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ACT 205 Spring 2018 - 2019 The Accounting Equation Neal decides to open a computer programming...

ACT 205 Spring 2018 - 2019 The Accounting Equation Neal decides to open a computer programming service which he names Microsoft. 1. On January 1, 2018, Neal invests $15,000 cash in the business. 2. Microsoft purchases computer equipment for $7,000 cash. 3. Microsoft purchases computer paper and other supplies for $1,600 from ABC Supply Company expected to last several months. ABC agrees to allow Microsoft to pay this bill in February. 4. Microsoft receives $1,200 cash from customers for programming services it has provided. 5. Microsoft receives a bill for $250 from the Daily News for advertising but postpones payment until a later date. 6. Microsoft provides $3,500 of programming services for customers. The company receives cash of $1,500 from customers, and bills the customers with the remaining balance. 7. Microsoft pays the following expenses in cash for January: rent $600, salaries of employees $900 and utilities $200. 8. Microsoft pays its $250 Daily News bill in cash. 9. Microsoft receives $600 in cash from customers who had been billed for services in transaction number 6. 10. Neal withdraws $1,300 in cash from the business for his personal use. Required: A. Show the effect of the above transactions on the accounting equation. Cash (asset) increased by $15,000; and Ray Neal’s Capital (owners equity) increased by $15,000 Sep. 2 Microsoft purchases computer equipment for $7,000 cash [Equipment (assets) increased by $7,000; and Cash (asset) decreased by $7,000] Sep. 3 Microsoft purchases for $1,600 from Acme Supply Company computer paper and other supplies expected to last several months. The purchase is made on account [Supplies (assets) increased by $1,600; and Accounts Payable (Liability) increased by $1,600] Sep. 10 Microsoft receives $1,200 cash from customers for programming services it has provided[Cash (assets) increased by $1,200; and Service Revenue (revenue) increased by $1,200] Sep. 15 Microsoft receives a bill for $250 from the Daily News for advertising but postpones payment until a later date[Advertising Expense (expense) increased by $250; and Accounts Payable (liability) increased by $250] Sep. 20 Microsoft provides $3,500 of programming services for customers. The company receives cash of $1,500 from customers, and it bills the balance of $2,000 on account [Cash (assets) increased by $1,500; Accounts Receivable (asset) increased by $2,000; and Service Revenue (revenue) increased by $3,500] Sep. 25 Microsoft pays the following expenses in cash for September: store rent $600, salaries of employees $900 and utilities $200[Rent Expense, Salaries Expense, Utility Expense (expenses) increased by $600, $900, and $200 respectively; and Cash (asset) decreased by $1,700] Sep. 27 Microsoft pays its $250 Daily News bill in cash [Accounts Payable (liability) decreased by $250; and Cash (asset) decreased by $250 Sep. 28 Microsoft receives $600 in cash from customers who had been billed for services [in Transaction Sep. 20] Sep. 30 Ray Neal withdraws $1,300 in cash from the business for his personal use[Cash (asset) decreased by $1,300; and Ray Neal’s Drawings (owners equity) decreased by $1,300] B. Prepare the financial statements of Microsoft on January 31, 2018. • Income Statement • Statement of Owner’s Equity • Balance Sheet Assets = Liabilities + owner's Equity Cash +Equipment +Supplies +Accounts Receivable = Accounts Payable +Capital +Revenues -Expenses -withdrawal 1 +15,000 = +15,000 15,000 = 15,000 2 -7,000 +7,000 = 8,000 +7,000 = 15,000 3 +1,600 = +1,600 8,000 +7,000 +1,600 = 1,600 +15,000 4 +1,200 = +1,200 9,200 +7,000 +1,600 = 1,600 +15,000 +1,200 5 = +250 -250 9200 +7,000 +1,600 = 1,850 +15,000 +1,200 -250 6 +1,500 +2,000 = +3,500 10,700 +7,000 +1,600 +2,000 = 1,850 +15,000 +4,700 -250 7 -1,700 = -900 -600 -200 9,000 +7,000 +1,600 +2,000 = 1,850 +15,000 +4,700 -1,950 8 -250 = -250 8,750 +7,000 +1,600 +2,000 = 1,600 +15,000 +4,700 -1,950 9 +600 -600 = 9,350 +7,000 +1,600 +1,400 = 1,600 +15,000 +4,700 -1,950 10 -1300 = -1,300 8,050 +7,000 +1,600 +1,400 = 1,600 +15,000 +4,700 -1,950 -1,300

Solutions

Expert Solution

Assets = Liabilities + owner's Equity
Cash +Equipment +Supplies +Accounts Receivable = Accounts Payable +Capital +Revenues -Expenses -withdrawal
1 15,000 = 15,000
15,000 = 15,000
2 -7,000 7,000 =
8,000 7,000 = 15,000
3 1,600 = 1,600
8,000 7,000 1,600 = 1,600 15,000
4 1,200 = 1,200
9,200 7,000 1,600 = 1,600 15,000 1,200
5 = 250 -250
9200 7,000 1,600 = 1,850 15,000 1,200 -250
6 1,500 2,000 = 3,500
10,700 7,000 1,600 2,000 = 1,850 15,000 4,700 -250
7 -1,700 = -900
-600
-200
9,000 7,000 1,600 2,000 = 1,850 15,000 4,700 -1,950
8 -250 = -250
8,750 7,000 1,600 2,000 = 1,600 15,000 4,700 -1,950
9 600 -600 =
9,350 7,000 1,600 1,400 = 1,600 15,000 4,700 -1,950
10 -1300 = -1,300
8,050 7,000 1,600 1,400 = 1,600 15,000 4,700 -1,950 -1,300

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