P1-1A Analyze transactions and compute net income
On April 1, Julie Spengel established Spengel’s Travel Agency. The following transactions were
completed during the month.
1. Invested $15,000 cash to start the agency.
2 Paid $600 cash for April office rent.
3. Purchased equipment for $3,000 cash.
4.
Incurred $700 of advertising costs in the Chicago Tribune, on account.
5. Paid $900 cash for office supplies.
6. Performed services worth $10,000: $3,000 cash is received from customers, and the
balance of $7,000 is billed to customers on account.
7. Withdrew $600 cash for personal use.
8.
Paid Chicago Tribune $500 of the amount due in transaction (4).
9. Paid employees‘ salaries $2,500.
10. Received $4,000 in cash from customers who have previously been billed in
transaction (6).
Instructions
(a) Prepare a tabular analysis of the transactions using the following column headings:
Cash, Accounts Receivable, Supplies, Equipment, Accounts Payable, Owner’s Capital,
Owner’s Drawings, Revenues, and Expenses.
(b) From an analysis of the owner’s equity columns, compute the net income or net loss for April.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a)
Accounts Accounts Owner’s Owner’s
Cash + Receivable + Supplies +
Equipment
= Payable + Capital – Drawings +
Revenues
– Expenses
1. Value Value
Value = ?
2. ? Value
Value = ? – ?
3. Value Value
? + ? = ? – Value
4. Value Value
? + ? = ? + ? – ?
5. Value Value
? + ? + ? = ? + ? – ?
6. Value Value Value
? + ? + ? + ? = ? + ? + ? – ?
7. Value Value Value
? + ? + ? + ? = ? + ? – ? + ? – ?
8. Value
? + ? + ? + ? = ? + ? – ? + ? – ?
9. Value Value
? + ? + ? + ? = ? + ? – ? + ? – ?
10 Value Value
? + ? + ? + ? = ? + ? – ? + ? – ?
(b) Service Revenue Value
Expenses
Salaries and Wages ?
Rent ?
Advertising ? ?
Net income ?
After you have completed the requirements of P1-1A, consider this additional question.
1. Assume that office rent and advertising expense changed to $800 and $600 respectively. In addition, revenues changed to $12,000
with $5,000 collected in cash and the balance on account. Show the impact of these changes in the analysis and on the net income
or loss for the month.
SPENGEL’S TRAVEL AGENCY
Owner’s Equity
P1-1A Solution
(a)
Accounts Accounts Owner’s Owner’s
Cash +
Receivable
+
Supplies
+ Equipment = Payable + Capital – Drawings +
Revenues
–
Expenses
1. $15,000 $15,000
15,000 = 15,000
2. -600 600
14,400 = 15,000 – 600
3. -3,000 $3,000
11,400 + 3,000 = 15,000 – 600
4. $700 700
11,400 + 3,000 = 700 + 15,000 – 1,300
8. -500 -500
12,400 + 7,000 + 900 + 3,000 = 200 + – 600 + 10,000 – 1,300
9. -2,500 2,500
9,900 + 7,000 + 900 + 3,000 = 200 + 0 – 600 + 10,000 – 3,800
10 4,000 -4,000
$13,900 + $3,000 + $900 + $3,000 = $200 +$0 –$600 + $10,000 – $3,800
SPENGEL’S TRAVEL AGENCY
Owner’s Equity
5. -900 900
P1-1A Solution to additional question
1. Assume that office rent and advertising expense changed to $800 and $600 respectively. In addition, revenues changed to $12,000
with $5,000 collected in cash and the balance on account. Show the impact of these changes in the analysis and on the net income
or loss for the month.
(a)
Accounts Accounts Owner’s Owner’s
Cash +
Receivable
+
Supplies
+
Equipment
= Payable + Capital – Drawings +
Revenues
–
Expenses
1. $15,000 $15,000
15,000 =15,000
2. -800 800
14,200 =15,000 –800
3. -3,000 $3,000
6. 5,000 $7,000 $12,000
15,400 +7,000 +800 +3,000 =600 15,000 +12,000 –1,400
7. -500 -500 500
14,900 +7,000 +800 +3,000 =100 +15,000 –500 +12,000 –1,400
8. -500
14,400 +7,000 +800 +3,000 =100 +15,000 –500 +12,000 –1,400
(b) Service Revenue $12,000
Expenses
Salaries and wages $2,500
SPENGEL’S TRAVEL AGENCY
Owner’s Equity
5. -800 800
P1-2A Analyze transactions and prepare income statement, owner’s equity statement, and balance sheet
Judi Salem opened a law office on July 1, 2017. On July 31, the balance sheet showed Cash $5,000,
Accounts Receivable $1,500, Supplies $500, Equipment $6,000, Accounts Payable $4,200 and Owner’s
Capital $8,800. During August, the following transactions occurred.
1. Collected $1,200 of accounts receivable.
2. Paid $2,800 cash on accounts payable.
3. Recognized revenue of $7,500 of which $3,000 is collected in cash and the balance is due in September.
4. Purchased additional equipment for $2,000, paying $400 in cash and the balance on account.
5. Paid salaries $2,500, rent for August $900, and advertising expenses $400.
6. Withdrew $700 in cash for personal use.
7. Received $2,000 from Standard Federal Bank – money borrowed on a note payable.
8.
Incurred utility expenses for month on account $270.
Instructions
(a) Prepare a tabular analysis of the August transactions beginning with July 31 balances. The column
headings should be as follows: Cash + Accounts Receivable + Supplies + Equipment = Notes Payable +
Accounts Payable + Owner’s Capital – Owner’s Drawings + Revenue – Expenses.
(b) Prepare an income statement for August, an owner’s equity statement for August and a balance
sheet at August 31.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a)
Accounts Notes Accounts Owner’s Owner’s
Cash + Receivable + Supplies + Equipment = Payable + Payable + Capital – Drawings + Revenues – Expenses
Bal. $5,000 + $1,500 + $500 + $6,000 = $4,200 + $8,800
1. Value Value
? + ? + ? + ? = ? ?
2. Value Value
? + ? + ? + ? = ? + ?
3. Value Value Value
? + ? + ? + ? = ? + ? + ?
4. Value Value Value
Value + Value + Value + Value = Value + Value + Value
5. Value Value
Value
Value
Value + Value + Value + Value = Value + Value + Value – Value
6. Value Value
Value + Value + Value + Value Value + Value – Value + Value – Value
7. Value Value
Value + Value + Value + Value = Value + Value + Value – Value + Value – Value
8. Value Value
? + ? + ? + ? = ? + ? + ? – ? + ? – ?
(b)
Revenues
Service Revenues ?
Expenses
Salaries and wages expense
?
Rent expense ?
Advertising expense ?
Utilities expense ?
Total expenses ?
Net income ?
Owner’s capital, August 1 ?
Add: Net income ?
?
Less: Drawings ?
Owner’s capital, August 31 ?
Cash ?
Accounts Receivable ?
Supplies ?
Equipment ?
Total assets ?
Liabilities
Notes payable ?
Accounts payable ?
JUDI SALEM, ATTORNEY AT LAW
Owner’s Equity
JUDI SALEM, ATTORNEY AT LAW
JUDI SALEM, ATTORNEY AT LAW
Income statement
For the Month Ended August 31, 2017
Liabilities and Owner’s Equity
Owner’s Equity Statement
For the Month Ended August 31, 2017
JUDI SALEM, ATTORNEY AT LAW
Balance Sheet
For the Month Ended August 31, 2017
Assets
Total liabilities ?
Owner’s Equity
Owner’s Capital
?
Total liabilities and owner’s equity ?
After you have completed the requirements of P1-2A, consider this additional question.
1. Assume that the following changes occurred:
(a) Payment on accounts payment in transaction (2) changed to $2,400.
(b) Revenues collected in cash in transaction (3) changed to $3,800 with the remainder on account
(c ) Expenses paid in transaction (5) changed to $2,800, $750, and $375 for salaries, rent and advertising
expenses respectively.
Show the impact of these changes on the analysis and in the financial statements.
P1-2A Solution
(a)
Accounts Notes Accounts Owner’s Owner’s
Cash + Receivable + Supplies +
Equipment
= Payable + Payable + Capital – Drawings +
Revenues
–
Expenses
Bal. $5,000 + $1,500 + $500 + $6,000 = $4,200 + $8,800
1. 1,200 -1,200
6,200 + 300 +500 + 6,000 = 4,200 8,800
5. -3,800 2,500
900
400
2,200 + 4,800 + 500 + 8,000 = 3,000 + 8,800 + 7,500 – 3,800
6. -700 – 700
1,500 + 4,800 + 500 + 8,000 3,000 + 8,800 – 700 + 7,500 – 3,800
P1-2A Solution
(b)
Revenues
Service Revenues $7,500
Expenses
Salaries and wages expense $2,500
Rent expense 900
Owner’s capital, August 1 $8,800
Add: Net income 3,430
Cash $3,500
Accounts Receivable 4,800
Supplies 500
Equipment 8,000
JUDI SALEM, ATTORNEY AT LAW
JUDI SALEM, ATTORNEY AT LAW
Owner’s Equity
JUDI SALEM, ATTORNEY AT LAW
Income statement
For the Month Ended August 31, 2017
Owner’s Equity Statement
For the Month Ended August 31, 2017
JUDI SALEM, ATTORNEY AT LAW
Balance Sheet
For the Month Ended August 31, 2017
Assets
P1-2A Solution to additional question
1. Assume that the following changes occurred:
(a) Payment on accounts payment in transaction (2) changed to $2,400.
(b) Revenues collected in cash in transaction (3) changed to $3,800 with the remainder on account
(c ) Expenses paid in transaction (5) changed to $2,800, $750, and $375 for salaries, rent and advertising
expenses respectively.
Show the impact of these changes on the analysis and in the financial statements.
(a)
Accounts Notes Accounts Owner’s Owner’s
Cash + Receivable +
Supplies
+
Equipment
= Payable + Payable + Capital –
Drawings
+
Revenues
–
Expenses
Bal. $5,000 + $1,500 + $500 + $6,000 = $4,200 + $8,800
1. 1,200 -1,200
6,200 + 300 +500 + 6,000 = 4,200 8,800
2. -2,400 -2,400
3,800 +300 +500 + 6,000 = 1,800 + 8,800
750
375
3,275 +4,000 +500 + 8,000 = 1,800 + 8,800 + 7,500 – 3,925
6. -700 700
2,575 +4,000 +500 + 8,000 1,800 + 8,800 – 700 + 7,500 – 3,925
(b)
Revenues
Service Revenues $7,500
Expenses
Salaries and wages expense $2,800
Rent expense 750
Advertising expense 375
Owner’s capital, August 1 $8,800
Add: Net income 3,305
Cash $4,575
Accounts Receivable 4,000
Liabilities
Notes payable $2,000
JUDI SALEM, ATTORNEY AT LAW
JUDI SALEM, ATTORNEY AT LAW
Owner’s Equity
JUDI SALEM, ATTORNEY AT LAW
Income statement
For the Month Ended August 31, 2017
Liabilities and Owner’s Equity
Owner’s Equity Statement
For the Month Ended August 31, 2017
JUDI SALEM, ATTORNEY AT LAW
Balance Sheet
For the Month Ended August 31, 2017
Assets
CC1 – Cookie Creations: The entrepreneurial journey
Natalie Koebel spent much of her childhood learning the art of cookie-making from her grandmother. They passed many
happy hours mastering every type of cookie imaginable and later creating new recipes that were both healthy and delicious.
Now at the start of her second year in college, Natalie is investigating various possibilities for starting her own business as
part of the requirements of the entrepreneurship program in which she is enrolled.
A long-time friend insists that Natalie has to somehow include cookies in her business plan. After a series of brainstorming
sessions, Natalie settles on the idea of operating a cookie-making school. She will start on a part-time basis and offer her
services in people’s homes. Now that she has started thinking about it, the possibilities seem endless. During the fall, she
will concentrate on holiday cookies. She will offer individual lessons and group sessions (which will probably be more
entertainment than education for the participants). Natalie also decides to include children in her target market.
The first difficult decision is coming up with the perfect name for her business. In the end, she settles on “Cookie Creations”
and then moves on to more important issues.
Instructions
(a) What form of business organization – proprietorship, partnership, or corporation – do you recommend that Natalie use for her
business? Discuss the benefits and weaknesses of each form and give the reasons for your choice.
(b) Will Natalie need accounting information? If yes, what information will she need and why? How often will she need this
information?
(c ) Identify specific asset, liability, and owner’s equity accounts that Cookie Creations will likely use to record its business
transactions.
(d) Should Natalie open a separate bank account for the business? Why or why not?
(a) What form of business organization – proprietorship, partnership, or corporation – do you recommend that Natalie use for her
business? Discuss the benefits and weaknesses of each form and give the reasons for your choice.
(b) Will Natalie need accounting information? If yes, what information will she need and why? How often will she need this
information?
(c ) Identify specific asset, liability, and owner’s equity accounts that Cookie Creations will likely use to record its business
transactions.
Response:
Response:
Response:
(d) Should Natalie open a separate bank account for the business? Why or why not?
Response:
CC1 Solution
(a) What form of business organization – proprietorship, partnership, or corporation – do you recommend that Natalie use for her
business? Discuss the benefits and weaknesses of each form and give the reasons for your choice.
(b) Will Natalie need accounting information? If yes, what information will she need and why? How often will she need this
information?
(c ) Identify specific asset, liability, and owner’s equity accounts that Cookie Creations will likely use to record its business
transactions.
(d) Should Natalie open a separate bank account for the business? Why or why not?
Natalie has a choice between a sole proprietorship and a corporation. A partnership is not an
option since she is the sole owner of the business.
A proprietorship is the easiest to create and operate because there are no formal procedures
involved in creating the proprietorship. However, if she operates the business as a
proprietorship she will personally have unlimited liability for the debts of the business.
Yes, Natalie will need accounting information to help her operate her business. She will need
information on her cash balance on a daily or weekly basis to help her determine if she can pay her
bills. She will need to know the cost of her services so she can establish her prices. She will need to
know revenue and expenses so she can report her net income for personal income tax purposes, on
Assets: Cash, Accounts Receivable, Supplies, Equipment, Prepaid Insurance
Liabilities: Accounts Payable, Unearned Service Revenue, Notes Payable