Homework Answers
Ans.A.
|
S.No. |
Assets |
= |
Liabilities |
+ |
Equity |
Balance |
|
1 |
$50,000 |
= |
$0 |
+ |
$50,000 |
$50,000 |
|
2 |
$6,000 |
= |
$0 |
+ |
$0 |
$50,000 |
|
-$6,000 |
||||||
|
-$2,000 |
$0 |
+ |
-$2,000 |
$48,000 |
||
|
3 |
$8,000 |
= |
$0 |
+ |
$48,000 |
|
|
-$8,000 |
||||||
|
4 |
-$500 |
= |
$0 |
+ |
-$500 |
$47,500 |
|
5 |
-$10,000 |
= |
$0 |
+ |
-$10,000 |
$37,500 |
|
6 |
-$2,000 |
= |
$0 |
+ |
-$2,000 |
$35,500 |
|
7 |
$30,000 |
= |
$0 |
+ |
$30,000 |
$65,500 |
|
8 |
$2,000 |
= |
$0 |
+ |
$65,500 |
|
|
-$2,000 |
Working notes:
1. Stockholders invested $50,000 cash. So, assets(cash) increase by $50,000 and equity(stockholders’ equity) increase by $50,000.
2. New equipment purchased for $6,000. So, assets(equipment) will increase by $6000 and assets(cash) will reduce by $6000, net effect being $0. Also, equipment has life of 3 years. So, annual depreciation under straight line method = $6000/3 = $2000. Equity (Depreciation being an expense reduces net income) reduces by $2000 and also assets(equipment) reduces by $2000.
3. Half year’s office rent $8,000 is paid in advance. So, assets(prepaid rent) will increase by $8000 and assets(cash) will reduce by $8000, net effect being $0.
4. Dividends $500 paid to shareholders. So, assets(cash) reduce by $500 and equity(dividends paid) reduce by $500, making the balance $50,000 - $500 = $49500.
5. Paid $10000 to employees for services provided. So, assets(cash) will reduce by $10,000 and equity(employee salaries being expense being reduction in income for the year) will reduce by $10000.
6. Paid utility bills $2000.So, assets(cash) will reduce by $2,000 and equity(utility bills being expense being reduction in income for the year) will reduce by $2000.
7. Completed services on account $30,000. So, assets (Accounts receivable) will increase by $30000 and equity( services revenue being addition to income for the year) will increase by $30000.
8. Collected cash for accounts receivable in point 7. So, assets(accounts receivable) will increase by $2000 and assets(cash) will reduce by $2000.
Ans.B.
|
Journal entries |
|||
|
S.No. |
Particulars |
Debit amount |
Credit amount |
|
1 |
Cash |
$50,000 |
|
|
Stockholders' equity |
$50,000 |
||
|
(Being equity $50000 invested in cash) |
|||
|
2 |
Computer equipment |
$6,000 |
|
|
Cash |
$6,000 |
||
|
(Being computer equipment purchased in cash) |
|||
|
2 |
Depreciation |
$2,000 |
|
|
Computer equipment |
$2,000 |
||
|
(Being depreciation on computer) |
|||
|
3 |
Prepaid rent |
$8,000 |
|
|
Cash |
$8,000 |
||
|
(Being office rent paid in advance) |
|||
|
4 |
Dividends paid |
$500 |
|
|
Cash |
$500 |
||
|
(Being dividends paid to existing shareholders) |
|||
|
5 |
Employee salaries |
$10,000 |
|
|
Cash |
$10,000 |
||
|
(Being employee salaries paid in cash) |
|||
|
6 |
Utility expense |
$2,000 |
|
|
Cash |
$2,000 |
||
|
(Being utility bills paid in cash) |
|||
|
7 |
Accounts receivable |
$30,000 |
|
|
Service revenue |
$30,000 |
||
|
(Being services provided on account) |
|||
|
8 |
Cash |
$2,000 |
|
|
Accounts receivable |
$2,000 |
||
|
(Being cash received in lieu of accounts receivable) |
Ans.C.
|
Balance Sheet as on December 31, 2018 |
|||
|
Liabilities |
Amount |
Assets |
Amount |
|
Stockholders’ equity |
$50,000 |
Cash |
$25,500 |
|
Add: Income for the year |
$16,000 |
Prepaid rent |
$8,000 |
|
Less: Dividend paid |
$500 |
Accounts receivable |
$28,000 |
|
Computer equipment |
$6,000 |
||
|
Less: Depreciation |
$2,000 |
||
|
Computer equipment(net) |
$4,000 |
||
|
$65,500 |
$65,500 |
Working notes:
1. From journal entries, cash balance = $50000-$6000-$8000-$500-$10000-$2000+$2000.
2. Accounts receivable balance = $30000-$2000 = $28000
3. Income for the year = $30000-$10000-$2000-$2000 = $16,000.
Ans.D.
|
Income statement for the year ended December 31,2018 |
|||
|
Expenses |
Income |
||
|
Particulars |
Amount |
Particulars |
Amount |
|
Employee salaries |
$10,000 |
Service revenue |
$30,000 |
|
Utility expenses |
$2,000 |
||
|
Depreciation |
$2,000 |
||
|
Net income |
$16,000 |
||
|
Total |
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