On June 1 of the current year, Chad Wilson established a business to manage rental property. He completed the following transactions during June:

On June 1 of the current year, Chad Wilson established a business to manage rental property. He completed the following transactions during June:

a. Opened a business bank account with a deposit of $30,000 from personal funds.

b. Purchased office supplies on account, $1,800.

c. Received cash from fees earned for managing rental property, $10,000.

d. Paid rent on office and equipment for the month, $4,500.

e. Paid creditors on account, $1,250.

f. Billed customers for fees earned for managing rental property, $16,800.

g. Paid automobile expenses (including rental charges) for the month, $750, and miscellaneous expenses, $980.

h. Paid office salaries, $4,000.

i. Determined that the cost of supplies on hand was $680; therefore, the cost of supplies used was $1,120.

j. Withdrew cash for personal use, $7,500.

Instructions

1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings:

Assets 5Liabilities1 Owner’s Equity Cash + Receivable + Supplies= Accounts  Payable + Chad Wilson, Capital – Chad Wilson, Drawing + Fees Earned – Rent   Expense – Salaries Expense – Supplies Expense – Auto Expense – Misc. Expense

2.  Briefly explain why the owner’s investment and revenues increased owner’s equity, while withdrawals and expenses decreased owner’s equity.

3. Determine the net income for June.

4. How much did June’s transactions increase or decrease Chad Wilson’s capital?

Answer:

1. Assets = +

+ + = + – + – – – – –

(a) + 30,000+ 30,000

(b)  + 1,800 + 1,800

Bal. 30,000 1,800 1,800 30,000

(c) + 10,000+ 10,000

Bal. 40,000 1,800 1,800 30,000 10,000

(d) – 4,500– 4,500

Bal. 35,500 1,800 1,800 30,000 10,000 – 4,500

(e) – 1,250– 1,250

Bal. 34,250 1,800 550 30,000 10,000 – 4,500

(f)  + 16,800+ 16,800

Bal. 34,250 16,800 1,800 550 30,000 26,800 – 4,500

(g) – 1,730– 750 – 980

Bal. 32,520 16,800 1,800 550 30,000 26,800 – 4,500– 750 – 980

(h) – 4,000– 4,000

Bal. 28,520 16,800 1,800 550 30,000 26,800 – 4,500 – 4,000 – 750 – 980

(i)  – 1,120– 1,120

Bal. 28,520 16,800 680 550 30,000 26,800 – 4,500 – 4,000 – 1,120 – 750 – 980

(j) – 7,500– 7,500

Bal. 21,020 16,800 680 550 30,000 – 7,500 26,800 – 4,500 – 4,000 – 1,120 – 750 – 980

2. Owner’s equity is the right of owners to the assets of the business. These rights are increased by owner’s investments and revenues 

and decreased by owner’s withdrawals and expenses.

3. $15,450 ($26,800 – $4,500 – $4,000 – $1,120 – $750 – $980)

4. June’s transactions increased Chad Wilson’s capital to $37,950 ($30,000 + $15,450 – $7,500), which is the initial capital investment of $30,000 plus 

June's net income of $15,450 less Chad Wilson’s withdrawals of $7,500.

Using the following data for Sentinel Travel Service as well as the statement of owner’s equity shown in Practice Exercise

Using the following data for Sentinel Travel Service as well as the statement of owner’s equity shown in Practice Exercise 1-5B, prepare a report form balance sheet as of August 31, 2019: 

Accounts payable $ 44,600

Accounts receivable 75,500

Cash 45,400

Land 310,000

Supplies 4,700

Answer:

SENTINEL TRAVEL SERVICE

Balance Sheet

August 31, 2019

Cash$ 45,400 Accounts receivable75,500 Supplies4,700 Land310,000 Total assets$435,600 Accounts payable$ 44,600 Barb Schroeder, capital391,000 Total liabilities and owner’s equity$435,600

Using the following data for Adventure Travel Service as well as the statement of owner’s equity shown in Practice Exercise

Using the following data for Adventure Travel Service as well as the statement of owner’s equity shown in Practice Exercise 1-5A, prepare a report form balance sheet as of April 30, 2019: 

Accounts payable $105,000

Accounts receivable 485,000

Cash 197,000

Land 900,000

Supplies 18,000

Answer:

ADVENTURE TRAVEL SERVICE

Balance Sheet

April 30, 2019

Cash$ 197,000 Accounts receivable485,000 Supplies18,000 Land900,000 Total assets$1,600,000 Accounts payable$ 105,000 Jerome Foley, capital1,495,000 Total liabilities and owner’s equity$1,600,000

Using the income statement for Sentinel Travel Service shown in Practice Exercise 1-4B, prepare a statement of owner’s equity for the year ended

Using the income statement for Sentinel Travel Service shown in Practice Exercise 1-4B, prepare a statement of owner’s equity for the year ended August 31, 2019. Barb Schroeder, the owner, invested an additional $36,000 in the business during the year and withdrew cash of $18,000 for personal use. Barb Schroeder, capital as of September 1, 2018, was $380,000.

Answer: 

SENTINEL TRAVEL SERVICE

Statement of Owner’s Equity

Barb Schroeder, capital, September 1, 2018$380,000 Additional investment by owner during year $ 36,000 Net loss for the year(7,000) Withdrawals(18,000) Increase in owner’s equity11,000 Barb Schroeder, capital, August 31, 2019$391,000

Based on the data in Exercise 4-25, prepare an income statement, statement of owner’s equity, and balance sheet for Alert Security Services Co.

Based on the data in Exercise 4-25, prepare an income statement, statement of owner’s equity, and balance sheet for Alert Security Services Co.


Answers:


Fees earned$213
Expenses:
Wages expense$111
Rent expense12
Insurance expense10
Utilities expense6
Supplies expense4
Depreciation expense3
Miscellaneous expense2
Total expenses148
Net income$ 65
Brenda Schultz, capital, November 1, 2018$260
Net income$65
Withdrawals(8)
Increase in owner’s equity57
Brenda Schultz, capital, October 31, 2019$317
Current assets:
Cash$ 12
Accounts receivable103
Supplies4
Prepaid insurance2
Total current assets$121
Property, plant, and equipment:
Land$190
Equipment$50
Less accumulated depreciation 7 43
Total property, plant, and equipment233
Total assets$354
Current liabilities:
Accounts payable$ 36
Wages payable1
Total liabilities$ 37
Brenda Schultz, capital317
Total liabilities and owner’s equity$354

Indicate whether each of the following is identified with (1) an asset, (2) a liability, or (3) owner’s equity: a. accounts receivable

Indicate whether each of the following is identified with (1) an asset, (2) a liability, or (3) owner’s equity:

a. accounts receivable
b. accounts payable
c. cash
d. fees earned
e. land
f. rent expense
g. supplies

Answers:
a. (1)  asset
b. (2)  liability
c. (1)  asset
d. (3)  owner’s equity (revenue)
e. (1)  asset
f. (3)  owner’s equity (expense)
g. (1) asset