Question

Question.

Peyton Smith enjoys listening to all types of music and owns countless CDs. Over the years, Peyton has gained a local reputation for knowledge of music from classical to rap and the ability to put together sets of recordings that appeal to all ages.

During the last several months, Peyton served as a guest disc jockey on a local radio station. In addition, Peyton has entertained at several friends’ parties as the host deejay.

On June 1, 2016, Peyton established a corporation known as PS Music. Using an extensive collection of music MP3 files, Peyton will serve as a disc jockey on a fee basis for weddings, college parties, and other events. During June, Peyton entered into transactions that were posted to the accounting equation grid in Part 1 of this problem.

	Required:
	3. Prepare a retained earnings statement for PS Music for the month ended June 30, 2016.*
	4. Prepare a balance sheet for PS Music as of June 30, 2016.*

Information

Labels
Expenses
For the Month Ended June 30, 2016
June 30, 2016
Amount Descriptions
Change in retained earnings
Dividends
Net income
Net loss
Retained earnings
Retained earnings, June 1, 2016
Retained earnings, June 30, 2016
Total assets
Total expenses
Total liabilities and stockholders’ equity
Total stockholders’ equity

X

Income Statement

Shaded cells have feedback.

ending balances for accounts are shown in the following summary grid.

Assets

= Liabilities +

Stockholders’ Equity

Cash

+ Accounts Receivable

+ Supplies

= Accounts Payable

+ Common Stock

- Dividends

+ Fees Earned

- Music Expense

- Office Rent Expense

- Equipment Rent Expense

- Advertising Expense

- Wages Expense

- Utilities Expense

- Supplies Expense

- Miscellaneous Expense

Bal.

3,920

1,000

170

250

4,000

– 500

6,200

– 1,590

– 800

– 675

– 500

– 400

– 300

– 180

– 415

Bal.

Answer 1

Indicate the effect of each transaction and the balances after each transaction:

Part 1

Transaction analysis: Asset = $5,090, liabilities = $250 and owner’s equity =$4,840. Both assets and liabilities plus stockholders’ equity are same.

In analysis of transaction, the value of assets must equal the amount of liabilities and stockholders’ equity. It shows all the transaction occurred on the specified period and it helps to understand the revenues earned and expenses made by the company.

Step 2 of 4

Prepare an income statement for PS music for the month the ended June 30, 2016:

Part 2

Net income for the month ended June 30, 2016 is $1,340.

Income statement reports the net income or net loss of a business during a particular year. The net income is equal to the revenues minus expenses. Revenues are the top line of the income statement. Hence, expenses are deducted from top line to attain the bottom line of the income statement, net income. According to the question, net income is determined by deducting the total expenses ($4,860) from fee earned (Revenue) $6,200. Hence, the calculated net income is $1,340.

Step 3 of 4

Prepare owner’s equity statement of PS music for the month ended June 30, 2016:

Part 3

Owner’s capital at June 30, 2016 is $4,840.

Owners’ equity is the total of capital investment; Statement of Owners’ equity shows the changes in the owners’ equity over a period. It is used to determine the ending owners’ capital by using the beginning owners’ capital, net income, and drawings.

Owner’s capital at June 30, 2016 is calculated by subtracting the drawings from the sum of net income and beginning balance of owners’ capital. Hence, the PS, capital at June 30, 2016 is $4,840.

Step 4 of 4

Use the amount from step 1 or transaction analysis of PS music to prepare balance sheet

Prepare balance sheet of PS Music as on December 31, 2016:

Part 4

The total assets and total liabilities plus owner’s equity of PS music as on June 30, 2016 is $5,090.

Assets, liabilities, and owners’ equity are the accounts that appear on the balance sheet.

Generally, balance sheet contains assets and liabilities plus stockholders’ equity section. However, the classified balance sheet contains items in different head such as the total assets are classified into two categories as “current assets” and “Property, plant, and equipment assets”. The total liabilities are classified into two categories as “current liabilities” and “long-term liabilities”. The total stockholders’ equity have two components- common stock and retained earnings.

Thus, the total assets ($5,090) of the balance sheet is equal to the liabilities and stockholders’ equity ($5,090).

Part 1

Transaction analysis: Asset = $5,090, liabilities = $250 and owner’s equity =$4,840. Both assets and liabilities plus stockholders’ equity are same.

Part 2

Net income for the month ended June 30, 2016 is $1,340.

Part 3

Owner’s capital at June 30, 2016 is $4,840.

Part 4

The total assets and total liabilities plus owner’s equity of PS music as on June 30, 2016 is $5,090.