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Answer:
a) May 1 G. Gram invested $40,000 cash in the company in exchange for its common stock.
Dr Cash 40,000
Cr Common stock 40,000
May 1 The company rented a furnished office and paid $2,200 cash for May’s rent.
Dr Rent expense 2,200
Cr Cash 2,200
May 3 The company purchased $1,890 of equipment on credit.
Dr Equipment 1,890
Cr Accounts payable 1,890
May 5 The company paid $750 cash for this month’s cleaning services.
Dr Cleaning expenses 750
Cr Cash 750
May 8 The company provided consulting services for a client and immediately collected $5,400 cash.
Dr Cash 5,400
Cr Service revenue 5,400
May 12 The company provided $2,500 of consulting services for a client on credit.
Dr Accounts receivable 2,500
Cr Service revenue 2,500
May 15 The company paid $750 cash for an assistant’s salary for the first half of this month.
Dr Wages expense 750
Cr Cash 750
May 20 The company received $2,500 cash payment for the services provided on May 12.
Dr Cash 2,500
Cr Accounts receivable 2,500
May 22 The company provided $3,200 of consulting services on credit.
Dr Accounts receivable 3,200
Cr Service revenue 3,200
May 25 The company received $3,200 cash payment for the services provided on May 22.
Dr Cash 3,200
Cr Accounts receivable 3,200
May 26 The company paid $1,890 cash for the equipment purchased on May 3.
Dr Accounts payable 1,890
Cr Cash 1,890
May 27 The company purchased $80 of equipment on credit.
Dr Equipment 80
Cr Accounts payable 80
May 28 The company paid $750 cash for an assistant’s salary for the second half of this month.
Dr Wages expense 750
Cr Cash 750
May 30 The company paid $300 cash for this month’s telephone bill.
Dr Telephone expense 300
Cr Cash 300
May 30 The company paid $280 cash for this month’s utilities.
Dr Utilities expense 280
Cr Cash 280
May 31 The company paid $1,400 cash in dividends to the owner (sole shareholder).
Dr Dividends 1,400
Cr Cash 1,400
debit credit
Cash $42,780
Equipment $1,970
Accounts payable $80
Common stock $40,000
Service revenue $11,100
Rent expense $2,200
Cleaning expenses $750
Wages expense $1,500
Telephone expense $300
Utilities expense $280
Dividends $1,400
totals $51,180 $51,180
income statement
Service revenue $11,100
Expenses:
- Rent expense $2,200
- Cleaning expenses $750
- Wages expense $1,500
- Telephone expense $300
- Utilities expense $280 ($5,030)
Net income $6,070
statement of owner's equity
Beginning balance $0
Common stocks issued $40,000
Net income $6,070
Sub-total $46,070
Dividends ($1,400)
Ending balance $44,670
balance sheet
Assets:
Cash $42,780
Equipment $1,970
Total assets $44,750
Liabilities and equity:
Accounts payable $80
Common stock $40,000
Retained earnings $4,670
Total liabilities and equity $44,750
cash flow statement
Cash flows from operating activities:
Net income $6,070
Increase in accounts payable $80
net cash from operating activities $6,150
Cash flows from financing activities:
Purchase of equipment ($1,970)
Cash flow from financing activities:
Common stocks issued $40,000
Dividends paid ($1,400)
net cash fro financing activities $38,600
net cash increase $42,780
beginning cash balance $0
ending cash balance $42,780
a.1. The final total for each account is determined in the general ledger as follows:
Cash Account
Date Account Titles Debit Credit
May 1 Common Stock $40,000
May 1 Rent Expense $2,200
May 5 Cleaning Services Expense $750
May 8 Consulting Fees $5,400
May 15 Salaries Expense $750
May 20 Accounts Receivable $2,500
May 25 Accounts Receivable $3,200
May 26 Accounts Payable $1,890
May 28 Salaries Expense $750
May 30 Telephone Expense $300
May 30 Utilities $280
May 31 Dividends $1,400
May 31 Balance $42,780
Totals $51,100 $51,100
Accounts Receivable
Date Account Titles Debit Credit
May 12 Consulting Fees $2,500
May 20 Cash $2,500
May 22 Consulting Fees $3,200
May 25 Cash $3,200
Totals $5,700 $5,700
Equipment
Date Account Titles Debit Credit
May 3 Accounts Payable $1,890
May 27 Accounts Payable 80
May 31 Balance $1,970
Totals $1,970 $1,970
Common Stock
Date Account Titles Debit Credit
May 1 Cash $40,000
Accounts Payable
Date Account Titles Debit Credit
May 3 Equipment $1,890
May 26 Cash $1,890
May 27 Equipment $80
May 31 Balance $80
Totals $1,970 $1,970
Consulting Fees
Date Account Titles Debit Credit
May 8 Cash $5,400
May 12 Accounts Receivable $2,500
May 22 Accounts Receivable 3,200
May 31 Balance $11,100
Totals $11,100 $11,100
Rent Expense
Date Account Titles Debit Credit
May 1 Cash $2,200
Cleaning Services Expenses
Date Account Titles Debit Credit
May 5 Cash $750
Wages Expense
Date Account Titles Debit Credit
May 15 Cash $750
May 28 Cash $750
May 31 Balance $1,500
Totals $1,500 $1,500
Telephone Expenses
Date Account Titles Debit Credit
May 30 Cash $300
Utilities Expense
Date Account Titles Debit Credit
May 30 Cash $280
Dividends
Date Account Titles Debit Credit
May 31 Cash $1,400
a.2. The determination that the equation is in balance is established through the Trial Balance as follows:
Date Account Titles Debit Credit
Cash $42,780
Common stock $40,000
Equipment $1,970
Accounts payable $80
Consulting fees $11,100
Rent expense $2,200
Cleaning expenses $750
Wages expense $1,500
Telephone expense $300
Utilities expense $280
Dividends $1,400
Totals $51,180 $51,180
b. The preparation of the income statement is as follows:
The Gram Co.
Income Statement
For the month ended May 31
Service revenue $11,100
Expenses:
Rent expense $2,200
Cleaning expenses $750
Wages expense $1,500
Telephone expense $300
Utilities expense $280 ($5,030)
Net income $6,070
c. The preparation of the statement of owner's equity is as follows:
The Gram Co.
Statement of Owner's Equity
As of May 31
Common stocks issued $40,000
Net income $6,070
Dividends ($1,400)
Ending balance $44,670
d. The preparation of the Balance Sheet is as follows:
The Gram Co.
Balance Sheet
As of May 31
Assets:
Cash $42,780
Equipment $1,970
Total assets $44,750
Liabilities and equity:
Accounts payable $80
Equity:
Common stock $40,000
Retained earnings $4,670
Total equity $44,670
Total liabilities and
owner's equity $44,750
e. The preparation of the Statement of Cash Flows is as follows:
The Gram Co.
Statement of Cash Flows
Operating activities:
Net income $6,070
Increase in accounts payable $80
Net operating cash $6,150
Investing activities:
Purchase of equipment ($1,970)
Financing activities:
Common stocks issued $40,000
Dividends paid ($1,400)
Net financing cash $38,600
Net cash flows $42,780
Reconciliation:
Beginning cash balance $0
Net cash flows $42,780
Ending cash balance $42,780
Data Analysis:
May 1 Cash $40,000 Common Stock $40,000
May 1 Rent Expense $2,200 Cash $2,200
May 3 Equipment $1,890 Accounts Payable $1,890
May 5 Cleaning Services Expense $750 Cash $750
May 8 Cash $5,400 Consulting Fees $5,400
May 12 Accounts Receivable $2,500 Consulting Fees $2,500
May 15 Salaries Expense $750 Cash $750
May 20 Cash $2,500 Accounts Receivable $2,500
May 22 Accounts Receivable $3,200 Consulting Fees $3,200
May 25 Cash $3,200 Accounts Receivable $3,200
May 26 Accounts Payable $1,890 Cash $1,890
May 27 Equipment $80 Accounts Payable $80
May 28 Salaries Expense $750 Cash $750
May 30 Utilities (Telephone) $300 Cash $300
May 30 Utilities $280 Cash $280
May 31 Dividends $1,400 Cash $1,400
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