Banks Consulting, Inc – Accounting Equation
The following transactions occurred during the month of May.
May 1 Stockholders invested $15,000 cash in the business.
2 Paid $800 for office rent for the month.
3 Purchased $700 of supplies on account.
5 Paid $200 to advertise in the Daily News.
9 Received $1,000 cash for services provided.
12 Paid $300 cash dividend.
15 Performed $5,000 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 $2,000 for services provided on account on May 15.
26 Borrowed $5,000 from the bank on a note payable.
29 Purchased office equipment for $3,500 on account.
30 Paid $250 for utilities.
(a) Show the effects of the previous transactions on the accounting equation using the following
Include explanations for any changes in the Retained Earnings account in your analysis.
(b) Prepare an income statement for the month of May.
(c) Prepare a balance sheet at May 31, 2002.
Bill Fence owns and manages a computer repair service, which had the following trial
balance on December 31, 2001 (the end of its fiscal year):
Summarized transactions for January 2002 were as follows.
1. Advertising costs, paid in cash, $1,300.
2. Additional repair parts inventory acquired on account $4,000.
3. Miscellaneous expenses, paid in cash, $2,200.
4. Cash collected from customers on account $12,000.
5. Cash paid to creditors on account $16,000.
6. Repair parts used during January $4,500. (Hint: Debit this to Repair Parts Expense.)
7. Repair services performed during January: for cash $6,000; on account $10,000.
8. Wages for January, paid in cash, $4,200.
9. Rent expense for January recorded. However, no cash was paid out for rent during January.
A rent payment had been made for 3 months, in advance, on December 1, 2001, in
the amount of $7,500.
10. Dividends paid during January were $2,300.
(a) Explain why the December 31, 2001, balance in the Prepaid Rent account is $5,000. Refer
to the trial balance and item (9) above.
(b) Open T accounts for each of the accounts listed in the trial balance, and enter the opening
balances for 2002.
(c) Prepare journal entries to record each of the January transactions.
(d) Post the journal entries to the accounts in the ledger.
(e) Prepare a trial balance as of January 31, 2002.
(f) Determine the total assets as of January 31, 2002. (It is not necessary to prepare a balance
sheet; simply list the relevant amounts from the trial balance, and calculate the total.)
(g) Determine the net income or loss for the month of January 2002. (It is not necessary to
prepare an income statement; simply list the relevant amounts from the trial balance, and
calculate the amount of the net income or loss.)
MACRO REPAIR SERVICE
December 31, 2001
Accounts Receivable 18,000
Parts Inventory 13,000
Prepaid Rent 5,000
Shop Equipment 21,000
Accounts Payable $21,000
Common Stock 40,000
Retained Earnings 6,000