.A-1. Jill Smith opens an apartment-locator business 2A cle campus. She is the s

Question

.A-1. Jill Smith opens an apartment-locator business 2A cle campus. She is the sole owner of the arc canrietorship, which she names Campus Apartment sur near a Locators. During the first month of 2015, she engages in the following transactions a. Smith invests $35,000 of personal funds to start the ors. During the first month of operations, July Ap a. business. b. She purchases on account office supplies costing b. $350 Smith pays cash of $30,000 to acquire a lot next to . the campus. She intends to use the land as a future building site for her business office. d. d. Smith locates apartments for clients and receives e. e. She pays $100 on the account payable she created in f. She pays $2,000 of personal funds for a vacation. cash of $1,900. f. transaction (b). g She pays cash expenses for office rent, $400, and h g. She pays cash expenses for office rent, $400, and utilities, $100. h. The business sells office supplies to another business i. Smith withdraws cash of $1,200 for personal use. Required (a) Analyze the preceding transactions in terms of for its cost of $150. their effects on the accounting equation of Campus Apartment Locators. Use Figure 2-A-1 as a guide. (b) Prepare the income statement and balance sheet of the business after recording the transactions. Use Figure 2-A-2 as a guide.

Explanation / Answer

Requirement (a):

Analysis of transactions in terms of their effects on the accounting equations:

a. Investment of funds:

Smith invested $35000 of personal funds to start the business, which results in debit of cash a/c (current asset) and credit of capital a/c (liability).

Hence, there is an increase in liability and current assets.

b.Purchase of office supplies:

Purchase of office supplies on account results in the debit of office supplies (current asset) and credit of creditor a/c (current liability).

Hence, there is an increase in current assets a/c and current liability a/c.

c. Acquisition of land:

Acquisition of land by way of cash results in the debit of land a/c (fixed assets) and credit of cash a/c (current assets).

Hence, there is an increase in fixed assets a/c and decrease in current assets a/c

d.Provision of service:

Receiving cash on provision of service results in the debit of cash a/c (current asset) and credit of income a/c (P & L a/c)

Hence, there is an increase in income and current assets

e. Payment to creditors:

Payment to creditors results in the debit of creditors a/c (current assets) and credit of cash a/c (current assets).

Hence, there is a decrease in both the current assets and current liabilities.

f. Payment of personal funds:

Payment of personal funds means drawings which results in the debit of drawings a/c (capital) and credit of cash a/c (current asset).

Hence, there is a decrease in capital a/c and the current assets

g.Payment of cash expenses:

Payment of cash expenses results in the debit of expenses a/c (P & L a/c) and the credit of cash a/c (current assets)

Hence, there is an increase in expenditure and decrease in current asset

h.Sale of office supplies:

Sale of office supplies results in the debit of cash a/c (current asset) and credit of office supplies

Hence there is an increase in the current asset and decrease in the current asset.

i.Withdrawal for personal use :

It will have the same effect as stated in (f).

Overall Analysis:

Assets

Liability

Expense

Income

a

$35000

$35000

b

$350

$350

c

$30000

-$30000

d

$1900

$1900

e

-$100

-$100

f

-$2000

-$2000

g

-$400

-$100

$400

$100

h

$150

-$150

i

-$1200

-$1200

Requirement (b):

Income Statement:

Particulars

Amount

Particulars

Amount

To Office Rent

$400

By Proceeds from service

$1900

To utilities

$100

To Profit

$1400

$1900

$1900

Balance Sheet:

Liabilities

Amount

Assets

Amount

Capital

$35000

Land

$30000

Less: Drawings (WN-1)

-$3200

Office Supplies     (WN-3)

$200

Add: Profit

$1400

$33200

Accounts payable (WN-2)

$250

Cash (WN-4)

$3250

$33450

$33450

WN-1: Drawings

Vacation

$2000

Personal use

$1200

$3200

WN- 2: Accounts Payable

Purchase of office supplies

$350

-Payment to suppliers

$100

$250

WN- 3: Office Supplies

Purchases

$350

-Sales

$150

$200

WN- 4: Cash

Capital

$35000

-Acquisition of land

-$30000

+Receipts

$1900

-Payment to suppliers

-$100

-Drawings

-$2000

-Office Rent

-$400

-Utilities

-$100

+Sale of office supplies

$150

-Drawings

-$1200

$3250

Assets

Liability

Expense

Income

a

$35000

$35000

b

$350

$350

c

$30000

-$30000

d

$1900

$1900

e

-$100

-$100

f

-$2000

-$2000

g

-$400

-$100

$400

$100

h

$150

-$150

i

-$1200

-$1200

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