Individual Problem Set I:
Instructions
In each situation, state whether the decision-maker would be most likely to place primary emphasis on information provided by the income statement, balance sheet, or statement of cash flows. In each case provide a brief justification for your choice. Choose only one financial statement in each case.
1. On June 1, Hightower service Co. was started with an initial investment in the company of $22,100 cash. Here are the assets, liabilities, and common stock of the company at June 3o, and the revenues and expenses for the month of June, its first month of operations:
Prepare all income statement, retained earnings statement, and balance sheet; discuss resents.
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Cash
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$ 4,6oo
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Notes payable
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$12,000
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|
Accounts receivable
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4,000
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Accounts payable
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500
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|
Service revenue
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7,500
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Supplies expense
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1000
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Supplies
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2,400
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Maintenance and repairs expense
|
600
|
|
Advertising expense
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400
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Utilities expense
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300
|
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Equipment
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26.,000
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Salaries and wages expense
|
1,400
|
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Common stock
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22,100
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|
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In June, the company issued no additional stock but paid dividends of $1,400. Instructions
(a) Prepare an income statement and a retained earnings statement for the month of June and a balance sheet at June 30, 2014.
(a) Briefly discuss whether the company's first month of operations was a success.
(b) Discuss the camp ant's decision to distribute a dividend.
2. Foyle Architects incorporated as licensed architects on April t, 2014. During the first month of the operation of the business, these events and transactions occurred:
Journalize transactions, post, and prepare a trial balance.
Apr. 1 Stockholders invested 512: 000 cash in exchange for common stock of the corporation.
1 Hired a secretary-receptionist at a salary of $375 per week, payable monthly.
2 Paid office rent for the month $90o.
3 Purchased architectural supplies on account from Burlington Company $1,300.
10 Completed blueprints on a carport and billed client $1,9oo for services.
11 Received $7oo cash advance from J. Madison to design a new home.
20 Received $2,800 cash for services completed and delivered to M. Svetlana.
30 Paid secretary-receptionist for the month $1,500.
30 Paid $300 to Burlington Company for accounts payable due.
The company uses these accounts: Cash, Accounts Receivable, Supplies, Accounts Payable, Unearned Service Revenue, Common Stock, Service Revenue, Salaries and Wages Expense, and Rent Expense.
Instructions
(a) Journalize the transactions, including explanations.
(b) Post to the ledger T-accounts.
(c) Prepare a. trial balance: on April 30, 2014.