Seth Feye established Reliance Financial Services on July 1, 2014. Reliance Financial Services offers

Seth Feye established Reliance Financial Services on July 1, 2014. Reliance Financial Services offers financial planning advice to its clients. The effect of each transaction and the balances after each transaction for July are shown below.


Assets 5 Liabilities 1 Owner’s Equity
Cash +
Accounts
Receivable + Supplies =
Accounts
Payable +
Seth
Feye,
Capital
 Seth
 Feye,
− Drawing +
Fees
Earned −
Salaries
Expense −
Rent
Expense −
Auto
Expense −
Supplies
Expense −
Misc.
Expense
a. +50,000 +50,000
b. +7,000 +7,000
Bal. 50,000 7,000 7,000 50,000
c. –3,600 −3,600
Bal. 46,400 7,000 3,400 50,000
d. +110,000 +110,000
Bal. 156,400 7,000 3,400 50,000 110,000
e. –33,000 –33,000
Bal. 123,400 7,000 3,400 50,000 110,000 –33,000
f. −20,800 –16,000 –4,800
Bal. 102,600 7,000 3,400 50,000 110,000 –33,000 –16,000 –4,800
g. −55,000 –55,000
Bal. 47,600 7,000 3,400 50,000 110,000 –55,000 –33,000 –16,000 –4,800
h. –4,500 –4,500
Bal. 47,600 2,500 3,400 50,000 110,000 –55,000 –33,000 –16,000 –4,500 –4,800
i. +34,500 + 34,500
Bal. 47,600 34,500 2,500 3,400 50,000 144,500 –55,000 –33,000 –16,000 –4,500 –4,800
j. –15,000 –15,000
Bal. 32,600 34,500 2,500 3,400 50,000 –15,000 144,500 –55,000 –33,000 –16,000 –4,500 –4,800


Instructions

1. Prepare an income statement for the month ended July 31, 2014.

2. Prepare a statement of owner’s equity for the month ended July 31, 2014.

3. Prepare a balance sheet as of July 31, 2014.

4. (Optional). Prepare a statement of cash flows for the month ending July 31, 2014.


Answer:

1. RELIANCE FINANCIAL SERVICES
Income Statement
For the Month Ended July 31, 2014
Fees earned $144,500
Expenses:
Salaries expense $55,000
Rent expense 33,000
Auto expense 16,000
Supplies expense 4,500
Miscellaneous expense 4,800
Total expenses 113,300
Net income $ 31,200
2. RELIANCE FINANCIAL SERVICES
Statement of Owner’s Equity
For the Month Ended July 31, 2014
Seth Feye, capital, July 1, 2014 $ 0
Investment on July 1, 2014 $50,000
Net income for July 31,200
$81,200
Less withdrawals 15,000
Increase in owner’s equity 66,200
Seth Feye, capital, July 31, 2014 $66,200
3. RELIANCE FINANCIAL SERVICES
Balance Sheet
July 31, 2014
Assets Liabilities
Cash $32,600 Accounts payable $ 3,400
Accounts receivable 34,500
Supplies 2,500 Owner’s Equity
Seth Feye, capital 66,200
Total liabilities and
Total assets $69,600 owner’s equity $69,600


4. (Optional)
RELIANCE FINANCIAL SERVICES
Statement of Cash Flows
For the Month Ended July 31, 2014
Cash flows from operating activities:
Cash received from customers $110,000
Deduct cash payments for expenses
and payments to creditors* 112,400
Net cash flows used for operating activities $ (2,400)
Cash flows from investing activities 0
Cash flows from financing activities:
Cash received as owner’s investment $ 50,000
Deduct cash withdrawal by owner 15,000
Net cash flows from financing activities 35,000
Net increase in cash and July 31, 2014, cash balance $ 32,600


* $3,600 + $33,000 + $20,800 + $55,000; these amounts are taken from the cash
column shown in the problem.