Question

Tom Tylor & DickDavidson go into business together as a partnership (named Tom&Dick LLP.), selling computer software through the internet. On January 1, they each put in $6,000 as capital, and this goes into the Tom&Dick LLP's account at their local bank. They bought computer equipment for $10,000 (paid by cheque) and set up for business in Dick’s dad’s basement. The cost of the computer equipment will be amortized over the next three years, with a disposal value of $1,000. Dick’s dad has agreed to let them operate out of his basement if they pay him a rent of 10% of their annual profit, or $1,200 per year, whichever is greater. At the end of the first month of business, they have made no sales and incurred no expenses, other than the amortization of the computer equipment and the rent (which is owed to Dick’s dad). At the end of January, the accounting equation is: ***?

Answer 1

Please find below answer as per attached file :

S.No Date Transaction Assets Liabilities + Introduced Capital of $6000 by 1-Jan Tom Tylor & Dick Davidson 1 $ 12,000.00 $ Shareholder Equity Total Reference Note Introduction of capital has been taken as Bank into assets side and owner's capital in shareholder $ 12,000.00 $ 12,000.00 equity Purchase of computer equipment has been made through cheque so reducing the ban balance by $10000 $ (10,000.00) Purchase of Computer equipment by Cheque $ 10,000.00 As computer equipemwnt has been bought to show double entry impact, it will stand as addition in assets in balance sheet Overall impact of this transaction is nil as payment has been made though bank and equipment are shown as assets ans no impact on liabilities side of equation 12,000.00 $ 12,000.00 (250.00) Refer Note 1 Below 11,750.00 $ 11,750.00 (100.00) Refer Note 1 Below 11,650.00 $ WN Net Impact Revised Equation Month End Amortized Expenses Revised Equation Month End Rent Expenses Revised Equation $ $ $ $ $ $ 12,000.00 (250.00) 11,750.00 (100.00) 11,650.00 $ $ $ $ $ 4 Note 1 Amortized Expenses (Cost of asset- residual value)/ useful life Amortized Expenses for full year $3,000.00 1000-1000/3 Amortized Expenses for one month divided by 12 $ 250.00 Double entry impact has been shown as reduction in assets value and second impact has been show an reduction in retained d earning which will form part of shareholder equity as it will be debited as expenses income statement which balance ultimately transferred to retained earning. Rent Expenses 10% of annual profit or $1200 per year. Assumption As per question currently it is mention that it is end off first month and no sale has been made so taken USD 1200 per year as rent amount Rent expenses for full year $ 1,200.00 Monthly divide by 12 $ 100.00 Note 2 Double entry impact has been shown as reduction in assets value as paid through bank and second impact has been show an reduction in retained earning which will form part of shareholder equity as it will be debited as expenses in income statement which balance ultimately transferred to retained earning.