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Financial & Managerial Accounting
Found in: Page 39
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Gabi Gram started The Gram Co., a new business that began operations on May 1. The Gram Co. completed the following transactions during its first month of operations.

May 1 G. Gram invested $40,000 cash in the company in exchange for its common stock.

1 The company rented a furnished office and paid $2,200 cash for May’s rent.

3 The company purchased $1,890 of office equipment on credit.

5 The company paid $750 cash for this month’s cleaning services.

8 The company provided consulting services for a client and immediately collected $5,400 cash.

12 The company provided $2,500 of consulting services for a client on credit.

15 The company paid $750 cash for an assistant’s salary for the first half of this month.

20 The company received $2,500 cash payment for the services provided on May 12.

22 The company provided $3,200 of consulting services on credit.

25 The company received $3,200 cash payment for the services provided on May 22.

26 The company paid $1,890 cash for the office equipment purchased on May 3.

27 The company purchased $80 of advertising in this month’s (May) local paper on credit; cash payment is due June 1.

28 The company paid $750 cash for an assistant’s salary for the second half of this month.

30 The company paid $300 cash for this month’s telephone bill.

30 The company paid $280 cash for this month’s utilities.

31 The company paid $1,400 cash in dividends to the owner (sole shareholder).

Required 2. Prepare the income statement and the statement of retained earnings for the month of May, and the balance sheet as of May 31

The net income of the business is $5,990, the closing balance of retained earnings is $4,590 and the total of the balance sheet is $44,670.

See the step by step solution

Step by Step Solution

Preparation of Income Statement

Gram CO.

Income statement

For the month ending May 31

Particulars

Amount ($)

Amount ($)

Service Revenue

11,100

Expenses

Rent Expense

2,200

Cleaning service expense

750

Salary Expense

1,500

Advertising expense

80

Telephone expense

300

Utility expense

280

Total expenses

5,110

Net Income

5,990

Preparation of statement of retained earnings

Gram CO.

Statement of retained earnings

For the month ending May 31

Opening Balance

0

Add: Net Income

5,990

5,990

Less: Dividends

-1,400

Closing balance

4,590

Preparation of Balance Sheet

Gram CO.

Balance Sheet

As of May 31

Assets

Amount ($)

Liabilities

Amount ($)

Cash

42,780

Accounts payable

80

Accounts Receivables

Office Equipment

1,890

Equity

Common stock

40,000

Retained Earnings

4,590

Total assets

44,670

Total liabilities and equity

44,670

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