E1-35 Preparing the statement of retained earnings
Learning Objective 5
Ending Retained Earnings $35,400
Prepare the statement of retained earnings for Damon Design Studio for the year ending December 31,
2018.
E1-36 Preparing the balance sheet
Learning Objective 5
Total Assets $66,000
Prepare the balance sheet for Damon Design Studio as of December 31, 2018.
SOLUTION
E1-37 Preparing the statement of cash flows
Learning Objective 5
For each transaction, identify the appropriate section on the statement of cash flows to report the transaction.
Choose from: Cash flows from operating activities (O), Cash flows from investing activities (I), Cash flows from
financing activities (F), or Is not reported on the statement of cash flows (X). If reported on the statement, decide
whether the transaction should be shown as a positive cash flow (+) or a negative cash flow (–):
a. The business received cash from the issuance of common stock.
b. Paid cash on accounts payable for office supplies purchased.
c. Performed services for a customer on account.
d. Cash dividends were paid to stockholders.
e. Received cash from a customer for services performed.
f. Purchased equipment with cash.
g. Paid rent for the month.
h. Purchased land; signed a note payable.
i. Paid employees wages for the week.
j. Incurred utility expense on account.
SOLUTION
E1-38 Preparing the statement of cash flows
Learning Objective 5
Decrease in cash $9,350
Morning Bean Food Equipment Company had the following transactions for the month ending January
31, 2018. Morning Bean’s cash balance on January 1, 2018, was $11,800.
Jan. 1 Common stock was issued to stockholders for $5,000 cash.
7 Purchased equipment for $2,400 on account.
14 Paid $19,000 cash for land.
17 Paid cash expenses: employees’ salaries, $1,300; office rent, $1,600; utilities, $450.
23 Paid cash dividends of $500.
26 Earned service revenue for the month, $8,500, receiving cash.
Prepare the statement of cash flows of Morning Bean Food Equipment Company for the month ended
January 31, 2018.
SOLUTION
E1-39 Calculating Return on Assets
Learning Objective 6
Alice Appliance Service had net income for the year of $58,500. In addition, the balance sheet reports
the following balances:
Jan 1, 2018 Dec 31, 2018
Notes Payable $ 32,000 $ 58,000
Cash 34,000 134,200
Office Furniture 23,000 44,000
Building 160,000 160,000
Accounts Payable 11,500 11,000
Total Stockholders’ Equity 204,500 333,000
Accounts Receivable 2,200 19,800
Equipment 24,000 42,000
Office Supplies 4,800 2,000
Calculate the return on assets for Alice Appliance Service for the year ending December 31, 2018.
SOLUTION
Problems (Group A)
P1-40A Using the accounting equation for transaction analysis
Learning Objective 4
Cash $13,600
Meg McKinney opened a public relations firm called Solid Gold on August 1, 2018. The following amounts summarize her business on August 31,
2018:
During September 2018, the business completed the following transactions:
a. Received contribution of $17,000 cash from Meg McKinney in exchange for common stock.
b. Performed service for a client and received cash of $800.
c. Paid off the beginning balance of accounts payable.
d. Purchased office supplies from OfficeMax on account, $1,200.
e. Collected cash from a customer on account, $2,000.
f. Cash dividends of $1,600 were paid to stockholders.
g. Consulted for a new band and billed the client for services rendered, $4,500.
h. Recorded the following business expenses for the month:
Paid office rent: $1,000.
Paid advertising: $500.
Analyze the effects of the transactions on the accounting equation of Solid Gold using the format presented in Exhibit 1-6.
SOLUTION
P1-41A Using the accounting equation for transaction analysis
Learning Objective 4
Cash $21,500
Conner Thomas started a new business, Thomas Gymnastics, and completed the following transactions during December:
Dec. 1 Received $19,000 cash from Conner in exchange for common stock.
2 Received $3,800 cash from customers for services performed.
5 Paid $200 cash for office supplies.
9 Performed services for a customer and billed the customer for services
rendered, $4,500.
10 Received $200 invoice for utilities due in two weeks.
15 Paid for advertising in the local paper, $250.
20 Paid utility invoice received on December 10.
25 Collected cash in full from customer billed on December 9.
28 Paid rent for the month, $1,600.
28 Paid $1,450 to assistant for wages.
30 Received $1,400 cash from customers for services performed.
31 Cash dividends of $3,500 were paid to stockholders.
Analyze the effects of the transactions on the accounting equation of Thomas Gymnastics using a format similar to Exhibit 1-6.
SOLUTION
P1-42A Preparing financial statements
Learning Objective 5
1. Net Income $115,700
Presented here are the accounts of Hometown Décor Company for the year ended December 31,
2018.
Land $ 13,000 Common Stock $ 28,000
Notes Payable 33,000 Accounts Payable 14,000
Property Tax Expense 2,800 Accounts Receivable 800
Dividends 36,000 Advertising Expense 17,000
Rent Expense 14,000 Building 170,400
Salaries Expense 67,000 Cash 2,800
Salaries Payable 1,300 Equipment 17,000
Service Revenue 225,000 Insurance Expense 1,700
Office Supplies 8,000 Interest Expense 6,800
Retained Earnings, Dec. 31, 2017 56,000
Requirements
1. Prepare Hometown Décor Company’s income statement.
2. Prepare the statement of retained earnings.
3. Prepare the balance sheet.
SOLUTION
Net Income $ 115,700