Acc 203 Problem 1-3B

Topics: Generally Accepted Accounting Principles, Revenue, Balance sheet Pages: 2 (328 words) Published: November 2, 2014

PROBLEM 1-3B
(a)Special Delivery
Income Statement
For the Month Ended May 31, 2012

Revenues
Service revenue$10,400
Expenses
Salaries and wages expense$2,000
Maintenance and repairs expense   2,900
Advertising expense   800
Insurance expense   400
Total expenses 6,100
Net income$4,300
Special Delivery
Retained Earnings Statement
For the Month Ended May 31, 2012

Retained earnings, May 1$    0
Add: ADVANCE \r 1 Net income 4,300
 4,300
Less: Dividends 1,700
Retained earnings, May 31$2,600
Special Delivery
Balance Sheet
May 31, 2012

Assets
Cash$ 15,800
Accounts receivable  6,200
Equipment 56,000
Total assets$78,000
Liabilities and Stockholders’ Equity
Liabilities
Notes payable$28,000
Accounts payable    2,400
Total liabilities$30,400
Stockholders’ equity
Common stock 45,000
Retained earnings  2,600 47,600
Total liabilities and stockholders’ equity$78,000
(b)Special delivery had a successful first month, earning $4,300 or 41% of service revenues ($4,300 ÷ $10,400). Its net income represents a 9.5% return on the initial investment ($4,300 ÷ $45,000). (c)Distributing a dividend after only one month of operations is probably unusual. Most new businesses choose to build up a cash balance to provide for future operating and investing activities or pay down debt. Special Delivery distributed 39.5% ($1,700 ÷ $4,300) of its first month’s income but it had adequate cash to do so and still showed a significant increase in retained earnings. PROBLEM 3-5B

(a)
Date Account Titles and Explanation Debit Credit
May1 Cash
Common Stock
  (Issued shares of stock for cash) 40,000 40,000
2 No entry—not a transaction. 3 Supplies
Accounts Payable
  ( Purchased supplies on account
   from Fleming Supply Company)    800    800
7 Rent Expense
Cash
  ( Paid monthly office rent)  1,400  1,400
11 Accounts Receivable
Service Revenue
  (Billed clients for services provided)  1,500  1,500 12 Cash
Unearned Service Revenue...
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