SOLUTION
E1-28 Using the accounting equation to analyze business transactions
Learning Objective 4
The analysis of the first eight transactions of Advanced Accounting Service follows. Describe each
transaction.
SOLUTION
E1-29 Using the accounting equation to analyze business transactions
Learning Objective 4
Ashley Stamper opened a medical practice. During July, the first month of operation, the business, titled Ashley Stamper, MD, experienced
the following events:
Jul. 6 Received a contribution of $68,000 from Stamper and opened a bank account in the name of A.
Stamper, MD. The corporation issued common stock to Stamper.
9 Paid $56,000 cash for land.
12 Purchased medical supplies for $1,500 on account.
15 Officially opened for business.
20 Paid cash expenses: employees’ salaries, $1,300; office rent, $1,500; utilities, $100.
31 Earned service revenue for the month, $13,000, receiving cash.
31 Paid $1,050 on account.
Analyze the effects of these events on the accounting equation of the medical practice of Ashley Stamper, MD, using the following format:
SOLUTION
E1-30 Preparing the financial statements
Learning Objective 5
Estella Osage publishes an online travel magazine. In need of cash, the business applies for a loan with
National Bank. The bank requires borrowers to submit financial statements. With little
knowledge of accounting, Estella Osage, a stockholder, does not know how to proceed.
Requirements
1. What are the four financial statements that the business will need to prepare?
2. Is there a specific order in which the financial statements must be prepared?
3. Explain how to prepare each statement.
Use the following information to answer Exercises E1-31 through E1-33.
The account balances of Wilson Towing Service at June 30, 2018, follow:
Equipment $ 25,850 Service Revenue $ 15,000
Office Supplies 1,000 Accounts Receivable 9,000
Notes Payable 6,800 Accounts Payable 8,000
Rent Expense 900 Retained Earnings, June 1, 2018 3,250
Cash 1,400 Salaries Expense 2,400
Dividends 3,500 Common Stock 11,000
SOLUTION
E1-31 Preparing the income statement
Learning Objective 5
Net Income $11,700
Requirements
1. Prepare the income statement for Wilson Towing Service for the month ending June 30,
2018.
2. What does the income statement report?
SOLUTION
E1-32 Preparing the statement of retained earnings
Learning Objective 5
Ending Retained Earnings $11,450
Requirements
1. Prepare the statement of retained earnings for Wilson Towing Service for the month
ending June 30, 2018.
2. What does the statement of retained earnings report?
SOLUTION
E1-33 Preparing the balance sheet
Learning Objective 5
Total Assets $37,250
Requirements
1. Prepare the balance sheet for Wilson Towing Service as of June 30, 2018.
2. What does the balance sheet report?
Use the following information to answer Exercises E1-34 through E1-36.
The assets, liabilities, and equities of Damon Design Studio have the following balances at December
31, 2018. The retained earnings was $39,000 at the beginning of the year. At year end, common
stock was $13,000 and dividends were $57,000.
Notes Payable $ 14,000 Office Furniture $ 48,400
Rent Expense 23,000 Utilities Expense 7,200
Cash 3,200 Accounts Payable 3,600
Office Supplies 5,100 Service Revenue 154,600
Salaries Expense 65,000 Accounts Receivable 9,300
Property Tax Expense 2,200 Miscellaneous Expense 3,800
E1-34 Preparing the income statement
Learning Objective 5
Net Income $53,400
Prepare the income statement for Damon Design Studio for the year ending December 31, 2018.