Question

In 2006 you joined a group of 20 Richland College graduates to start a company that provides innovative tutoring and educational services You are responsible for all accounting activities. After applying to the Secretary of State in Austin, Shannon’s Tutoring Corporation (STC) received its corporate charter and began business as a Texas Corporation on December 1, 2006. During the first month of business the following Transactions occurred. You must analyze each transaction’s effect on the Accounting Equation and Prepare the Income Statement, Statement of Retained Earnings and the Balance Sheet for the Year ended 12/31/2006.

	12/01/06	STC began business by investing $50,000 in exchange for 10,000 shares of Common Stock.
	12/1/06	STC Paid $12,000 for 1 year of rent for the 12 month period beginning December 1, 2006 through November 30, 2007. (Hint: Prepaying rent in advance creates an Asset called Prepaid Rent )
	12/1/06	STC received $18,000 cash in advance from the Texas School System and signed a contract to provide monthly tutoring services to students from December 2006 through May of 2007.
	12/02/06	STC purchased a Computer System for $35,000 cash.
	12/09/06	STC earned & received $1,000 in cash by providing tutoring services.
	12/12/06	STC Billed the RISD $2,500 for tutoring services performed at their school. Payment has not been received.
	12/12/06	STC Purchased $500 of Supplies on Account.
	12/21/06	STC Paid $400 Wages to employees.
	12/23/06	STC Received $1,500 Cash from RISD for services billed on 12/12/06(#6).
	12/29/06	STC Paid a $300 Utility Bill.

Answer 1

• Working forms part of the answer
• Accounting equation is based on double entry accounting system. This implies that whenever any transaction is recorded, the accounting equation should always match.

Accounting Equation: Total Assets = Capital/Equity + Liabilities

• Transactions and Accounting Equation

Note: After every transaction, A column = B column

Date	Tran saction no	Total Assets						=	Equity	+	Liabilities	TOTAL (B)
		Cash	Fixed Assets	Supplies	Accounts Receivables	Prepaid Rent	TOTAL(A)	=	Common Stock	+	Advance from Customer
12-01-2006	1	50000					50000	=	50000	+		50000
TOTAL		50000					50000	=	50000	+		50000
12-01-2006	2	-12000				11000	-1000	=	-1000	+		-1000
TOTAL		38000				11000	49000	=	49000	+		49000
12-01-2006	3	18000					18000	=	3000	+	15000	18000
TOTAL		56000				11000	67000	=	52000	+	15000	67000
12-02-2006	4	-35000	35000				0	=		+		0
TOTAL		21000	35000			11000	67000	=	52000	+	15000	67000
12-09-2006	5	1000					1000	=	1000	+		1000
TOTAL		22000	35000			11000	68000	=	53000	+	15000	68000
12-12-2006	6				2500		2500	=	2500	+		2500
TOTAL		22000	35000		2500	11000	70500	=	55500	+	15000	70500
12-12-2006	7	-500		500			0	=		+		0
TOTAL		21500	35000	500	2500	11000	70500	=	55500	+	15000	70500
12/21/06	8	-400					-400	=	-400	+		-400
TOTAL		21100	35000	500	2500	11000	70100	=	55100	+	15000	70100
12/23/06	9	1500			-1500		0	=		+		0
TOTAL		22600	35000	500	1000	11000	70100	=	55100	+	15000	70100
12/29/06	10	-300					-300	=	-300	+		-300
TOTAL		22300	35000	500	1000	11000	69800	=	54800	+	15000	69800

• Income Statement

Income Statement
Revenues
Transaction no	Amount
3	3000
5	1000
6	2500
Total Revenues		6500
Expenses
Rent expense	1000
Wages expenses	400
Utility Bill	300
Total Expenses		1700
Net Income		4800

• Retained Earnings

Statement of Retained Earning
Opening Balance	0
Add: Net Income	4800
Closing Balance	4800

• Balance Sheet

Balance Sheet
A. Equity
Common Stock	50000
Retained Earnings	4800
Total	54800
B. Liabilities
Advance from Customer	15000
Total Equity & Liabilities	69800
C. Assets
Cash	22300
Fixed Assets	35000
Supplies	500
Accounts Receivables	1000
Prepaid Rent	11000
Total Assets	69800