Question

Hart, Attorney at Law, experienced the following transactions in Year 1, the first year of operations: Accepted $19,800 on April 1, Year 1, as a retainer for services to be performed evenly over the next 12 months. Performed legal services for cash of $68,000. Purchased $1,100 of office supplies on account. Paid $990 of the amount due on accounts payable. Paid a cash dividend to the stockholders of $6,000. Paid cash for operating expenses of $21,000. Determined that at the end of the accounting period, $95 of office supplies remained on hand. On December 31, Year 1, recognized the revenue that had been earned for services performed in accordance with Transaction 1.
Required:
Show the effects of the events on the fianncial statements.

Answer 1

To show the effects of these transactions on the financial statements of Hart, Attorney at Law, include:

Balance Sheet:

Assets                           = Liabilities + Equity

Cash +$19,800             = Liabilities (Unearned Service Revenue) +$19,800

Cash +$68,000            = Liabilities + Equity (Service Revenue) +$68,000

Office Supplies +$1,100 = Liabilities (Accounts Payable) +$1,100 + Equity

Cash -$990                = Liabilities (Accounts Payable) -$990 + Equity

Cash -$6,000             = Liabilities  + Equity (Dividend) -$6,000

Cash -$21,000            = Liabilities + Equity (Operating Expenses) -$21,000

Dec. 31 Year 1:

Office Supplies -$1,005 = Liabilities + Equity (Supplies Expenses) -$1,005

Assets                            = Liabilities (Unearned Service Revenue) -$14,850 + Equity (Service Revenue) +$14,850

Income Statement:

Service Revenue +$68,000

Operating Expenses -$21,000

Supplies Expenses -$1,005

Service Revenue +$14,850

Cash Flows Statement:

Unearned Service Revenue +$19,800 Operating cash inflow

Service Revenue +$68,000 Operating cash inflow

Accounts Payable -$990 Operating cash outflow

Dividend -$6,000 Financing cash outflow

Operating Expenses -$21,000 Operating cash outflow

Data Analysis:

April 1, Year 1:

Cash $19,800 Unearned Service Revenue $19,800

Cash $68,000 Service Revenue $68,000

Office Supplies $1,100 Accounts Payable $1,100

Accounts Payable $990 Cash $990

Dividend $6,000 Cash $6,000

Operating Expenses $21,000 Cash $21,000

Dec. 31 Year 1:

Supplies Expenses $1,005 Office Supplies $1,005 ($1,100 - $95)

Service Revenue $14,850 Unearned Service Revenue $14,850 ($19,800 x 9/12)

Thus, the relevant effects of the transactions in Year 1 are showed on the financial statements of Hart, Attorney at Law above.

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