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P1-52B Using the accounting equation for transaction analysis and preparing financial statements
Learning Objective 5
2c. Total Assets $58,360
Amos Sharp recently opened his own accounting firm on October 1, which he operates as a corporation. The name of the new entity is Amos
Sharp, CPA. Sharp experienced the following events during the organizing phase of the new business and its first month of operations in
2018.
Oct. 5 Sharp deposited $45,000 in a new business bank account titled Amos Sharp, CPA. The business
issued common stock to Sharp.
6 Paid $300 cash for letterhead stationery for new office.
7 Purchased office furniture for the office on account, $6,500.
10 Consulted with tax client and received $3,300 for services rendered.
11 Paid utilities, $340.
12 Finished tax hearings on behalf of a client and submitted a bill for accounting services, $16,000.
18 Paid office rent, $1,800.
25 Received amount due from client that was billed on October 12.
27 Paid full amount of Accounts Payable created on October 7.
31 Cash dividends of $3,800 were paid to stockholders.
Requirements
1. Analyze the effects of the events on the accounting equation of Amos Sharp, 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.
P1-52B, cont.
Requirement 2a
P1-53B Using the accounting equation for transaction analysis and preparing financial statements
Learning Objectives 4, 5
2c. Total Assets $103,700
Abby Perry recently opened her own law office on December 1, which she operates as a corporation. The name of the new entity is Abby Perry,
Attorney. Perry experienced the following events during the organizing phase of the new business and its first month of operation, December
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.
Dec. 1 Sold personal investment in Nike stock, which she had owned for several years, receiving $30,000
cash.
2 Deposited the $30,000 cash from the sale of the Nike stock in her personal bank account.
3 Deposited $89,000 cash in a new business bank account titled Abby Perry, Attorney. The business
issued common stock to Perry.
5 Paid $600 cash for ink cartridges for the printer.
7 Purchased computer for the law office, agreeing to pay the account, $8,000, within three months.
9 Received $2,900 cash from customers for services rendered.
15 Received bill from The Lawyer for magazine subscription, $300. (Use Miscellaneous Expense
account.)
23 Finished court hearings on behalf of a client and submitted a bill for legal services, $8,000, on
account.
28 Paid bill from The Lawyer.
30 Paid utilities, $900.
31 Received $2,800 cash from clients billed on Dec. 23.
31 Cash dividends of $3,000 were paid to stockholders.
Requirements
1. Analyze the effects of the preceding events on the accounting equation of Abby Perry, 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
P1-53B, cont.
Requirement 2a
Using Excel
P1-54 Using Excel to prepare transaction analysis
Echo Lake Corporation started operations on November 1, 2018. Nine transactions occur during
November. Financial statements are prepared at the end of the month.
Requirements
1. Use Excel to prepare a transaction analysis of the nine transactions. Use the blue shaded areas for
inputs.
a. For each transaction, record the amount (either an increase or decrease) under the correct account.
Enter only non-zero amounts. If an account is not affected by the transaction, leave the amount
blank. Be sure to use a minus sign (−) if the amount is a decrease.
b. The row totals will be calculated automatically.
c. The accounting equation
( )
Assets Liabilities Equity= +
should remain in balance after each
transaction. The accounting equation is calculated automatically to the right of the transaction
table.
2. Prepare the income statement, statement of retained earnings, balance sheet, and statement of cash
flows for the company. Each financial statement appears on a separate worksheet tab. Fill in the blue
shaded areas using a formula that references the account balances at the end of the month in the
Transaction Analysis tab.
SOLUTION
Continuing Problem
P1-55 is the first problem in a continuing problem that will be used throughout the chapters to reinforce the concepts learned.
P1-55 Using the accounting equation for transaction analysis, preparing financial statements, and calculating return on assets (ROA)
Canyon Canoe Company is a service-based company that rents canoes for use on local lakes and rivers. Amber and Zack Wilson graduated
from college about 10 years ago. They both worked for one of the “Big Four” accounting firms and became CPAs. Because they both love the
outdoors, they decided to begin a new business that will combine their love of outdoor activities with their business knowledge. Amber and
Zack decide that they will create a new corporation, Canyon Canoe Company, or CCC for short. The business began operations on November
1, 2018.
Nov. 1 Received $16,000 cash to begin the company and issued common stock to Amber and Zack.
2 Signed a lease for a building and paid $1,200 for the first month’s rent.
3 Purchased canoes for $4,800 on account.
4 Purchased office supplies on account, $750.
7 Earned $1,400 cash for rental of canoes.
13 Paid $1,500 cash for wages.
15 Paid $50 dividends to stockholders.
16 Received a bill for $150 for utilities. (Use separate payable account.)
20 Received a bill for $175 for cell phone expenses. (Use separate payable account.)
22 Rented canoes to Early Start Daycare on account, $3,000.
26 Paid $1,000 on account related to the November 3, 2018, purchase.
28 Received $750 from Early Start Daycare for canoe rental on November 22, 2018.
30 Paid $100 dividends to stockholders.
Requirements
1. Analyze the effects of Canyon Canoe Company’s transactions on the accounting equation. Use the format of Exhibit 1-6, and include
these headings: Cash; Accounts Receivable; Office Supplies; Canoes; Accounts Payable; Utilities Payable; Telephone Payable; Common
Stock; Dividends; Canoe Rental Revenue; Rent Expense; Utilities Expense; Wages Expense; and Telephone Expense.
2. Prepare the income statement of Canyon Canoe Company for the month ended November 30, 2018.
3. Prepare the statement of retained earnings for the month ended November 30, 2018.
4. Prepare the balance sheet as of November 30, 2018.
5. Calculate the return on assets for Canyon Canoe Company for November 2018.
SOLUTION
