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Chapter 2: 40PGB_1 (page 112)

Question:Preparing financial statements from the trial balance and calculating the debt ratio

Preparing financial statements from the trial balance and calculating the debt ratio

Account Title Debit Credit

Office Supplies 1,400

Cash 32,000

Accounts Receivable 9,100

Prepaid Insurance 2,600

Equipment 24,000

Accounts Payable 3,400

Unearned Revenue 1,296

Notes Payable 34,000

Common Stock 20,000

Dividends 3,000

Salaries Expense 1,600

Rent Expense 700

Utilities Expense 100

Service Revenue 15,804

Total Balance \( 74,500 \) 74,500

Requirements 1. Prepare the income statement for the month ended July 31, 2018

Short Answer

Expert verified

The income statement is the statement that records the income and expenses of the business and net income of the business is $13,404

Step by step solution

01

Step-by-step SolutionStep 1: Definition of Income Statement

The income statement is defined as a financial statement that records the revenues generated during the year and expenses incurred during the year.

02

Preparation of Income Statement

Sheila Sanchez, Registered Dietician

Income statement

July 31, 2018

Particulars

Amount ($)

Amount ($)

Service Revenue

$15,804

Expenses

Salaries Expense

$1,600

Rent Expense

$700

Utility Expense

$100

Total Expense

$2,400

Net Income

$13,404

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Most popular questions from this chapter

Journalizing transactions, posting journal entries to four-column accounts, and preparing a trial balance

Theodore McMahon opened a law office on April 1, 2018. During the first month of operations, the business completed the following transactions:

Apr. 1 McMahon contributed \(70,000 cash to the business, Theodore McMahon, Attorney. The business issued common stock to McMahon.

3 Purchased office supplies, \)1,100, and furniture, \(1,300, on account.

4 Performed legal services for a client and received \)2,000 cash.

7 Purchased a building with a market value of \(150,000, and land with a market value of \)30,000. The business paid \(40,000 cash and signed a note payable to the bank for the remaining amount.

11 Prepared legal documents for a client on account, \)400.

15 Paid assistant’s semi monthly salary, \(1,200.

16 Paid for the office supplies purchased on April 3 on account. 18 Received \)2,700 cash for helping a client sell real estate.

19 Defended a client in court and billed the client for \(1,700.

25 Received a bill for utilities, \)650. The bill will be paid next month.

28 Received cash on account, \(1,100.

29 Paid \)3,600 cash for a 12-month insurance policy starting on May 1.

29 Paid assistant’s semi monthly salary, \(1,200.

30 Paid monthly rent expense, \)2,100.

30 Paid cash dividends of $3,200.

Requirements 3. Post the journal entries to four-column accounts in the ledger, using dates, account numbers, journal references, and posting references. Assume the journal entries were recorded on page 1 of the journal.

Roy Akins was the accounting manager at Zelco, a tire manufacturer, and he played golf with Hugh Stallings, the CEO, who was something of a celebrity in the community. The CEO stood to earn a substantial bonus if Zelco increased net income by year-end. Roy was eager to get into Hugh’s elite social circle; he boasted to Hugh that he knew some accounting tricks that could increase company income by simply revising a few journal entries for rental payments on storage units. At the end of the year, Roy changed the debits from “rent expense” to “prepaid rent” on several entries. Later, Hugh got his bonus, and the deviations were never discovered.

Requirements 1. How did the change in the journal entries affect the net income of the company at year-end?

Identify the three categories of the accounting equation, and list at least four accounts associated with each category.

Question: Journalizing transactions, posting journal entries to T-accounts, and preparing a trial balance Victor Yang practices medicine under the business title Victor Yang, M.D. During March, the medical practice completed the following transactions:

Mar. 1 Yang contributed \(62,000 cash to the business in exchange for common stock.

5 Paid monthly rent on medical equipment, \)570.

9 Paid \(14,000 cash to purchase land to be used in operations.

10 Purchased office supplies on account, \)1,500.

19 Borrowed \(27,000 from the bank for business use.

22 Paid \)1,400 on account.

28 The business received a bill for advertising in the daily newspaper to be paid in April, \(220.

31 Revenues earned during the month included \)6,700 cash and \(5,800 on account.

31 Paid employees’ salaries \)2,100, office rent \(1,500, and utilities \)350. Record as a compound entry.

31 The business received \(1,000 for medical screening services to be performed next month.

31 Paid cash dividends of \)7,100.

The business uses the following accounts: Cash; Accounts Receivable; Office Supplies; Land; Accounts Payable; Advertising Payable; Unearned Revenue; Notes Payable; Common Stock; Dividends; Service Revenue; Salaries Expense; Rent Expense; Utilities Expense; and Advertising Expense. Requirements 1. Journalize each transaction. Explanations are not required.

Question: Correcting errors in a trial balance

The following trial balance of Joy McDowell Tutoring Service as of May 31, 2018, does not balance.

Account Title Office Supplies Cash Debit Credit Accounts Receivable Computer Equipment Accounts Payable Utilities Payable Common Stock Dividends Service Revenue Salaries Expense Utilities Expense Rent Expense Total Balance \( 33,100 11,600 \) 11,100 9,600 800 \( 2,800 \) 35,000 1,900 800 700 2,000 600 15,800 10,400

Investigation of the accounting records reveals that the bookkeeper:

a. Recorded a \(400 cash revenue transaction by debiting Accounts Receivable. The credit entry was correct.

b. Posted a \)2,000 credit to Accounts Payable as \(200.

c. Did not record Utilities Expense or the related Utilities Payable in the amount of \)300.

d. Understated Common Stock by $100.

Prepare the corrected trial balance as of May 31, 2018, complete with a heading; journal entries are not required.
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