Question

Andrea Apple opened Apple Photography on January 1 of the current year. During January, the following transactions occurred and were recorded in the company's books:
1. Andrea invested $13,500 cash in the business.
2. Andrea contributed $20,000 of photography equipment to the business.
3. The company paid $2,100 cash for an insurance policy covering the next 24 months.
4. The company received $5,700 cash for services provided during January.
5. The company purchased $6,200 of office equipment on credit.
6. The company provided $2,750 of services to customers on account.
7. The company paid cash of $1,500 for monthly rent.
8. The company paid $3,100 on the office equipment purchased in transaction #5 above.
9. Paid $275 cash for January utilities.

Based on this information, the balance in the A. Apple, Capital account reported on the Statement of Owner's Equity at the end of the month would be:

A. $31,400.
B. $39,200.
C. $31,150.
D. $40,175.
E. $30,875.

Answer 1

Answer: D. $40,175

Explanation:

The balance in the Capital account reported on the Statement of Owner's Equity will include the Capital contributions of Andrea Apple to the business as well as the Net income from operations also known as Retained Earnings.

The Net Income for the month will be revenue less expenses.

Revenue

$5,700 cash and $2,750 on account for services provided in January.

Revenue is therefore,

= 5,700 + 2,750

= $8,450

Expenses

Expenses include the rent paid of $1,500 and the $275 paid for January Utilities.

= 1,500 + 275

= $1,775

Net Income = Revenue - Expenses

Net Income = 8,450 - 1,775

Net Income = $6,675

The Capital that Mr. Apple brought into the business refers to anything he contributed to the business whether in cash or otherwise.

The Capital therefore is,

- The $13,500 cash and the $20,000 worth of equipment.

The Capital Mr. Apple brought into the business is therefore,

= 13,500 + 20,000

= $33,500

The balance on the capital account will therefore be,

= Capital + Net Income

= 33,500 + 6,675

= $40,175

Option D. is correct.