Question

P1-38 on May 1, R.C. Twining started RC Flying School, a company that provides flying lessons, by Investing $40,000 cash in the business. Following are the assets and liabilities of the company on May 31, 2017, and the revenues and expenses for the month of May. Cash $3,400 Advertising Expense $ 600 Accounts Receivable 4,900 Rent Expense 1,200 Equipment 64,000 Maintenance and Repairs Expense 400 Notes Payable 30,000 Gasoline Expense 2,500 Accounts Payable 800 Utilities Expense 400 Service Revenue 8,100 R.C. Twining made no additional investment in May, but he withdrew $1,500 in cash for personal use. Instructions (a) Prepare an income statement and owner's equity statement for the month of May and a balance sheet at May 31. (b) Prepare an income statement and owner's equity statement for May assuming the following data are not included above: (1) $900 worth of services were performed and billed but not collected at May 31, and (2) $1,500 of gasoline expense was incurred but not paid.

Answer 1

a) R.C.Twining

Income Statement for the Month of May (Amounts in $)

Service Revenue (A)	8,100
Expenses:
Advertising Expense	600
Rent Expense	1,200
Maintenance and Repairs Expense	400
Gasoline Expense	2,500
Utilities Expense	400
Total Expenses (B)	5,100
Net Income (A-B)	3,000

Owner's Equity Statement for the Month of May (Amounts in $)

Beginning balance	0
Add: Cash Invested	40,000
Less: Amount Withdrew for personal use	1,500
Add: Net Income	3,000
Ending Balance of Owner's Equity	41,500

R.C.Twining

Balance Sheet as on May 31 (Amounts in $)

Assets
Cash	3,400
Accounts Receivable	4,900
Equipment	64,000
Total Assets	72,300
Liabilities and Owner's Equity
Notes Payable	30,000
Accounts Payable	800
Owner's Equity	41,500
Total Liabilities and Owner's Equity	72,300

b) Firstly we need to pass adjusting entries for the given adjustments which is shown as follows:-

No	Account Titles and Explanations	Debit	Credit
1	Accounts Receivable	900
	Sales Revenue		900
	(To record the sales on account)
2	Gasoline Expense	1,500
	Gasoline Expense Payable		1,500
	(To record the gasoline expense payable)

R.C.Twining

Income Statement for the Month of May (Amounts in $)

Service Revenue (8,100+900) (C)	9,000
Expenses:
Advertising Expense	600
Rent Expense	1,200
Maintenance and Repairs Expense	400
Gasoline Expense (2,500+1,500)	4,000
Utilities Expense	400
Total Expenses (D)	6,600
Net Income (C-D)	2,400

Owner's Equity Statement for the Month of May (Amounts in $)

Beginning balance	0
Add: Cash Invested	40,000
Less: Amount Withdrew for personal use	1,500
Add: Net Income	2,400
Ending Balance of Owner's Equity	40,900

R.C.Twining

Balance Sheet as on May 31 (Amounts in $)

Assets
Cash	3,400
Accounts Receivable (4,900+900)	5,800
Equipment	64,000
Total Assets	73,200
Liabilities and Owner's Equity
Notes Payable	30,000
Accounts Payable	800
Gasoline Expense Payable	1,500
Owner's Equity	40,900
Total Liabilities and Owner's Equity	73,200