P1-1A. Barone's Repair Inc. was started on May 1. A summary of May transactions is presented below.
1. Stockholders invested $10,000 cash to start the repair company.
2. Purchased equipment for $5,000 cash.
3. Paid $400 cash for May office rent.
4. Paid $500 cash for supplies.
5. Incurred $250 of advertising costs in the Beacon News on account.
6. Received $5,100 in cash from customers for repair service.
7. Paid dividends of $1,000 cash.
8. Paid part -time employee salaries $2,000.
9. Paid utility bills $140.
10. Provided repair service on account to customers $750.
11. Collected cash of $120 for services billed in transaction (10).
A. Prepare a tabular analysis of the transactions, using the following column headings: Cash, Accounts Receivable, Supplies, Equipment, Accounts Payable, Common Stock, and Retained Earnings. Revenue is called Service Revenue.
B. Form an analysis of the Retained Earnings column, compute the net income or net loss for May.
P1-2A. On August 31, the balance sheet of Nashville Veterinary Clinic showed Cash $9,000, Accounts Receivable, $1,700 Supplies $600, Office Equipment $6,000, Accounts Payable $3,600, Common Stock $1,3000, and Retained Earnings $700. During September the following transactions occurred.
1. Paid $2,900 cash on accounts payable.
2. Collected $1,300 of accounts receivable.
3. Purchased additional office equipment for $2,100, paying $800 in cash and the balance on the account.
4. Earned revenue of $8,000 of which $2,500 is paid in cash and the balance is due in October.
5. Paid cash dividens of $1,000.
6. Paid salaries $1,700, rent for September $900, and advertising expense $300.
7. Incurred utilities expense for month on account $170.
8. 'Received $10,000 from Capital Bank---- money borrowed on a not payable.
A. Prepare the tabular analysis of the September transactions beginning with the August 31 balances. The column headings should be as follows: Cash + Accounts Receivable + Supplies + Office Equipment = Notes payable + Accounts Payable + Common Stock + Retained Earnings.
B. Prepare an income statement for September, a retained earnings statement for September, and a balance sheet at September 30.
BYP1-4. Mary and Jack Gray, local golf stars, opened the Chip-Shot Driving Range Company on March 1, 2008. They invested $25,000 cash and received common stock in exchange for their investment. A caddy shack was constructed for cash at a cost of $8,000, and $800 was spent on golf balls and golf clubs. The Grays leased five acres of land at a cost of $1000 per month and paid the first month's rent. During the first month, advertising costs totaled $750, of which $150 was unpaid at March 31, and $400 was paid to members of the high school golf team for retrieving golf balls. All revenues from customers were deposited in the company's bank account. On March 15, Mary and Jack received a dividend of $1,000. A $100 utility bill was received on March 31 but was not paid. On March 31, the balance in the company's bank account was $18,900.
Mary and Jack thought they had a pretty good first month of operations. But, their estimates of profitability ranged from a loss of $6,100 to net income of $2,450.
With the class divided into groups, answer the following.
A. How could the Grays have concluded that the business operated at a loss of $6,100? Was this a valid basis on which to determine net income?
B. How could the Grays have concluded that the business operated at a net income of $2,450?
(Hint: Prepare a balance sheet at March 31.) Was this a valid basis on which to determine net income?
C. Without preparing an income statement, determine that actual net income for March.
D. What was the revenue earned in March?
The solution provides answers to finance problems P1-1A (Barone's Repair Inc), P1-2A (Nashville Veterinary Clinic) , BYP1-4(Mary and Jack Gray).