On June 1 of the current year, Bret Eisen established a business to manage rental property

On June 1 of the current year, Bret Eisen established a business to manage rental property. He completed the following transactions during June:

a. Opened a business bank account with a deposit of $30,000 from personal funds.

b. Purchased office supplies on account, $1,200.

c. Received cash from fees earned for managing rental property, $7,200.

d. Paid rent on office and equipment for the month, $3,000.

e. Paid creditors on account, $750.

f. Billed customers for fees earned for managing rental property, $5,000.

g. Paid automobile expenses (including rental charges) for month, $600, and miscellaneous expenses, $300.

h. Paid office salaries, $1,800.

i. Determined that the cost of supplies on hand was $700; therefore, the cost of supplies used was $500.

j. Withdrew cash for personal use, $1,500.

Instructions

1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings:


Assets 5 Liabilities 1 Owner’s Equity
Accounts
Cash + Receivable + Supplies =
Accounts
Payable +
Bret Eisen,
Capital –
Bret Eisen,
Drawing +
Fees
Earned –
Rent
Expense –
Salaries
Expense –
Supplies
Expense –
Auto
Expense –
Misc.
Expense

2. Briefly explain why the owner’s investment and revenues increased owner’s equity, while withdrawals and expenses decreased owner’s equity.

3. Determine the net income for June.

4. How much did June’s transactions increase or decrease Bret Eisen’s capital?


Answer:

1. Assets = Liabilities +
Bret
PROBLEMS
Bret
Owner’s Equity
Cash
Accts.
+ Rec. + Supplies =
Accts.
Payable +
Eisen,
Capital
Eisen,
– Drawing +
Fees
Earned
Rent
– Expense –
Salaries
Expense –
Supplies
Expense –
Auto
Exp.
Misc.
– Exp.
(a) + 30,000 + 30,000
(b) + 1,200 + 1,200
Bal. 30,000 1,200 1,200 30,000
(c) + 7,200 + 7,200
Bal. 37,200 1,200 1,200 30,000 7,200
(d) – 3,000 – 3,000
Bal. 34,200 1,200 1,200 30,000 7,200 – 3,000
(e) – 750 – 750
Bal. 33,450 1,200 450 30,000 7,200 – 3,000
(f) + 5,000 + 5,000
Bal. 33,450 5,000 1,200 450 30,000 12,200 – 3,000
(g) – 900 – 600 – 300
Bal. 32,550 5,000 1,200 450 30,000 12,200 – 3,000 – 600 – 300
(h) – 1,800 – 1,800
Bal. 30,750 5,000 1,200 450 30,000 12,200 – 3,000 – 1,800 – 600 – 300
(i) – 500 – 500
Bal. 30,750 5,000 700 450 30,000 12,200 – 3,000 – 1,800 – 500 – 600 – 300
(j) – 1,500 – 1,500
Bal. 29,250 5,000 700 450 30,000 – 1,500 12,200 – 3,000 – 1,800 – 500 – 600 – 300


2. Owner’s equity is the right of owners to the assets of the business. These rights are increased by owner’s investments and revenues and decreased by owner’s withdrawals and expenses.

3. $6,000 ($12,200 – $3,000 – $1,800 – $500 – $600 – $300)

4. June’s transactions increased Bret Eisen’s capital by $34,500 ($30,000 + $6,000 – $1,500), which is the initial capital investment of $30,000 plus June's net income of $6,000 less Bret Eisen’s withdrawals of $1,500.