The Gorman Group is a financial planning services firm owned and operated by Nicole Gorman. As of October 31, 2019

The Gorman Group is a financial planning services firm owned and operated by Nicole Gorman. As of October 31, 2019, the end of the fiscal year, the accountant for The Gorman Group prepared an end-of-period spreadsheet, part of which follows:

11,000 28,150 6,350 9,500 75,000 250,000 240,000 20,000 291,000 17,500 15,500 9,000 8,500 6,600 3,450 3,000 5,450 1,000,000 1 2 3 4 5 6 7 8 9 101 2 3 4 5 6 7 8 9 201 2 3 4 5 6 7 8 9 301 2 3

The Gorman Group End-of-Period Spreadsheet For the Year Ended October 31, 2019 Adjusted Trial Balance Dr. Cr.Account Title Cash Accounts Receivable Supplies Prepaid Insurance Land Buildings Accumulated Depreciation—Buildings Equipment Accumulated Depreciation—Equipment Accounts Payable Salaries Payable Unearned Rent Nicole Gorman, Capital Nicole Gorman, Drawing Service Fees Rent Revenue Salaries Expense Depreciation Expense—Equipment Rent Expense Supplies Expense Utilities Expense Depreciation Expense—Buildings Repairs Expense Insurance Expense Miscellaneous Expense 117,200 151,700 33,300 3,300 1,500 220,000 468,000 5,000 1,000,000

Instructions

1. Prepare an income statement, a statement of owner’s equity (no additional investments were made during the year), and a balance sheet.

2. Journalize the entries that were required to close the accounts at October 31.

3. If the balance of Nicole Gorman, Capital had instead increased $115,000 after the closing entries were posted and the withdrawals remained the same, what would have been the amount of net income or net loss?

Answer:

1.

Revenues:

Service fees$468,000

Rent revenue5,000

Total revenues$473,000

Expenses:

Salaries expense$291,000

Depreciation expense—equipment 17,500

Rent expense15,500

Supplies expense9,000

Utilities expense8,500

Depreciation expense—buildings6,600

Repairs expense3,450

Insurance expense3,000

Miscellaneous expense5,450

Total expenses360,000

Net income$113,000

Nicole Gorman, capital, November 1, 2018$220,000

Net income for the year$113,000

Withdrawals(20,000)

Increase in owner’s equity93,000

Nicole Gorman, capital, October 31, 2019$313,000

THE GORMAN GROUP

Balance Sheet

October 31, 2019

Assets

Current assets:

Cash$ 11,000

Accounts receivable28,150

Supplies6,350

Prepaid insurance9,500

Total current assets$ 55,000

Property, plant, and equipment:

Land$ 75,000

Buildings$250,000

Less accumulated depreciation 117,200 132,800

Equipment$240,000

Less accumulated depreciation 151,700 88,300

Total property, plant, and equipment296,100

Total assets$351,100

Current liabilities:

Accounts payable$ 33,300

Salaries payable3,300

Unearned rent1,500

Total liabilities$ 38,100

Nicole Gorman, capital313,000

Total liabilities and owner’s equity$351,100

2.  2019

 Oct. 31 Service Fees468,000

Rent Revenue5,000

Salaries Expense291,000

Depreciation Expense—Equipment 17,500

Rent Expense15,500

Supplies Expense9,000

Utilities Expense8,500

Depreciation Expense—Buildings 6,600

Repairs Expense3,450

Insurance Expense3,000

Miscellaneous Expense5,450

Nicole Gorman, Capital113,000

31 Nicole Gorman, Capital 20,000

Nicole Gorman, Drawing20,000

3. $135,000 ($115,000 + $20,000) net income. The $115,000 increase is caused by 

the net income of $135,000 less the $20,000 withdrawals.