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Financial & Managerial Accounting 13th Edition by Carl Warren , James Reeve,Jonathan Duchac
Edition 13ISBN: 978-1285868776Financial & Managerial Accounting 13th Edition by Carl Warren , James Reeve,Jonathan Duchac
Edition 13ISBN: 978-1285868776 Exercise 1
Transactions
On April 1 of the current year, Andrea Byrd established a business to manage rental property. She completed the following transactions during April:
a. Opened a business bank account with a deposit of $45,000 in exchange for common stock.
b. Purchased office supplies on account, $2,000.
c. Received cash from fees earned for managing rental property, $8,500.
d. Paid rent on office and equipment for the month, $5,000.
e. Paid creditors on account, $1,375.
f. Billed customers for fees earned for managing rental property, $11,250.
g. Paid automobile expenses (including rental charges) for month, $840, and miscellaneous expenses, $900.
h. Paid office salaries, $3,600.
i. Determined that the cost of supplies on hand was $550; therefore, the cost of supplies used was $1,450.
j. Paid dividends, $2,000.
Instructions
1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings:
2. Briefly explain why issuing common stock and revenues increased stockholders' equity, while dividends and expenses decreased stockholders' equity.
3. Determine the net income for April.
4. How much did April's transactions increase or decrease retained earnings?
On April 1 of the current year, Andrea Byrd established a business to manage rental property. She completed the following transactions during April:
a. Opened a business bank account with a deposit of $45,000 in exchange for common stock.
b. Purchased office supplies on account, $2,000.
c. Received cash from fees earned for managing rental property, $8,500.
d. Paid rent on office and equipment for the month, $5,000.
e. Paid creditors on account, $1,375.
f. Billed customers for fees earned for managing rental property, $11,250.
g. Paid automobile expenses (including rental charges) for month, $840, and miscellaneous expenses, $900.
h. Paid office salaries, $3,600.
i. Determined that the cost of supplies on hand was $550; therefore, the cost of supplies used was $1,450.
j. Paid dividends, $2,000.
Instructions
1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings:
2. Briefly explain why issuing common stock and revenues increased stockholders' equity, while dividends and expenses decreased stockholders' equity.
3. Determine the net income for April.
4. How much did April's transactions increase or decrease retained earnings?
Explanation
Verified
Verified
a. 1. Effect of each transaction and balances after each transaction is stated as below:
2. Stockholders equity is that portion of balance sheet which represents capital invested by investors.
Hence,
From the above equation we can see that issuing common stock and revenues increases stockholders equity whereas expenses and dividends reduces stockholders equity.
3. Income Statement:
• Income Statement is a financial statement which shows company's financial results for a specific period of time.
• It is prepared based on basic equation:
• Excess of revenues over expenses results in Net Income.
• Excess of expenses over incomes results in Net Loss.
Following steps are involved in preparation of Income Statement:
• Consider Fees earned. • Enter various expenses such as office expense, miscellaneous expense, wages expense.
• Arrive at net income by deducting expenses from fees earned. Prepare Income Statement:
Therefore, net income is $7,960
4. Retained earnings statement:
• Retained earnings refers to profits made by a company which are either reinvested in the company or kept as reserve for specific reasons and are not distributed to shareholders in the form of dividends.
•
Retained earnings statement is a financial statement which depicts changes in retained earnings over a specific period by reconciling opening and closing balance of retained earnings using net income or net loss.
Following steps are involved in preparation of Retained earnings Statement:
• Consider opening balance of retained earnings.
• Consider net income/ net loss during the year.
• Deduct dividends paid from net income/loss to calculate increase in retained earnings
• Add increase in retained earnings to opening balance of retained earnings to arrive at closing balance of retained earnings which is then transferred to balance sheet.
Prepare Retained earnings Statement:
April's transactions increased $5,960 retained earnings of Andrea Byrd.
2. Stockholders equity is that portion of balance sheet which represents capital invested by investors. Hence, From the above equation we can see that issuing common stock and revenues increases stockholders equity whereas expenses and dividends reduces stockholders equity.3. Income Statement:
• Income Statement is a financial statement which shows company's financial results for a specific period of time.
• It is prepared based on basic equation:
• Excess of revenues over expenses results in Net Income.• Excess of expenses over incomes results in Net Loss.
Following steps are involved in preparation of Income Statement:
• Consider Fees earned. • Enter various expenses such as office expense, miscellaneous expense, wages expense.
• Arrive at net income by deducting expenses from fees earned. Prepare Income Statement:
Therefore, net income is $7,960 4. Retained earnings statement:
• Retained earnings refers to profits made by a company which are either reinvested in the company or kept as reserve for specific reasons and are not distributed to shareholders in the form of dividends.
•
Retained earnings statement is a financial statement which depicts changes in retained earnings over a specific period by reconciling opening and closing balance of retained earnings using net income or net loss.
Following steps are involved in preparation of Retained earnings Statement:
• Consider opening balance of retained earnings.
• Consider net income/ net loss during the year.
• Deduct dividends paid from net income/loss to calculate increase in retained earnings
• Add increase in retained earnings to opening balance of retained earnings to arrive at closing balance of retained earnings which is then transferred to balance sheet.
Prepare Retained earnings Statement:
April's transactions increased $5,960 retained earnings of Andrea Byrd.
Financial & Managerial Accounting 13th Edition by Carl Warren , James Reeve,Jonathan Duchac
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