Question

On May 1, Marty's Repair Shop Itd. began operations . The following transactions were completed during the month: 1) Issued common shares for $8,000 cash. 2) Paid $1,280 for May office rent . 3) Purchased equipment for $16,000, paying $4.000 cash and signing a bank loan payable for the balance . 4) Purchased supplies on account , $700. 5) Received $4,200 from customers for repair services provided . 6) Paid for supplies purchased in transaction 4. 7) Paid May telephone bill of $200. 8. Provided repair services on account to customers , $3,600 9) Paid employee salaries , $2,000. 10) Received $700 in advance for repair services to be provided next month 11) Collected $1,600 from customers for services billed in transaction 8. 12) Declared and paid $500 of dividends to shareholders. 13) Paid $80 of Interest on the bank loan obtained in transaction 3. 14) Paid income tax of $600

Instructions (a) Prepare an equation analysis of the effects of the above transactions on the expanded accounting equation (b) Calculate total assets, liabilities, and shareholders' equity at the end of the month and net income for the month

Answer 1

Assets = Equity + Liabilities

Date	Transactions			Asset				Liabilities			EQUITY		Total
		Cash	Fixed Assets	Stock	Debtors	Total		Bank loan	Creditors	Current Liability	Capital	Profit and Loss Account
1	Issued common shares for $8,000 cash.	$   8,000.00				$      8,000.00					$ 8,000.00		$      8,000.00
2	Paid $1,280 for May office rent	$ (1,280.00)				$      6,720.00						$ (1,280.00)	$      6,720.00
3	Purchased equipment for $16,000, paying $4.000 cash and signing a bank loan payable for the balance	$ (4,000.00)	$ 16,000.00			$    18,720.00		$ 12,000.00					$    18,720.00
4	Purchased supplies on account , $700			$   700.00		$    19,420.00			$    700.00				$    19,420.00
5	Received $4,200 from customers for repair services provided	$   4,200.00				$    23,620.00						$   4,200.00	$    23,620.00
6	Paid for supplies purchased in transaction 4	$     (700.00)				$    22,920.00			$ (700.00)				$    22,920.00
7	Paid May telephone bill of $200	$     (200.00)				$    22,720.00						$     (200.00)	$    22,720.00
8	Provided repair services on account to customers , $3,600				$   3,600.00	$    26,320.00						$   3,600.00	$    26,320.00
9	Paid employee salaries , $2,000	$ (2,000.00)				$    24,320.00						$ (2,000.00)	$    24,320.00
10	Received $700 in advance for repair services to be provided next month	$       700.00				$    25,020.00				$   700.00			$    25,020.00
11	Collected $1,600 from customers for services billed in transaction 8	$   1,600.00			$ (1,600.00)	$    25,020.00							$    25,020.00
12	Declared and paid $500 of dividends to shareholders	$     (500.00)				$    24,520.00					$   (500.00)		$    24,520.00
13	Paid $80 of Interest on the bank loan obtained in transaction 3	$       (80.00)				$    24,440.00						$       (80.00)	$    24,440.00
14	Paid income tax of $600	$     (600.00)				$    23,840.00					$   (600.00)		$    23,840.00
	TOTAL	$   5,140.00	$ 16,000.00	$   700.00	$   2,000.00	$ 23,840.00		$ 12,000.00	$             -	$   700.00	$ 6,900.00	$   4,240.00	$ 23,840.00

Notes

Dividend and Income Tax are not expenses. Therefore not reflected in Profit and Loss Account

The position as on 31st May

ASSETs = $23,840

LIABILITIES = $12,700

SHARE HOLDERS' EQUITY = $ 11,140

Net Income for Month= $4,240