Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
P1-43A Preparing financial statements
Learning Objective 5
b. Ending Retained Earnings $48,000
Picture Perfect Photography works weddings and prom-type parties. The balance of retained earnings
was $16,000 at December 31, 2017. At December 31, 2018, the business’s accounting records show
these balances:
Insurance Expense $ 6,000 Accounts Receivable $ 13,000
Cash 42,000 Notes Payable 14,000
Accounts Payable 11,000 Retained Earnings, Dec. 31, 2018 ?
Advertising Expense 4,000 Salaries Expense 25,000
Service Revenue 75,000 Equipment 46,000
Dividends 8,000 Common Stock 28,000
Prepare the following financial statements for Picture Perfect Photography for the year ended December
31, 2018:
a. Income statement.
b. Statement of retained earnings.
c. Balance sheet.
P1-44A Preparing financial statements
Learning Objective 5
Total Assets $47,100
The bookkeeper of Outdoor Life Landscaping prepared the company’s balance sheet while the
accountant was ill. The balance sheet, shown on the next page, contains numerous errors. In particular,
the bookkeeper knew that the balance sheet should balance, so he plugged in the retained earnings
amount needed to achieve this balance. The retained earnings is incorrect. All other amounts are correct,
but some are out of place or should not be included in this statement. Prepare a corrected balance sheet.
P1-45A Using the accounting equation for transaction analysis and preparing financial statements
Learning Objective 4, 5
2b. Ending Retained Earnings $19,560
Allen Shonton recently opened his own accounting firm on April 1, which he operates as a corporation. The name of the new entity is Allen
Shonton, CPA. Shonton experienced the following events during the organizing phase of the new business and its first month of operations in
2018:
Apr. 5 Shonton deposited $75,000 in a new business bank account titled Allen Shonton, CPA. The business
issued common stock to Shonton.
6 Paid $300 cash for letterhead stationery for new office.
7 Purchased office furniture for the office on account, $9,500.
10 Consulted with tax client and received $4,000 for services rendered.
11 Paid utilities, $190.
12 Finished tax hearings on behalf of a client and submitted a bill for accounting services, $20,000.
18 Paid office rent, $750.
25 Received amount due from client that was billed on April 12.
27 Paid full amount of accounts payable created on April 7.
30 Cash dividends of $3,500 were paid to stockholders.
Requirements
1. Analyze the effects of the events on the accounting equation of Allen Shonton, CPA. Use a format similar to Exhibit 1-6.
2. Prepare the following financial statements:
a. Income statement.
b. Statement of retained earnings.
c. Balance sheet.
SOLUTION
P1-45A, cont.
Requirement 2a
P1-46A Using the accounting equation for transaction analysis and preparing financial statements
Learning Objective 4, 5
2c. Total Assets $83,700
Annette Pachelo recently opened her own law office on March 1, which she operates as a corporation. The name of the new entity is Annette
Pachelo, Attorney. Pachelo experienced the following events during the organizing phase of the new business and its first month of operation,
March 2018. Some of the events were personal and did not affect the law practice. Others were business transactions and should be accounted
for by the business.
Mar. 1 Sold personal investment in Amazon stock, which she had owned for several years, receiving
$35,000 cash.
2 Deposited the $35,000 cash from the sale of the Amazon stock in her personal bank account.
3 Deposited $73,000 cash in a new business bank account titled Annette Pachelo, Attorney. The
business issued common stock to Pachelo.
5 Paid $700 cash for ink cartridges for the printer.
7 Purchased computer for the law office, agreeing to pay the account, $5,000, within three months.
9 Received $2,800 cash from customers for services rendered.
15 Received bill from The Lawyer for magazine subscription, $400. (Use Miscellaneous Expense
account.)
23 Finished court hearings on behalf of a client and submitted a bill for legal services, $10,000, on
account.
28 Paid bill from The Lawyer.
30 Paid utilities, $1,200.
31 Received $3,300 cash from clients billed on March 23.
31 Cash dividends of $5,500 were paid to stockholders.
Requirements
1. Analyze the effects of the preceding events on the accounting equation of Annette Pachelo, Attorney. Use a format similar to Exhibit
1-6.
2. Prepare the following financial statements:
a. Income statement.
b. Statement of retained earnings.
c. Balance sheet.
d. Statement of cash flows.
SOLUTION
Requirement 1
P1-46A, cont.
Requirement 2a
