Friday, 17 June 2016

Angela Howard operates her own catering service. Summary financial data for July are presented in equation form


Angela Howard operates her own catering service. Summary financial data for July are presented in equation form as follows. Each line designated by a number indicates the effect of a transaction on the equation. Each increase and decrease in owner’s equity, except transaction (5), affects net income.


Assets 5 Liabilities 1 Owner’s Equity
Cash 1 Supplies 1 Land 5
Accounts  Payable 1
Angela howard, Capital −
Angela howard, drawing 1
Fees  Earned − Expenses
Bal. 30,000 2,000 80,000 12,000 100,000 1. +33,000 +33,000 2. –20,000 +20,000 3. –24,000 −24,000 4. +1,000 +1,000 5. –3,000 –3,000 6. –6,000 –6,000 7. –1,800 –1,800 Bal.   10,000    1,200 100,000   7,000 100,000 –3,000 33,000 –25,800

a. Describe each transaction.

b. What is the amount of the net decrease in cash during the month?

c. What is the amount of the net increase in owner’s equity during the month?

d. What is the amount of the net income for the month?

e. How much of the net income for the month was retained in the business?

Answer:
a.
(1) Provided catering services for cash, $33,000.
(2) Purchase of land for cash, $20,000.
(3) Payment of cash for expenses, $24,000.
(4) Purchase of supplies on account, $1,000.
(5) Withdrawal of cash by owner, $3,000.
(6) Payment of cash to creditors, $6,000.
(7) Recognition of cost of supplies used, $1,800.

b.  –$20,000  ($10,000 – $30,000)
c. $4,200 (–$3,000 + $33,000 – $25,800)
d. $7,200 ($33,000 – $25,800)
e. $4,200 ($7,200 – $3,000)

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