Question

Neveranerror Inc. was organized on June 2 by a group of accountants to provide accounting and tax services to small businesses. The following transactions occurred during the first month of business:

June 2:	Received contributions of $10,000 from each of the three owners of the business in exchange for shares of stock.
June 5:	Purchased a computer system for $12,000. The agreement with the vendor requires a down payment of $2,500 with the balance due in 60 days.
June 8:	Signed a two-year promissory note at the bank and received cash of $20,000.
June 15:	Billed $12,350 to clients for the first half of June. Clients are billed twice a month for services performed during the month, and the bills are payable within ten days.
June 17:	Paid a $900 bill from the local newspaper for advertising for the month of June.
June 23:	Received the amounts billed to clients for services performed during the first half of the month.
June 28:	Received and paid gas, electric, and water bills. The total amount is $2,700.
June 29:	Received the landlord’s bill for $2,200 for rent on the office space that Neveranerror leases. The bill is payable by the 10th of the following month.
June 30:	Paid salaries and wages for June. The total amount is $5,670.
June 30:	Billed $18,400 to clients for the second half of June.
June 30:	Declared and paid dividends in the amount of $6,000.

Required:

Part 1. Complete the below table to summarize the preceding transactions as they affect the accounting equation. Ignore depreciation expense and interest expense. If an account is unaffected by a transaction, enter "0". Use the minus sign to indicate decreases.

Neveranerror Inc. Transactions for the Month of June

Assets

=

Liabilities

+

Stockholders' Equity

Date

Cash

Accounts Receivable

Computer

Rent Payable

Accounts Payable

Notes Payable

Capital Stock

Retained Earnings

June 2

$

$

$

$

$

$

$

$

June 5

Bal.

$

$

$

$

$

$

$

$

June 8

Bal.

$

$

$

$

$

$

$

$

June 15

Bal.

$

$

$

$

$

$

$

$

June 17

Bal.

$

$

$

$

$

$

$

$

June 23

Bal.

$

$

$

$

$

$

$

$

June 28

Bal.

$

$

$

$

$

$

$

$

June 29

Bal.

$

$

$

$

$

$

$

$

June 30-Wages

Bal.

$

$

$

$

$

$

$

$

June 30-Billed clients

Bal.

$

$

$

$

$

$

$

$

June 30-Dividends

Bal.

$

$

$

$

$

$

$

$

Total Assets

$

Total Liabilities and Stockholders' Equity

$

Part 2a. Prepare the income statement for the month of June.

Neveranerror Inc.
Income Statement
For the Month Ended June 30
		$
Expenses:
	$
		$

2b. Prepare the statement of retained earnings for the month of June. If an amount is zero, enter "0".

Neveranerror Inc.
Statement of Retained Earnings
For the Month Ended June 30
	$
	$

2c. Prepare the classified balance sheet at June 30.

Neveranerror Inc.
Balance Sheet
June 30
Assets
Current assets:
	$
Total current assets		$
Property, plant, and equipment:
Total assets		$
Liabilities and Stockholders' Equity
Current liabilities:
	$
		$
Long-term debt:
Total liabilities		$
	$
Total stockholders' equity
Total liabilities and stockholders' equity		$

Part 3. From your reading of the financial statements for the first month, would you consider working at the company? Why?

[A: Yes/No], The company [B: was/was not] able to generate revenues and control costs. The profit margin was [C: 37%, 59%, 63%, 159%] and current ratio was [D: .02, .42, 2.4, 5.4] .

Answer 1

Answer-

Neveranerror Inc. Transactions for the Month of June
Assets								=	Liabilities							+	Stockholders' Equity
Date	Cash		Accounts Receivable			Computer			Rent Payable		Accounts Payable		Notes Payable				Capital Stock		Retained Earnings
June 2	$30,000																$30,000
June 5	-2,500					12,000					9,500
Bal.	$27,500					$12,000					$9,500						$30,000
June 8	20,000												20,000
Bal.	$47,500					$12,000					$9,500		$20,000				$30,000
June 15			12,350																12,350
Bal.	$47,500		$12,350			$12,000					$9,500		$20,000				$30,000		$12,350
June 17	-900																		-900
Bal.	$46,600		$12,350			$12,000					$9,500		$20,000				$30,000		$11,450
June 23	12,350		-12,350
Bal.	$58,950					$12,000					$9,500		$20,000				$30,000		$11,450
June 28	-2,700																		-2,700
Bal.	$56,250					$12,000					$9,500		$20,000				$30,000		$8,750
June 29									2,200										-2,200
Bal.	$56,250					$12,000			$2,200		$9,500		$20,000				$30,000		$6,550
June 30-Wages	-5,670																		-5,670
Bal.	$50,580					$12,000			$2,200		$9,500		$20,000				$30,000		$880
June 30-Billed clients			18,400																18,400
Bal.	$50,580		$18,400			$12,000			$2,200		$9,500		$20,000				$30,000		$19,280
June 30-Dividends	-6,000																		-6,000
Bal.	$44,580		$18,400			$12,000			$2,200		$9,500		$20,000				$30,000		$13,280
Total Assets			$74,980										Total Liabilities and Stockholders' Equity						$74,980

Part 2a.  the income statement for the month of June.

Neveranerror Inc.
Income Statement
For the Month Ended June 30
Service Revenue		$30,750
Expenses:
Advertising	$900
Utilities	2,700
Rent	2,200
Salaries and wages	5,670	11,470
Net Income		$19,280

2b. the statement of retained earnings for the month of June.

Neveranerror Inc.
Statement of Retained Earnings
For the Month Ended June 30
Beginning balance, June 1	$0
Add: Net Income	19,280
Less: Dividends	(6,000)
Ending Balance, June 30	$13,280

2c. Prepare the classified balance sheet at June 30.

Neveranerror Inc.
Balance Sheet
June 30
Assets
Current assets:
Cash	$44,580
Accounts receivable	18,400
Total Current Assets		$62,980
Property, plant, and equipment:
Computer		12,000
Total assets		$74,980
Liabilities and Stockholders' Equity
Current liabilities:
Accounts Payable	$9,500
Rent Payable	2,200	$11,700
Long-term debt:
Notes Payable		20,000
Total liabilities		$31,700
Capital Stock	$30,000
Retained Earnings	13,280
Total stockholders' equity		43,280
Total liabilities and stockholders' equity		$74,980

3-a-Yes,

b-The company was able to generate revenues and control costs.

c-Profit margin- Net Profit/ Sales *100

=$19,280 / $30,750 *100

=63%

d-Current ratio= Current assets/ Current liabilities

=$62,980/ $11,700

=5.4

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