1-41
P1-44A Preparing financial statements
Learning Objective 5
Total Assets $47,100
The bookkeeper of Lone Star Landscaping prepared the company’s balance sheet while the accountant
was ill. The balance sheet 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.
1-42
SOLUTION
LONE STAR LANDSCAPING
Balance Sheet
November 30, 2016
1-43
P1-45A Using the accounting equation for transaction analysis and preparing financial statements
Learning Objectives 4, 5
2b. Ending Retained Earnings $6,900
Alfonso Sheen recently opened his own accounting firm, which he operates as a corporation. The name
of the new entity is Alfonso Sheen, CPA. Sheen experienced the following events during the organizing
phase of the new business and its first month of operations in 2016:
Requirements
1. Analyze the effects of the events on the accounting equation of Alfonso Sheen, 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.
1-44
SOLUTION
Requirement 1
Assets
=
Liabilities
+
Equity
Contributed
Capital
+
Retained Earnings
Cash
+
Accounts
Receivable
+
Office
Supplies
+
Furniture
=
Accounts
Payable
+
Common
Stock
–
Dividends
+
Service
Revenue
–
Rent
Expense
–
Utilities
Expense
+
+
+
+
+
+
+
+
P1-45A, cont.
Requirement 2a
ALFONSO SHEEN, CPA
Income Statement
Month Ended February 29, 2016
Revenue:
Service Revenue
$ 12,800
Expenses:
Rent Expense
Utilities Expense
Net Income
Requirement 2b
ALFONSO SHEEN, CPA
Statement of Retained Earnings
Month Ended February 29, 2016
Retained Earnings, February 1, 2016
$ 0
Net income for the month
11,400
Dividends
Requirement 2c
ALFONSO SHEEN, CPA
Balance Sheet
Cash
Office Supplies
Furniture
Common Stock
Retained Earnings
6,900
Total Assets
Equity
1-46
P1-46A Using the accounting equation for transaction analysis and preparing financial statements
Learning Objectives 4, 5
2c. Total Assets $94,360
Angela Petrillo recently opened her own law office, which she operates as a corporation. The name of
the new entity is Angela Petrillo, Attorney. Petrillo experienced the following events during the
organizing phase of the new business and its first month of operation, March 2016. 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.
Requirements
1. Analyze the effects of the preceding events on the accounting equation of Angela Petrillo, 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.
SOLUTION
Requirement 1
Assets
=
Liabilities
+
Equity
Contributed
Capital
+
Retained Earnings
Cash
+
Accounts
Receivable
+
Office
Supplies
+
Computer
=
Accounts
Payable
+
Common
Stock
−
Dividends
+
Service
Revenue
–
Utilities
Expense
–
Miscellaneous
Expense
3
5
Bal.
$71,650
+
=
+
7
Bal.
$71,650
+
+
=
+
9
Bal.
$74,150
+
+
$5,500
=
+
+
Bal.
$74,150
+
+
$5,500
=
$5,840
+
+
Bal.
+
+
+
$5,500
=
+
+
Bal.
$73,810
+
+
+
=
+
+
Bal.
$72,510
+
+
+
$5,500
=
+
+
Bal.
$74,310
+
$16,200
+
+
$5,500
=
+
+
Bal.
$72,310
+
+
+
=
+
$2,000
+
1-48
P1-46A, cont.
Requirement 2a
ANGELA PETRILLO, ATTORNEY
Income Statement
Month Ended March 31, 2016
Revenue:
Service Revenue
$ 20,500
Expenses:
Utilities Expense
Miscellaneous Expense
Total Expenses
Net Income
Requirement 2b
ANGELA PETRILLO, ATTORNEY
Statement of Retained Earnings
Month Ended March 31, 2016
Retained Earnings, March 1, 2016
$ 0
Net income for the month
18,860
18,860
Dividends
(2,000)
Retained Earnings, March 31, 2016
$ 16,860
Cash
Accounts Payable
$ 5,500
Office Supplies
Retained Earnings
88,860
Total Assets
Equity
$ 94,360
1-49
Problems Group B
P1-47B Using the accounting equation for transaction analysis
Learning Objective 4
Cash $8,150
Meg Clifford opened a public relations firm called Dance Fever on August 1, 2016. The following
amounts summarize her business on August 31, 2016:
Paid advertising: $350.
Analyze the effects of the transactions on the accounting equation of Dance Fever using the format
presented above.
1-50
SOLUTION
Assets
=
Liabilities
+
Equity
Contributed
Capital
+
Retained Earnings
Cash
+
Accounts
Receivable
+
Office
Supplies
+
Land
=
Accounts
Payable
+
Common
Stock
–
Dividends
+
Service
Revenue
–
Rent
Expense
–
Advertising
Expense
Bal.
$2,100
+
$2,500
+
+
$11,000
=
$6,000
+
$7,100
+
2,500
(a)
Bal.
$15,100
+
$2,500
+
$11,000
=
$6,000
+
+
2,500
(b)
Bal.
$16,300
+
$2,500
+
$11,000
=
$6,000
+
+
(c)
Bal.
+
$2,500
+
$11,000
=
+
+
(d)
Bal.
+
$2,500
+
+
$11,000
=
+
+
(e)
Bal.
+
$1,000
+
+
$11,000
=
$1,000
+
+
Bal.
+
$1,000
+
+
$11,000
=
+
+
(g)
Bal.
+
$7,000
+
+
$11,000
=
+
+
(h)
Bal.
$8,150
+
$7,000
+
+
$11,000
=
+
+
1-51
P1-48B Using the accounting equation for transaction analysis
Learning Objective 4
Cash $19,775
Cosmo Timmins started a new business, Timmins Gymnastics, and completed the fol- lowing
transactions during December:
Analyze the effects of the transactions on the accounting equation of Timmins Gymnastics using a
format similar to Exhibit 1-6.
SOLUTION
Assets
=
Liabilities
+
Equity
Contributed
Capital
+
Retained Earnings
Cash
+
Accounts
Receivable
+
Office
Supplies
=
Accounts
Payable
+
Common
Stock
–
Dividends
+
Service
Revenue
–
Rent
Expense
–
Utilities
Expense
–
Salaries
Expense
–
Advertising
Expense
1
2
Bal.
=
+
+
5
Bal.
+
=
+
+
9
Bal.
+
+
=
+
+
Bal.
+
+
=
+
+
Bal.
+
+
=
+
+
Bal.
+
+
=
+
+
Bal.
+
+
=
+
+
Bal.
+
=
+
+
Bal.
+
=
+
+
Bal.
+
=
+
+
Bal.
+
+
=
+
+
1-53
P1-49B Preparing financial statements
Learning Objective 5
1. Net Income $74,900
Presented here are the accounts of Town and Country Realty for the year ended December 31, 2016:
Requirements
1. Prepare Town and Country Realty’s income statement.
2. Prepare the statement of retained earnings.
3. Prepare the balance sheet.
SOLUTION
Requirement 1
TOWN AND COUNTRY REALTY
Income Statement
Year Ended December 31, 2016
Revenues:
Service Revenue
Salaries Expense
Advertising Expense
Rent Expense
Property Tax Expense
Insurance Expense
Total Expenses
Net Income
Requirement 2
TOWN AND COUNTRY REALTY
Statement of Retained Earnings
Year Ended December 31, 2016
Retained Earnings, December 31, 2015
$ 57,000
Net income for the year
(32,000)
Retained Earnings, December 31, 2016
$ 99,900
Requirement 3
TOWN AND COUNTRY REALTY
Balance Sheet
December 31, 2016
Accounts Payable
Accounts Receivable
Notes Payable
Office Supplies
Salaries Payable
Total Liabilities
Common Stock
Retained Earnings
Total Assets
Equity
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P1-50B Preparing financial statements
Learning Objective 5
b. Ending Retained Earnings $86,500
Precision Pics works weddings and prom-type parties. The balance of Retained Earnings was $26,000 at
December 31, 2015. At December 31, 2016, the business’s accounting records show these balances:
Prepare the following financial statements for Precision Pics for the year ended December 31, 2016:
a. Income statement.
b. Statement of retained earnings.
c. Balance sheet.
SOLUTION
Requirement a
PRECISION PICS
Income Statement
1-56
Requirement b
PRECISION PICS
Statement of Retained Earnings
Year Ended December 31, 2016
Retained Earnings, December 31, 2015
$ 26,000
Net income for the year
71,500
97,500
Dividends
(11,000)
Retained Earnings, December 31, 2016
$ 86,500
Cash
Accounts Payable
Accounts Receivable
Notes Payable
Equipment
Total Liabilities
Common Stock
Total Assets
Equity