1.
Prepare journal entries for the given transactions.
1.
Explanation of Solution
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Prepare journal entries for the given transactions.
Transaction on June 1:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 1 | Cash | 111 | 15,000 | ||
AV, Capital | 311 | 15,000 | ||||
(Record cash invested in the business by AV) |
Table (1)
Description:
- Cash is an asset account. Since cash is invested in the business, asset account increased, and an increase in asset is debited.
- AV, Capital is an equity account. Since cash is contributed as capital by the owner, equity value increased, and an increase in equity is credited.
Transaction on June 1:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 1 | Spa Equipment | 128 | 3,158 | ||
AV, Capital | 311 | 3,158 | ||||
(Record equipment invested in the business by AV) |
Table (2)
Description:
- Spa Equipment is an asset account. Since equipment is invested in the business, asset account increased, and an increase in asset is debited.
- AV, Capital is an equity account. Since equipment is contributed as capital by the owner, equity value increased, and an increase in equity is credited.
Transaction on June 3:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 3 | Prepaid Insurance | 117 | 960 | ||
Cash | 111 | 960 | ||||
(Record payment of insurance in advance) |
Table (3)
Description:
- Prepaid Insurance is an asset account. Since insurance is paid in advance, it is recorded as asset until it is consumed. So, asset value is increased, and an increase in asset is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 3:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 3 | Spa Equipment | 128 | 4,235 | ||
Cash | 111 | 2,000 | ||||
Accounts Payable | 211 | 2,235 | ||||
(Record purchase of equipment) |
Table (4)
Description:
- Spa Equipment is an asset account. Since equipment is bought, asset account increased, and an increase in asset is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
- Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on June 3:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 3 | Rent Expense | 612 | 1,650 | ||
Cash | 111 | 1,650 | ||||
(Record payment of rent expense) |
Table (5)
Description:
- Rent Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 3:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 3 | Spa Supplies | 115 | 492 | ||
Accounts Payable | 211 | 492 | ||||
(Record purchase of supplies) |
Table (6)
Description:
- Spa Supplies is an asset account. Since supplies are bought, asset account increased, and an increase in asset is debited.
- Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on June 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 5 | Office Supplies | 114 | 248 | ||
Cash | 111 | 248 | ||||
(Record purchase of supplies) |
Table (7)
Description:
- Office Supplies is an asset account. Since supplies are bought, asset account increased, and an increase in asset is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 5 | Promotional Expense | 630 | 112 | ||
Cash | 111 | 112 | ||||
(Record payment for promotional items) |
Table (8)
Description:
- Promotional Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 5 | Office Equipment | 124 | 318 | ||
Accounts Payable | 211 | 318 | ||||
(Record purchase of equipment) |
Table (9)
Description:
- Office Equipment is an asset account. Since equipment is bought, asset account increased, and an increase in asset is debited.
- Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on June 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 5 | Advertising Expense | 616 | 397 | ||
Accounts Payable | 211 | 397 | ||||
(Record receipt of advertising expense bill) |
Table (10)
Description:
- Advertising Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on June 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 5 | Office Equipment | 124 | 832 | ||
Accounts Payable | 211 | 832 | ||||
(Record purchase of equipment) |
Table (11)
Description:
- Office Equipment is an asset account. Since equipment is bought, asset account increased, and an increase in asset is debited.
- Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on June 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 5 | Office Supplies | 114 | 120 | ||
Accounts Payable | 211 | 120 | ||||
(Record purchase of supplies) |
Table (12)
Description:
- Office Supplies is an asset account. Since supplies are bought, asset account increased, and an increase in asset is debited.
- Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on June 7:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 7 | Wages Expense | 611 | 1,847.50 | ||
Cash | 111 | 1,847.50 | ||||
(Record payment of wages expense) |
Table (13)
Description:
- Wages Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 7:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 7 | Cash | 111 | 2,630 | ||
Income from Services | 411 | 2,630 | ||||
(Record services performed for cash) |
Table (14)
Description:
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on June 7:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 7 | Accounts Receivable | 113 | 325 | ||
Income from Services | 411 | 325 | ||||
(Record services performed on account) |
Table (15)
Description:
- Accounts Receivable is an asset account. The amount is increased because amount to be received increased, and an increase in asset is debited.
- Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on June 11:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 11 | Accounts Payable | 211 | 873 | ||
Cash | 111 | 873 | ||||
(Record cash paid on account) |
Table (16)
Description:
- Accounts Payable is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 14:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 14 | Cash | 111 | 3,703 | ||
Income from Services | 411 | 3,703 | ||||
(Record services performed for cash) |
Table (17)
Description:
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on June 14:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 14 | Accounts Receivable | 113 | 486 | ||
Income from Services | 411 | 486 | ||||
(Record services performed on account) |
Table (18)
Description:
- Accounts Receivable is an asset account. The amount is increased because amount to be received increased, and an increase in asset is debited.
- Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on June 14:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 14 | Wages Expense | 611 | 1,847.50 | ||
Cash | 111 | 1,847.50 | ||||
(Record payment of wages expense) |
Table (19)
Description:
- Wages Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 18:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 18 | Accounts Payable | 211 | 1,200 | ||
Cash | 111 | 1,200 | ||||
(Record cash paid on account) |
Table (20)
Description:
- Accounts Payable is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 21:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 21 | Cash | 111 | 4,758 | ||
Income from Services | 411 | 4,758 | ||||
(Record services performed for cash) |
Table (21)
Description:
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on June 21:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 21 | Accounts Receivable | 113 | 344 | ||
Income from Services | 411 | 344 | ||||
(Record services performed on account) |
Table (22)
Description:
- Accounts Receivable is an asset account. The amount is increased because amount to be received increased, and an increase in asset is debited.
- Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on June 21:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 21 | Wages Expense | 611 | 1,847.50 | ||
Cash | 111 | 1,847.50 | ||||
(Record payment of wages expense) |
Table (23)
Description:
- Wages Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 25:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 25 | Accounts Payable | 211 | 73 | ||
Cash | 111 | 73 | ||||
(Record cash paid on account) |
Table (24)
Description:
- Accounts Payable is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 28:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 28 | Wages Expense | 611 | 1,847.50 | ||
Cash | 111 | 1,847.50 | ||||
(Record payment of wages expense) |
Table (23)
Description:
- Wages Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 28:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 28 | Laundry Expense | 615 | 84 | ||
Cash | 111 | 84 | ||||
(Record payment of laundry expense) |
Table (24)
Description:
- Laundry Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 30:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 30 | Cash | 111 | 5,992 | ||
Income from Services | 411 | 5,992 | ||||
(Record services performed for cash) |
Table (25)
Description:
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on June 30:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
June | 30 | Accounts Receivable | 113 | 109 | ||
Income from Services | 411 | 109 | ||||
(Record services performed on account) |
Table (26)
Description:
- Accounts Receivable is an asset account. The amount is increased because amount to be received increased, and an increase in asset is debited.
- Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on June 30:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 30 | AV, Drawing | 312 | 1,850 | ||
Cash | 111 | 1,850 | ||||
(Record cash withdrawn by AV for personal use) |
Table (27)
Description:
- AV, Drawing is a contra-capital account. The contra-capital accounts decrease the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is withdrawn, asset account decreased, and a decrease in asset is credited.
Transaction on June 30:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 30 | Utilities Expense | 617 | 225 | ||
Cash | 111 | 225 | ||||
(Record payment of utilities expense) |
Table (28)
Description:
- Utilities Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on June 31:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
June | 31 | Utilities Expense | 617 | 248 | ||
Cash | 111 | 248 | ||||
(Record payment of utilities expense) |
Table (29)
Description:
- Utilities Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
2.
2.
Explanation of Solution
Ledger: Ledger is a book in which the accounts are summarized and grouped from the transactions recorded in the journal.
Post the journalized transactions in the ledger accounts of the general ledger.
ACCOUNT Cash ACCOUNT NO. 111 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 1 | 1 | 15,000.00 | 15,000.00 | |||
3 | 1 | 960.00 | 14,040.00 | ||||
3 | 1 | 2,000.00 | 12,040.00 | ||||
3 | 1 | 1,650.00 | 10,390.00 | ||||
5 | 1 | 248.00 | 10,142.00 | ||||
5 | 1 | 112.00 | 10,030.00 | ||||
7 | 1 | 1,847.50 | 8,182.50 | ||||
7 | 1 | 2,630.00 | 10,812.50 | ||||
11 | 1 | 873.00 | 9,939.50 | ||||
14 | 1 | 3,703.00 | 13,642.50 | ||||
14 | 1 | 1,847.50 | 11,795.00 | ||||
18 | 1 | 1,200.00 | 10,595.00 | ||||
21 | 1 | 4,758.00 | 15,353.00 | ||||
21 | 1 | 1,847.50 | 13,505.50 | ||||
25 | 1 | 73.00 | 13,432.50 | ||||
28 | 1 | 1,847.50 | 11,585.00 | ||||
28 | 1 | 84.00 | 11,501.00 | ||||
30 | 1 | 5,992.00 | 17,493.00 | ||||
30 | 1 | 1,850.00 | 15,643.00 | ||||
30 | 1 | 225.00 | 15,418.00 | ||||
30 | 1 | 248.00 | 15,170.00 |
Table (30)
ACCOUNT Accounts Receivable ACCOUNT NO. 113 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 7 | 1 | 325.00 | 325.00 | |||
14 | 1 | 486.00 | 811.00 | ||||
21 | 1 | 344.00 | 1,155.00 | ||||
30 | 1 | 109.00 | 1,264.00 |
Table (31)
ACCOUNT Office Supplies ACCOUNT NO. 114 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 5 | 1 | 248 | 248 | |||
5 | 1 | 120 | 368 |
Table (32)
ACCOUNT Spa Supplies ACCOUNT NO. 115 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 3 | 1 | 492 | 492 |
Table (33)
ACCOUNT Prepaid Insurance ACCOUNT NO. 117 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 3 | 1 | 960 | 960 |
Table (34)
ACCOUNT Office Equipment ACCOUNT NO. 124 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 5 | 1 | 318 | 318 | |||
5 | 1 | 832 | 1,150 |
Table (35)
ACCOUNT Spa Equipment ACCOUNT NO. 128 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 1 | 1 | 3,158 | 3,158 | |||
3 | 1 | 4,235 | 7,393 |
Table (36)
ACCOUNT Accounts Payable ACCOUNT NO. 211 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 3 | 1 | 2,235 | 2,235 | |||
3 | 1 | 492 | 2,727 | ||||
5 | 1 | 318 | 3,045 | ||||
5 | 1 | 397 | 3,442 | ||||
5 | 1 | 832 | 4,274 | ||||
5 | 1 | 120 | 4,394 | ||||
11 | 1 | 873 | 3,521 | ||||
18 | 1 | 1,200 | 2,321 | ||||
25 | 1 | 73 | 2,248 |
Table (37)
ACCOUNT AV, Capital ACCOUNT NO. 311 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 1 | 1 | 15,000 | 15,000 | |||
1 | 1 | 3,158 | 18,158 |
Table (38)
ACCOUNT AV, Drawing ACCOUNT NO. 312 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 30 | 1 | 1,850 | 1,850 |
Table (39)
ACCOUNT Income from Services ACCOUNT NO. 411 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 7 | 1 | 2,630 | 2,630 | |||
7 | 1 | 325 | 2,955 | ||||
14 | 1 | 3,703 | 6,658 | ||||
14 | 1 | 486 | 7,144 | ||||
21 | 1 | 4,758 | 11,902 | ||||
21 | 1 | 344 | 12,246 | ||||
30 | 1 | 5,992 | 18,238 | ||||
30 | 1 | 109 | 18,347 |
Table (40)
ACCOUNT Wages Expense ACCOUNT NO. 611 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 7 | 1 | 1,847.50 | 1,847.50 | |||
14 | 1 | 1,847.50 | 3,695.00 | ||||
21 | 1 | 1,847.50 | 5,542.50 | ||||
28 | 1 | 1,847.50 | 7,390.00 |
Table (41)
ACCOUNT Rent Expense ACCOUNT NO. 612 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 3 | 1 | 1,650 | 1,650 |
Table (42)
ACCOUNT Laundry Expense ACCOUNT NO. 615 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 28 | 1 | 84 | 84 |
Table (43)
ACCOUNT Advertising Expense ACCOUNT NO. 616 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 5 | 1 | 397 | 397 |
Table (44)
ACCOUNT Utilities Expense ACCOUNT NO. 617 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 30 | 1 | 225 | 225 | |||
30 | 1 | 248 | 473 |
Table (45)
ACCOUNT Promotional Expense ACCOUNT NO. 630 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
June | 5 | 1 | 112 | 112 |
Table (46)
3.
Prepare the
3.
Explanation of Solution
Trial balance: Trial balance is a summary of all the asset, liability, and equity accounts and their balances.
Prepare the trial balance for ABY Spa as at June 30, 20--, based on the account balances derived in Part (2).
ABY Spa | ||
Trial Balance | ||
October 31, 20-- | ||
Account Title | Debit ($) | Credit ($) |
Cash | $15,170 | |
Accounts Receivable | 1,264 | |
Office Supplies | 368 | |
Spa Supplies | 492 | |
Prepaid Insurance | 960 | |
Office Equipment | 1,150 | |
Spa Equipment | 7,393 | |
Accounts Payable | $2,248 | |
AV, Capital | 18,158 | |
AV, Drawing | 1,850 | |
Income from Services | 18,347 | |
Wages Expense | 7,390 | |
Rent Expense | 1,650 | |
Laundry Expense | 84 | |
Advertising Expense | 397 | |
Utilities Expense | 473 | |
Promotional Expense | 112 | |
Total | $38,753 | $38,753 |
Table (47)
Hence, the debit and credit total of trial balance of ABY Spa at June 30, 20-- is $38,753.
4.
Prepare an income statement of ABY Spa for the month ended June 30, 20--, based on the account balances derived in Part (2).
4.
Explanation of Solution
Income statement: The financial statement which reports revenues and expenses from business operations, and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Prepare an income statement of ABY Spa for the month ended June 30, 20--.
ABY Spa | ||
Income Statement | ||
For the Month Ended June 30, 20-- | ||
Revenues: | ||
Income from Services | $18,347 | |
Expenses: | ||
Wages Expense | $7,390 | |
Rent Expense | 1,650 | |
Laundry Expense | 84 | |
Advertising Expense | 397 | |
Utilities Expense | 473 | |
Promotional Expense | 112 | |
Total expenses | 10,106 | |
Net income | $8,241 |
Table (48)
5.
Prepare a statement of owners’ equity of ABY Spa, based on the account balances derived in Part (2), and net income computed in Part (4).
5.
Explanation of Solution
Statement of owners’ equity: This statement reports the beginning owner’s equity and all the changes which led to ending owners’ equity. Additional capital, net income from income statement is added to, and drawings is deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.
Prepare a statement of owners’ equity for ABY Spa for the month ended June 30, 20--.
ABY Spa | ||
Statement of Owners’ Equity | ||
For the Month Ended June 30, 20-- | ||
AV, Capital, June 1, 20-- | $0 | |
Investments during June | $18,158 | |
Net income for June | 8,241 | |
26,399 | ||
Less: Withdrawals for June | 1,850 | |
Increase in capital | 24,549 | |
AV, Capital, June 30, 20-- | $24,549 |
Table (49)
6.
Prepare a balance sheet for ABY Spa, based on the account balances derived in Part (2), and capital of the owner from the statement of owners’ equity prepared in Part (5).
6.
Explanation of Solution
Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and owners (owners’ equity) over those resources. The resources of the company are assets which include money contributed by owners and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and owners’ equity.
Prepare the balance sheet for ABY Spa as at June 30, 20--.
ABY Spa | ||
Balance Sheet | ||
June 30, 20-- | ||
Assets | ||
Cash | $15,170 | |
Accounts Receivable | 1,264 | |
Office Supplies | 368 | |
Spa Supplies | 492 | |
Prepaid Insurance | 960 | |
Office Equipment | 1,150 | |
Spa Equipment | 7,393 | |
Total assets | $26,797 | |
Liabilities | ||
Accounts Payable | $2,248 | |
Owners’ Equity | ||
AV, Capital | 24,549 | |
Total liabilities and owners’ equity | $26,797 |
Table (50)
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Chapter 3 Solutions
College Accounting: A Career Approach (with Quickbooks Accountant 2015 Cd-rom)
- Bridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor society's annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 196 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00 p.m. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is four hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night. Instead of driving, she could catch a 3:00 p.m. flight that has a round-trip fare of $300. Flying would require her to rent a car for $39 per day and pay an airport parking fee of $25 for the day. The company pays a per diem of $35 for incidentals if the employee spends at least six hours out of town. (The per diem…arrow_forwardBridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor society's annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 196 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00 p.m. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is four hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night. Instead of driving, she could catch a 3:00 p.m. flight that has a round-trip fare of $300. Flying would require her to rent a car for $39 per day and pay an airport parking fee of $25 for the day. The company pays a per diem of $35 for incidentals if the employee spends at least six hours out of town. (The per diem…arrow_forwardBridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor society’s annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 198 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00 p.m. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is four hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night. Instead of driving, she could catch a 3:00 p.m. flight that has a round-trip fare of $290. Flying would require her to rent a car for $39 per day and pay an airport parking fee of $25 for the day. The company pays a per diem of $35 for incidentals if the employee spends at least six hours out of town. (The per diem…arrow_forward
- Don Masters and two of his colleagues are considering opening a law office in a large metropolitan area that would make inexpensive legal services available to those who could not otherwise afford these services. The intent is to provide easy access for their clients by having the office open360 days per year, 16 hours each day from 7:00 a.m. to 11:00 p.m. The office would be staffed by a lawyer, paralegal, legal secretary, and clerk-receptionist for each of the two 8-hour shifts.In order to determine the feasibility of the project, Don hired a marketing consultant to assist with market projections. The results of this study show that if the firm spends $500,000 onadvertising the first year, the number of new clients expected each day would have the following probability distribution: Number of NewClients per Day Probability 20 0.10 30 0.30 55 0.40…arrow_forwardDon Masters and two of his colleagues are considering opening a law office in a largemetropolitan area that would make inexpensive legal services available to those whocould not otherwise afford these services. The intent is to provide easy access for theirclients by having the office open 360 days per year, 16 hours each day from 7:00 a.m. to11:00 p.m. The office would be staffed by a lawyer, paralegal, legal secretary, andclerk-receptionist for each of the two 8-hour shifts.In order to determine the feasibility of the project, Don hired a marketing consultantto assist with market projections. The results of this study show that if the firm spends$500,000 on advertising the first year, the number of new clients expected each daywould have the following probability distribution:Don and his associates believe these numbers are reasonable and are prepared tospend the $500,000 on advertising. Other pertinent information about the operation ofthe office is as follows.The only charge to…arrow_forwardHappy Trails, Inc., is a popular family resort just outside Yellowstone National Park. Summer is the resort’s busy season, but guests typically pay a deposit at least six months in advance to guar-antee their reservations. The resort is currently seeking new investment capital in order to expand operations. The moreprofitable Happy Trails appears to be, the more interest it will generate from potential investors.Ed Grimm, an accountant employed by the resort, has been asked by his boss to include $2 millionof unearned guest deposits in the computation of income for the current year. Ed explained to hisboss that because these deposits had not yet been earned they should be reported in the balancesheet as liabilities, not in the income statement as revenue. Ed argued that reporting guest depositsas revenue would inflate the current year’s income and may mislead investors. Ed’s boss then demanded that he include $2 million of unearned guest deposits in the computa-tion of income or be…arrow_forward
- Happy Trails, Inc., is a popular family resort just outside Yellowstone National Park. Summeris the resort’s busy season, but guests typically pay a deposit at least six months in advanceto guarantee their reservations.The resort is currently seeking new investment capital in order to expand operations. Themore profitable Happy Trails appears to be, the more interest it will generate from potentialinvestors. Ed Grimm, an accountant employed by the resort, has been asked by his boss toinclude $2 million of unearned guest deposits in the computation of income for the currentyear. Ed explained to his boss that because these deposits had not yet been earned theyshould be reported in the balance sheet as liabilities, not in the income statement asrevenue. Ed argued that reporting guest deposits as revenue would inflate the current year’sincome and may mislead investors.Ed’s boss then demanded that he include $2 million of unearned guest deposits in thecomputation of income or be fired. He…arrow_forwardMs. Faye Santos is an accounting major at a Midwestern state university located approximately 60 miles from a major city. Ms. Faye Santos is an accounting major at a Midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan areas and visit their homes regularly on the weekends. Faye, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. She believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Faye has gathered the following investment information. Five used vans would cost a total of $75,000 to purchase and would have a three-year useful life with negligible salvage value. Faye plans to use straight-line depreciation. Ten drivers would have to be employed at a total payroll expense of $48,000. 3. Other annual out-of-pocket expenses…arrow_forwardA friend of yours owns a kitchen manufacturing business in Limerick City called Blurred Kitchens Limited. The business employs twenty-six people and these comprise fully qualified carpenters, trainee carpenters, sales staff, delivery staff and administration staff. Your friend has recently received a job proposal from a large developer in Donegal to manufacture and fit kitchens for 25 houses in a housing estate in Donegal Town. The work will take eight weeks to fully complete. He has made out the following financial details for you to study and has asked you to write a formal consultancy report for which you will be financially rewarded.Raw materialsThe chief raw material that Blurred Kitchens Limited uses in all its kitchens is an Indonesian timber. This timber will cost GH₵4,600 per kitchen. There is already, in stock, enough timber to make and fit 5 kitchens. This stock of timber had originally cost GH₵3,280 per kitchen but hassince increased in price. Supplementary materials will…arrow_forward
- A friend of yours owns a kitchen manufacturing business in Limerick City called Blurred Kitchens Limited. The business employs twenty-six people and these comprise fully qualified carpenters, trainee carpenters, sales staff, delivery staff and administration staff. Your friend has recently received a job proposal from a large developer in Donegal to manufacture and fit kitchens for 25 houses in a housing estate in Donegal Town. The work will take eight weeks to fully complete. He has made out the following financial details for you to study and has asked you to write a formal consultancy report for which you will be financially rewarded. Raw materials The chief raw material that Blurred Kitchens Limited uses in all its kitchens is an Indonesian timber. This timber will cost GH₵4,600 per kitchen. There is already, in stock, enough timber to make and fit 5 kitchens. This stock of timber had originally cost GH₵3,280 per kitchen but has since increased in price. Supplementary materials…arrow_forwardA friend of yours owns a kitchen manufacturing business in Limerick City called Blurred Kitchens Limited. The business employs twenty-six people and these comprise fully qualified carpenters, trainee carpenters, sales staff, delivery staff and administration staff. Your friend has recently received a job proposal from a large developer in Donegal to manufacture and fit kitchens for 25 houses in a housing estate in Donegal Town. The work will take eight weeks to fully complete. He has made out the following financial details for you to study and has asked you to write a formal consultancy report for which you will be financially rewarded.Raw materialsThe chief raw material that Blurred Kitchens Limited uses in all its kitchens is an Indonesian timber. This timber will cost GH₵4,600 per kitchen. There is already, in stock, enough timber to make and fit 5 kitchens. This stock of timber had originally cost GH₵3,280 per kitchen but has since increased in price. Supplementary materials will…arrow_forwardErnie Bilko has a business idea. He wants to rent an abandoned gas station for just the months of November and December. He will convert the gas station into a drive-through Christmas wrapping station. Customers will drive in, drop off their gifts, return the next day, and pick up their wrapped gifts. He needs $333,900 to rent the gas station, purchase wrapping paper, hire workers, and advertise. If he borrows this amount at 6 1/2% interest for those two months, what size lump sum payment will he have to make to pay off the loan? (Round your answer to the nearest cent.)arrow_forward
- College Accounting (Book Only): A Career ApproachAccountingISBN:9781305084087Author:Cathy J. ScottPublisher:Cengage LearningCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning