ANSWER NO: 1
A) Here are the journal entries for the transactions listed:
Date Account Debit ($) Credit ($)
Jan 1 Cash 100,000
Capital 100,000
(Anna invested cash as initial capital)
Jan 2 Prepaid Rent 36,000
Cash 36,000
(Paid advance rent for three months)
Jan 3 Equipment 80,000
Cash 60,000
Notes Payable 20,000
(Purchased equipment, part cash, part note)
Jan 4 Office Supplies 17,600
Accounts Payable 17,600
(Purchased office supplies on account)
Jan 13 Cash 28,500
Service Revenue 28,500
(Provided services and received cash)
Jan 13 Accounts Payable 17,600
Cash 17,600
(Paid accounts payable)
Jan 14 Wages Expense 19,100
Cash 19,100
(Paid wages for January)
Jan 18 Cash 32,900
Date Account Debit ($) Credit ($)
Accounts Receivable 21,200
Service Revenue 54,100
(Provided services, part cash, part credit)
Jan 23 Cash 15,300
Accounts Receivable 15,300
(Received payment from customers)
Jan 25 Cash 4,000
Unearned Revenue 4,000
(Received advance payment from customers)
Jan 26 Office Supplies 5,200
Accounts Payable 5,200
(Purchased office supplies on account)
Jan 28 Water Expense 19,000
Cash 19,000
(Paid water bill)
Jan 31 Advertising Expense 5,000
Cash 5,000
(Paid advertising expense)
Jan 31 Electricity Expense 2,470
Accounts Payable 2,470
(Received electricity bill)
Jan 31 Telephone Expense 1,494
Accounts Payable 1,494
(Received telephone bill)
Jan 31 Miscellaneous Expenses 3,470
Date Account Debit ($) Credit ($)
Cash 3,470
(Paid miscellaneous expenses)
B) Here are the ledger accounts for the major accounts:
Cash
Date Details Debit ($) Credit ($) Balance ($)
Jan 1 Capital 100,000 100,000
Jan 2 Prepaid Rent 36,000 64,000
Jan 3 Equipment 60,000 4,000
Jan 13 Service Revenue 28,500 32,500
Jan 13 Accounts Payable 17,600 14,900
Jan 14 Wages Expense 19,100 (4,200)
Jan 18 Service Revenue 32,900 28,700
Jan 23 Accounts Receivable 15,300 44,000
Jan 25 Unearned Revenue 4,000 48,000
Jan 28 Water Expense 19,000 29,000
Jan 31 Advertising Expense 5,000 24,000
Jan 31 Miscellaneous Expenses 3,470 20,530
Accounts Receivable
Date Details Debit ($) Credit ($) Balance ($)
Jan 18 Service Revenue 21,200 21,200
Jan 23 Cash 15,300 5,900
Office Supplies
Date Details Debit ($) Credit ($) Balance ($)
Jan 4 Accounts Payable 17,600 17,600
Date Details Debit ($) Credit ($) Balance ($)
Jan 26 Accounts Payable 5,200 22,800
Prepaid Rent
Date Details Debit ($) Credit ($) Balance ($)
Jan 2 Cash 36,000 36,000
Equipment
Date Details Debit ($) Credit ($) Balance ($)
Jan 3 Cash, Notes Payable 80,000 80,000
Accounts Payable
Debit Credit Balance
Date Details
($) ($) ($)
Office
Jan 4 17,600 17,600
Supplies
Jan
Cash 17,600 0
13
Jan Office
5,200 5,200
26 Supplies
Jan Electricity
2,470 7,670
31 Expense
Jan Telephone
1,494 9,164
31 Expense
Service Revenue
Date Details Debit ($) Credit ($) Balance ($)
Jan 13 Cash 28,500 28,500
Jan 18 Cash, Accounts Receivable 54,100 82,600
Wages Expense
Date Details Debit ($) Credit ($) Balance ($)
Jan 14 Cash 19,100 19,100
Water Expense
Date Details Debit ($) Credit ($) Balance ($)
Jan 28 Cash 19,000 19,000
Advertising Expense
Date Details Debit ($) Credit ($) Balance ($)
Jan 31 Cash 5,000 5,000
Electricity Expense
Date Details Debit ($) Credit ($) Balance ($)
Jan 31 Accounts Payable 2,470 2,470
Telephone Expense
Date Details Debit ($) Credit ($) Balance ($)
Jan 31 Accounts Payable 1,494 1,494
Miscellaneous Expenses
Date Details Debit ($) Credit ($) Balance ($)
Jan 31 Cash 3,470 3,470
C) Trial Balance as of January 31, 2018
Account Debit ($) Credit ($)
Cash 20,530
Prepaid Rent 36,000
Equipment 80,000
Office Supplies 22,800
Accounts Receivable 5,900
Notes Payable 20,000
Accounts Payable 9,164
Unearned Revenue 4,000
Service Revenue 82,600
Account Debit ($) Credit ($)
Wages Expense 19,100
Water Expense 19,000
Advertising Expense 5,000
Electricity Expense 2,470
Telephone Expense 1,494
Miscellaneous Expenses 3,470
Capital 100,000
Total 215,764 215,764
D) Income Statement for January 2018
Description Amount ($)
Revenues
Service Revenue 82,600
Total Revenues 82,600
Expenses
Wages Expense 19,100
Water Expense 19,000
Advertising Expense 5,000
Electricity Expense 2,470
Telephone Expense 1,494
Miscellaneous Expenses 3,470
Total Expenses 50,534
Net Income 32,066
Classified Balance Sheet as of January 31, 2018
Assets
Current Assets Amount ($)
Cash 20,530
Accounts Receivable 5,900
Office Supplies 22,800
Prepaid Rent 36,000
Total Current Assets 85,230
Non-Current Assets Amount ($)
Equipment 80,000
Total Non-Current Assets 80,000
Total Assets 165,230
Liabilities and Equity
Current Liabilities Amount ($)
Accounts Payable 9,164
Unearned Revenue 4,000
Notes Payable 20,000
Total Current Liabilities 33,164
Equity Amount ($)
Capital 100,000
Retained Earnings 32,066
Total Equity 132,066
Total Liabilities and Equity 165,230
Answer no:2
1. Cost Principle
o The cost principle states that assets should be recorded at their historical cost. For
example, if a company buys a piece of machinery for $50,000, it will record the asset at
$50,000, not its current market value.
2. Economic Entity Assumption
o This principle assumes that the business is separate from its owner and other entities.
For instance, Anna Car Repairing Shop’s financial transactions are recorded separately
from Anna’s personal transactions.
3. Monetary Unit Assumption
o The monetary unit assumption means that only transactions that can be measured in
monetary terms are recorded. For example, the repair services provided are recorded in
terms of dollars.
4. Going Concern
o The going concern principle assumes that the business will continue to operate
indefinitely. This affects the valuation of assets and liabilities, assuming the business will
not be liquidated soon.
5. Periodicity
o This principle states that the business operations can be divided into time periods, such
as months or years. Financial statements are prepared for these periods to provide
timely information.
6. Revenue Recognition Principle
o Revenue is recognized when it is earned, not necessarily when cash is received. For
example, revenue for services provided on credit is recognized when the service is
performed.
7. Matching Concept
o Expenses should be matched with the revenues they help to generate. For instance,
wages paid in January should be matched against the revenues earned in January.
8. Accrual Basis of Accounting
o Under accrual accounting, transactions are recorded when they occur, regardless of
when cash is exchanged. This means recognizing revenues when earned and expenses
when incurred.
9. Dual Aspect of Accounting
o Every transaction affects at least two accounts, ensuring the accounting equation
(Assets = Liabilities + Equity) remains balanced. For instance, purchasing equipment for
cash decreases cash but increases equipment.
Answer no:3
Cash Flow Statement for the Year Ended 2015
Cash Flows from Operating Activities Amount ($)
Net Income 106,000
Cash Flows from Operating Activities Amount ($)
Adjustments for non-cash items:
Depreciation 30,000
Changes in working capital:
Decrease in Accounts Receivable 30,000
Increase in Inventory (140,000)
Increase in Accounts Payable 70,000
Increase in Notes Payable 20,000
Net cash provided by operating activities 116,000
Cash Flows from Investing Activities Amount ($)
Purchase of Equipment (40,000)
Net cash used in investing activities (40,000)
Cash Flows from Financing Activities Amount ($)
Payment of Dividend (76,000)
Decrease in Long-term Debt (30,000)
Net cash used in financing activities (106,000)
| Net Decrease in Cash | (30,000) | | Cash at Beginning of Year | 70,000 | | Cash at End of Year | 40,000
|
Calculate Financial Ratios for 2015
1. Current Ratio = Total Current Liabilities/ Total Current Assets
=820,000/520,000
=1.58
2. Quick Ratio = Cash + account receivable / total current liabilities
= 40,000+320,000 /520,000
= 0.69
3. Account receivable turnover = Net credit sales/ average accounts receivables
= 2,200,000/ (320,000+350,000/2)
=0.65
4. Profit Margin = Net Income/ sales
= 106,000/220000
= .048
5. Asset Turnover = sales/Average Total Asset
= 2200000/1155000
= 1.904
6. Return on Equity (ROE) = Net Income/Average Stockholders’ Equity
= 106000/ 345000
= 0.307
7. Debt to Asset Ratio = Total Liabilities/Total Assets
= 840000/120000
= 0.7
8. ROA= net income/Average Total Assets
= 106000/1155000 = 0.0917
