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EXERCISE

Carla Quentin started her own consulting firm, Quentin Consulting, on May 1, 2012. The following
transactions occurred during the month of May.
May 1 Carla invested $7,000 cash in the business.
2 Paid $900 for office rent for the month.
3 Purchased $600 of supplies on account.
5 Paid $125 to advertise in the County News.
9 Received $4,000 cash for services provided.
12 Withdrew $1,000 cash for personal use.
15 Performed $5,400 of services on account.
17 Paid $2,500 for employee salaries.
20 Paid for the supplies purchased on account on May 3.
23 Received a cash payment of $4,000 for services provided on account on May 15.
26 Borrowed $5,000 from the bank on a note payable.
29 Purchased office equipment for $4,200 on account.
30 Paid $275 for utilities.

Instructions
(a) Show the effects of the previous transactions on the accounting equation using the following
format.

(b) Prepare the income statement, owner’s equity statement, and balance sheet at May 31 and a
cash flow statement for Quentin Consulting.
Solution: a. In excel file: Solution Statement from tabular analysis Carla Quentin.xls

(b) Prepare the income statement, owner’s equity statement, and balance sheet at May 31 and a cash
flow statement for Quentin Consulting.
CARLA QUENTIN
Income Statement
For the Month Ended May 31, 2012
_____________________________________________________________________________
Revenues
Service revenue ................................................................................. $9,400
Expenses
Rent expense ...................................................................................... $900
Advertising expense ........................................................................... 125
Salaries expense ................................................................................ 2,500
Utilities expense ................................................................................ 275
Total expenses ............................................................................. 3,800
Net income .................................................................................. $5,600

CARLA QUENTIN
Owner's Equity Statement
For the Month Ended May 31, 2012

CARLA QUENTIN, Capital, May 1 ...................................................... $0


Add: New Investment .............................................................................. 7,000
Add: Net income ..................................................................................... 5,600
12,600
Less: Drawings ........................................................................................ 1,000
Carl Craft, Capital, May 31 ..................................................................... $11,600

CARLA QUENTIN
Balance Sheet
As of May 31, 2012
_____________________________________________________________________________
Assets
Cash ...................................................................................................... $ 14,600
Accounts receivable ................................................................................ 1,400
Supplies ................................................................................................... 600
Equipment ............................................................................................... 4,200
Total assets ........................................................................................ $20,800

Liabilities and Owner's Equity


Liabilities
Notes payable ..................................................................................... $5,000
Accounts payable .............................................................................. $ 4,200
Owner's Equity
CARLA QUENTIN, Capital ............................................................. 11,600
Total liabilities and owner's equity ................................................... $20,800
CARLA QUENTIN
Statement of Cash Flows
For the Month Ended May 31, 2012

Cash flows from operating activities


Cash receipts from revenues $ 8,000
Cash payments for expenses (including Supplies) (4,400)
Net cash provided by operating activities $3,600

Cash flows from investing activities


Purchase of equipment (not paid in cash) ($0) ($0)

Cash flows from financing activities


Investments by owner $7,000
Borrowing from Bank 5,000
Drawings by owner (1,000) $11,000
Net cash provided by financing activities

Net increase in cash $14,600


Cash at the beginning of the period $0
Cash at the end of the period $14,600
Exercise

Ans:
a) Make payment of previously due amount.

b) Collect account receivables.

c) Equipment purchased on credit.

d) Service provided for cash / Owner’s made additional investment

e) Services provided on credit.


Exercise
One item is omitted in each of the following summaries of balance sheet and income statement
data for three different sole proprietorships, X, Y, and Z. Determine the amounts of the missing
items, identifying each proprietorship by letter.
Proprietorship
X Y Z
Beginning of the Year:
Assets $460,000 $180,000 $189,000
Liabilities 250,000 105,000 168,000
End of the Year:
Assets 480,000 225,000 195,000
Liabilities 280,000 95,000 169,000
During the Year:
Additional Investment by the owner ? 79,000 80,000

Withdrawals by the owner 90,000 83,000 ?


Revenue 195,000 ? 187,000
Expenses 160,000 113,000 185,000

Solution
Proprietorship X ($45,000)
Beginning Capital balance ($460,000 – $250,000) $210,000
Additional investments ($290,000 – $210,000 – $35,000) 45,000
Net income for year ($195,000 – $160,000) 35,000
290,000
Less withdrawals 90,000
Ending Capital balance ($480,000 – $280,000) $200,000

Proprietorship Y ($172,000)
Beginning Capital balance ($180,000 – $105,000) $ 75,000
Additional investments 79,000
Net income for year 59,000
[Revenues = $172,000 ($113,000 + $59,000)] 213,000
Less withdrawals 83,000
Ending Capital balance ($225,000 – $95,000) $130,000

Proprietorship Z ($77,000)
Beginning Capital balance ($189,000 – $168,000) $ 21,000
Additional investments 80,000
Net income for year ($187,000 – $185,000) 2,000
103,000
Less withdrawals ($103,000 – $26,000) 77,000
Ending Capital balance ($195,000 – $169,000) $ 26,000
Exercise

The following transactions represent part of the activities of Lyon Company for the first month of
its existence. Indicate the effect of each transaction upon the total assets of the business by one of
the following phrases: increased total assets, decreased total assets, or no change in total assets.
(a) The owner invested cash to start the business.
(b) Purchased a computer for cash.
(c) Purchased office equipment with money borrowed from the bank.
(d) Paid the first month's utility bill.
(e) Collected an accounts receivable.
(f) Owner withdrew cash from the business.

Solution
(a) Increased total assets.
(b) No change in total assets.
(c) Increased total assets.
(d) Decreased total assets.
(e) No change in total assets.
(f) Decreased total assets.

Exercise

Prepare an income statement, an owner's equity statement, and a balance sheet for the dental
practice of Carl Craft, DDS, from the items listed below for the month of September.

Carl Craft, Capital, September 1 $40,000


Accounts payable 7,000
Equipment 30,000
Service revenue 24,000
Carl Craft, Drawings 5,000
Dental supplies expense 3,500
Cash 6,000
Utilities expense 700
Dental supplies 2,800
Salaries expense 7,000
Accounts receivable 14,000
Rent expense 2,000
Solution
CARL CRAFT, DDS
Income Statement
For the Month Ended September 30, 2002
_____________________________________________________________________________
Revenues
Service revenue ................................................................................. $24,000
Expenses
Salaries expense ................................................................................ $7,000
Dental supplies expense .................................................................... 3,500
Rent expense ..................................................................................... 2,000
Utilities expense ................................................................................ 700
Total expenses ............................................................................. 13,200
Net income .................................................................................. $10,800

CARL CRAFT, DDS


Owner's Equity Statement
For the Month Ended September 30, 2002

Carl Craft, Capital, September 1 ............................................................. $40,000


Add: Net income ..................................................................................... 10,800
50,800
Less: Drawings ........................................................................................ 5,000
Carl Craft, Capital, September 30 ........................................................... $45,800

CARL CRAFT, DDS


Balance Sheet
September 30, 2002
_____________________________________________________________________________

Assets
Cash ...................................................................................................... $ 6,000
Accounts receivable ................................................................................ 14,000
Dental supplies ........................................................................................ 2,800
Equipment ............................................................................................... 30,000
Total assets ........................................................................................ $52,800

Liabilities and Owner's Equity


Liabilities
Accounts payable .............................................................................. $ 7,000
Owner's Equity
Carl Craft, Capital ............................................................................. 45,800
Total liabilities and owner's equity ................................................... $52,800
Ex
At the beginning of the year, a company had $120,000 worth of liabilities. During the year, assets
increased by $160,000 and at year-end they equaled $360,000. Liabilities decreased $20,000
during the year. Calculate the beginning and ending values of equity.

Beginning Assets= 360,000- 160,000 = 200,000


Beginning Owner’s equity = Assets – Liabilities = 200,000 – 120,000 = 80,000.
Ending Owner’s equity = 360,000 – (120,000-20,000) = 260,000.

Ex
At the beginning of the year, Yates Company had total assets of $550,000 and total
liabilities of $200,000. Answer the following questions viewing each situation as being
independent of the others.
(1) If total assets increased $200,000 during the year, and total liabilities decreased
$75,000, what is the amount of owner's equity at the end of the year?
(2) During the year, total liabilities increased $230,000 and owner's equity decreased
$90,000. What is the amount of total assets at the end of the year?
(3) If total assets decreased $40,000 and owner's equity increased $130,000 during the
year, what is the amount of total liabilities at the end of the year?
Ex