Question

Susan Huang began the practice of law October 1, 2017, with an initial investment of $21,000 in cash. She made no withdrawals during the month. After completing the first month of practice, the financial statements were prepared by Ryan Player, the secretary/bookkeeper Ms. Huang had hired. Ms. Huang almost burst out laughing when she saw them. She had completed a course in legal accounting in law school and knew the statements prepared by Player left much to be desired. Consequently, she asked you to revise the statements. The Player version is presented as follows:

Susan Huang, Lawyer
Balance Sheet
October 31, 2017
Assets				Liabilities and Equity
Cash	$	6,900		Susan Huang, capital	$	21,000
Furniture		6,850
Supplies expense		430
Accounts payable		1,910
Rent expense		3,300
Supplies		1,610
	$	21,000			$	21,000

Susan Huang, Lawyer
Income Statement
For Month Ended October 31, 2017
Revenues:
Legal revenue	$	17,800
Accounts receivable		4,350		$	22,150
Expenses:
Salaries expense	$	4,800
Telephone expense		345
Law library		12,125			17,270
Profit				$	4,880

Required:
Prepare the corrected financial statements for Susan Huang.

income statement

statement of changes in equity

balance sheet

Answer 1

The income statements provides the details of revenues earned and expenses incurred for the period, which in this case is from October 1, 2017 to October 31, 2017

The income statement of Susan Huang. For the month of October is given as under

Susan Huang, Lawyer
Income statement
For Month Ended October 31, 2017
Revenues
	Legal service fees		$17,800
	Total revenues			$17,800
Expenses
	Salaries expense		$4,800
	Telephone expense		$345
	Supplies expense		$430
	Rent expense		$3,300
	Total expenses			$8,875
Net income				$8,925

To calculate the changes in stockholders equity. the change in retained earnings statement has to be prepared . as given below

Susan Huang, Lawyer
Retained Earning statement
For Month Ended October 31, 2017
Retained earnings, October 1, 2017		0
Net income	8,925
Change in retained earnings		8,925
Retained earnings, October 31, 2017		8,925

The balance sheet shows the balances of assets and liabilities and stockholders’ equity as on date , which in this case is 31 October, 2017

This is prepared as below

Susan Huang, Lawyer
Balance Sheet
31-Oct-18
ASSETS
Current assets
	Cash			$6,900
	Accounts Receivable			$4,350
	Supplies			$1,610
	Total current assets				$12,860
Furniture				$6,850
	Books			$12,125
					$18,975
Total assets					$31,835
LIABILITIES
Current liabilities
	Accounts Payable			$1,910
Total liabilities					$1,910
stockholders’ equity
Common Stock				$21,000
Retained Earnings				$8,925
Total stockholders’ equity					$29,925
Total liabilities and stockholders’ equity					$31,835

The changes in stockholder equity is opening balance of $21,000 on October 1 , 2017 and net profit for the October , 2017 is added of $8,925 and the closing balance of stockholder equity as on 31 october,2017 is $29,925