Question

Grace Stewart began the Stewart Answering Service in December. The firm provides services for professional people and is currently operating with leased equipment. On January 1, the assets and liabilities of the business were:
Cash 6400
Accounts Receivable 6900
Accounts Payable 1600
Notes Payable 1500
Common Stock 10200
Retained Earnings 0
The following transactions occurred during the month of January:
1 Paid rent on office and equipment for January, $1,800.
2 Collected $6,000 on account from clients.
3 Borrowed $3,000 from a bank and signed a note payable for that amount.
4 Billed clients for work performed on account, $12,500.
5 Paid $1,400 on accounts payable.
6 Received invoice for January advertising, $800.
7 Paid January salaries, $3,200.
8 Paid January utilities, $430.
9 Paid stockholders a dividend of $3,600 cash.
10 Purchased a printer (on January 31) for business use, $1,400,
11 Paid $30 to bank as January interest on the outstanding note payable.
Required
(a) Set up an accounting equation in columnar form with the following individual assets, liabilities, and stockholders' equity accounts: Cash, Accounts Receivable, Equipment, Accounts Payable, Notes Payable, Common Stock, and Retained Earnings. Enter the January 1 balances below each item. (Note: The beginning Equipment account balance is $0.)
(b) Show the impact (increase or decrease) of the January transactions on the beginning balances, and total all columns to show that assets equal liabilities plus stockholders' equity as of January 31.

Answer 1

Answer:

Assets = Liabilities plus stockholders' equity = $18,340

Explanation:

(a) Set up an accounting equation in columnar form with the following individual assets, liabilities, and stockholders' equity accounts: Cash, Accounts Receivable, Equipment, Accounts Payable, Notes Payable, Common Stock, and Retained Earnings. Enter the January 1 balances below each item. (Note: The beginning Equipment account balance is $0.)

Note: See the attached excel file for the set-up.

(b) Show the impact (increase or decrease) of the January transactions on the beginning balances, and total all columns to show that assets equal liabilities plus stockholders' equity as of January 31.

Note: See the attached excel file for how the impacts are shown and the total of all columns

Also Note: See the lower part of the attached excel file to see that assets equal liabilities plus stockholders' equity as of January 31 where we have:

Assets = Liabilities plus stockholders' equity = $18,340

Download xlsx