a. On January 1, 2015, a payment in cash for $12,000 is made for prepaying rent

Question

a. On January 1, 2015, a payment in cash for $12,000 is made for prepaying rent for the entire year 2015. b. On January 4, 2015, accounting services are performed and payment is received in cash for the amount of $1,900. c. On January 9, 2015, a payment in cash for advertising is made in the amount of $850. d. On January 10, 2015, office supplies are purchased in the amount of $75 with cash. e. On January 14, 2015, accounting services are performed and payment is received in cash for the amount of $2,725. f. On January 20, 2015, the telephone bill for the amount of $660 is received and paid with cash. g. On January 20, 2015, the utilities bill for $2,925 is received. The bill won't be paid until it is due on February 15, 2015. h. On January 27, 2015, accounting services are performed on account in the amount of $3,750 i. On January 28, 2015, a payment in cash for $1.500 is made for a bill from an advertising agency

Explanation / Answer

Balance sheet as on 31st December 2014 will be: (from the information provided)

Now the transactions of January 2015 will have to be accounted for. After taking into account the transactions for January 2015 the balance sheet will look like this (this is the answer):

Calculations and explanations:

a. This will lead to cash declining by 12,000 and retained earnings declining by 12,000 (as rent is an expense).

b. This will lead to cash and retained earnings increase by $1,900 (due to income).

c. This is similar to “a” and will lead to decline in cash and retained earnings by $850.

d. This is also an expense (assuming all office supplies are used) and so will lead to decline in cash and retained earnings by $75.

e. This is similar to “b” and so cash and retained earnings will increase by $2,725.

f. This is an expense and so cash and retained earnings will decline by $660.

g. The bill expense will be recognized and so retained earnings will fall by $2,925. Secondly as bill is not paid a current liability account named ‘utility bill payable’ will be credited with $2,925.

h. This is revenue and so retained earnings will increase by $3,750. Also as the amount is not received a new current account named accounts receivable will be debited with $3,750.

i. This is similar to “c” and will lead to decline in cash and retained earnings by $1,500.

Formulas can be seen below:

Assets Liabilities & Stockholder's equity Cash 20,500.00 Stockholder's equity Common stock 38,000.00 Vehicles 48,000.00 Retained earnings 21,500.00 less: depreciation (12,000.00) 36,000.00 Equipment 3,600.00 less: depreciation (600.00) 3,000.00 Total assets 59,500.00 Total liability and equity 59,500.00

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