Question

Shelly Herzog opens a research service near a college campus. She names the corporation Herzog Researchers, Inc. During the first month of operations, July 20X3, the business engages in the following transactions:

a. Herzog Researchers, Inc., issues its common stock to Shelly Herzog, who invests $25,000 to open the business.

b. The company purchases on account office supplies costing $350.

c. Herzog Researchers pays cash of $20,000 to acquire a lot next to the campus. The company intends to use the land as a building site for a business office.

d. Herzog Researchers performs research for clients and receives cash of $1,900.

e. Herzog Researchers pays $100 on the account payable it created in transaction b.

f. Herzog pays $2,000 of personal funds for a vacation.

g. Herzog Researchers pays cash expenses for office rent ($400) and utilities ($100).

h. The business sells a small parcel of the land for its cost of $5,000.

i. The business declares and pays a cash dividend of $1,200.

Required

1. Analyze the preceding transactions in terms of their effects on the accounting equation of Herzog Researchers, Inc. Use Exhibit 2-1, Panel B as a guide.

2. Prepare the income statement, statement of retained earnings, and balance sheet of Herzog Researchers, Inc., after recording the transactions. Draw arrows linking the statements.

Answer 1

Ans-1- PANEL B- Analysis of Transactions

Assets

=

Liabilities

+

Stockholders' Equity

Type of Stockholders' Equity Transaction

Cash

+

Office Suuplies

+

Land

Accounts Payable

+

Common Stock

+

Retained Earnings

(a)

+25,000

+25,000

Issued Stock

(b)

+350

+350

(c)

-20,000

+20,000

(d)

+1,900

+1,900

Service Revenue

(e)

-100

-100

(f)

Not a transaction of the business

(g)

-400

-400

Rent Expense

-100

-100

Utilities Expense

(h)

+5,000

-5,000

(i)

-1,200

-1,200

Dividends

Balance

10,100

350

15,000

250

25,000

200

Total

25,450

25,450

Ans-2- Shelly Herzog

Income Statement

Month Ended July 31,20x3

Revenues
Service Revenue		$1,900
Less:-Expenses:
Rent Expense	$400
Utilities Expense	$100
Total Expenses		$500
Net Income		1,400

Shelly Herzog

Statement of Retained Earnings

Month Ended July 31,20x3

Retained Earnings July1,20x3	$0
Add: Net income for the month	$1,400
	$1,400
Less: Dividends	$1,200
Retained Earnings July 31,20x3	$200

Shelly Herzog

Balance Sheet

As at July 31, 20x3

Assets	Amount ($)	Liabilities		Amount ($)
Cash	10,100	Accounts Payable		250
Supplies	350	Stockholders' Equity
Land	15,000	Common Stock	25,000
		Retained Earnings	200
		Total Stockholders' Equity		25,200
Total Assets	25,450	Total Liabilities and Stockholders' Equity		25,450

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