Question

Required information Problem 1-7A Analyzing transactions and preparing financial statements LO C4, P1, P2 The following information applies to the questions displayed below. 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 Hay 1 G. Gram invested $43,000 cash in the company in exchange for its coemon stock 1 The company rented a furnished office and paid $2,300 cash for May's rent 3 The company purchased $5,410 of office equipment on eredit. 5 The company paid $730 cash for this morth's cleaning services 8 The company provided consulting servicee for a alient and immediately collected $5,700 cash. 12 The company provided $2,900 of consulting services for a alient on credit 15. The company paid $790 cash for an assistant 's salary for the first half of this month 20 The company received $2,900 cash payment for the services provided on Kay 12. 22 The company provided $3,900 of consulting services on credit 25 The company 26 The company paid $5,410 cash for the office equipmont purchased on Hay 3 27 The received $3,900 cash payment for the services provided on May 22 company purchased 585 of advertia ing in this month'a (May) local paper on aredit; caah due June 1 28 The company paid $790 eash for an assintant's salary for the second half of this month 30 The company pald $300 cash for this month's telephone bil1. 30 The company paid $280 cash for thin month's utilitios. 31 The company paid $1,900 cash in dividenda to the owner (sole shareholder). Problem 1-7A Part 2 and 3 2.1. Prepare income statement for May. THE GRAM co. income Statement For Month Ended May 31 < Prev 7 of 7 Next

Answer 1

Requirement 2.1:

THE GRAM CO.
Income Statement
For Month Ended May 31
Revenues:
Service revenue		$12,500
Expenses:
Rent expense	$2,300
Cleaning expenses	$730
Salaries expense	$1,580
Advertising expense	$85
Telephone expense	$300
Utilities expense	$280
Total expenses		$5,275
Net income		$7,225

Requirement 2.2:

THE GRAM CO.
Statement of Retained Earnings
For Month Ended May 31
Retained earnings, May 1	$0
Net income	$7,225
Balance	$7,225
Dividends	($1,900)
Retained earnings, May 31	$5,325

Requirement 2.3:

THE GRAM CO.
Balance Sheet
May 31
Assets		Liabilities
Cash	$43,000	Accounts payable	$85
Equipment	$5,410
		Stockholder's equity:
		Common stock	$43,000
		Retained earnings	$5,325
Total assets	$48,410	Total liabilities and stockholders equity	$48,410

Requirement 2.4:

THE GRAM CO.
Statement of Cash Flows
For Month Ended May 31
Cash flows from operating activities:
Payment for rent	($2,300)
Cash paid for cleaning services	($730)
Cash received for services provided	$5,700
Cash paid for salaries (790+790)	($1,580)
Cash collections from customers (2900+3900)	$6,800
Cash paid for telephone bill	($300)
Cash paid for utilities	($280)
Net cash flows from operating activities (i)		$7,310
Cash flows from investing activities:
Purchase of equipment	($5,410)
Net cash flows from Investing activities (ii)		($5,410)
Cash flows from financing activities:
Issuance of common stock	$43,000
Payment of cash dividends	($1,900)
Net cash flows from financing activities (iii)		$41,100
Net increase(decrease) in cash (i+ii+iii)		$43,000
Cash balance, May 1		$0
Cash balance, May 31		$43,000

Calculations:

T-Accounts:

Cash			Service revenue
$43,000	$2,300			$5,700
$5,700	$730			$2,900
$2,900	$790			$3,900
$3,900	$5,410			Bal. $12,500
	$790
	$300		Salaries expense
	$280		$790
	$1,900		$790
Bal. $43,000			Bal. $1,580
Accounts receivable
$2,900	$2,900
$3,900	$3,900
Bal. $0
Accounts payable
$5,410	$5,410
	$85
	Bal. $85