Question

Hanlon Advertising Company began the current month with the following balance sheet.

Cash ...................... $ 80,000 Liabilities.................... $ 70,000

Noncash assets ............. 135,000 Contributed capital............ 110,000

Earned capital ............... 35,000

Total assets................. $215,000 Total liabilities and equity ....... $215,000

Following are summary transactions that occurred during the current month.

1. The company purchased supplies for $5,000 cash; none were used this month.

2. Services of $2,500 were performed this month on credit.

3. Services were performed for $10,000 cash this month.

4. The company purchased advertising for $8,000 cash; the ads will run next month.

5. The company received $1,200 cash as partial payment on accounts receivable from transaction 2.

6. The company paid $3,400 cash toward the accounts payable balance reported at the beginning of the month.

7. The company paid $3,500 cash toward this month’s wages expenses.

8. The company declared and paid dividends of $500 cash.

Required

a. Record the effects of each transaction using the financial statement effects template.

b. Prepare the income statement for this month and the balance sheet as of month-end

Answer 1

Part-1)

BALANCE SHEET											INCOME STATEMENT
Transaction	Cash	+	Non-cash	=	Liabilities	+	C Capital	+	E Capital	Revenue	-	Expense	=	NI
Beginning balance	80,000	+	135,000	=	70,000	+	110,000	+	35,000
1	-5,000		5,000
2			2,500						2,500	2,500				2,500
3	10,000								10,000	10,000
4	-8,000		8,000
5	1,200		-1,200
6	-3,400				-3,400
7	-3,500								-3,500		-	3,500		-3,500
8	-500								-500
Total	70,800	+	149,300	=	66,600	+	110,000	+	43,500	12,500	-	3,500	=	-1,000

Part-2)

Income Statement
Sales Revenue	12,500
Minus: Total Expense	-3,500
Net Income	9,000
Retained Earnings Reconciliation
Retained Earnings, beginning of month	35,000
Add: Net Income	9,000
Minus: Dividends	-500
Retained Earnings, end of month	43,500
Balance Sheet
Assets:
Cash	70,800
Noncash Assets	149,300
	220,100
Libilities:
Liabilities	66,600
Contributed Capital	110,000
Retained Earnings	43,500
Total Equity	153,500
Total Liabilities and Equity	220,100