T should have paid $3,377 to their friends to earn a profit of $1 on each job. Per job the amount paid to friends should be $13.51.