Question

After several months of planning, Denise Murphy started a property management business for

the for the properties that its owners invest called ABC Property Management (“ABC”). The

following events occurred during its first month:

1. On May 1, Murphy started the firm, investing $3,000 cash and $15,000 of equipment.

2. On May 2, ABC paid $600 cash for furniture for the shop.

3. On May 3, ABC paid $500 cash to rent space in a strip mall for May.

4. On May 4, ABC purchased $1,200 of equipment on credit for the shop (using a long-term note payable).

5. On May 5, ABC opened for business. Cash received from services provided in the first week and a half of business (ended May 15) is $825.

6. On May 15, it provided $100 of property management services on account (invoiced).

7. On May 17, it received a $100 check for services previously rendered on account.

8. On May 17, it paid $125 to an assistant for work during the store opening.

9. Cash received from services provided during the second half of May is $930.

10. On May 31, it paid a $400 instalment toward principal on the note payable entered into on May 4.

11. On May 31, it paid $900 cash dividends to Murphy.

1. Set-up T-accounts for each of the accounts and post the journal entries completed in Homework 1 to those T-accounts.

2. Prepare a simplified balance sheet and income statement.

Answer 1

a.

Cash					Accounts Receivable					Equipment
May 1	3000	May 2	600		May 15	100	May 17	100		May 1	15000
May 15	825	May 3	500							May 4	1200
May 17	100	May 17	125
May 17	930	May 31	400
		May 31	900
End. Bal.	2330				End. Bal.	0				End. Bal.	16200
Furniture					Long-Term Note Payable					Owner's Equity
May 2	600				May 31	400	May 4	1200				May 1	18000
End. Bal.	600				End. Bal.			800		End. Bal.			18000
Service Revenue					Rent Expense					Salaries and Wages Expense
		May 15	825		May 3	500				May 17	125
		May 15	100
		May 17	930
End. Bal.			1855		End. Bal.	500				End. Bal.	125
Dividend
May 31	900
End. Bal.	900

b.

ABC Property Management
Income Statement
For the Month Ended May 31
Revenue
Service revenue		1855
Expenses
Rent expense	500
Salaries and wages expense	125	625
Net income		1230

ABC Property Management
Balance Sheet
May 31
Assets
Cash	2330
Equipment	16200
Furniture	600
Total assets	19130
Liabilities and Owner's Equity
Long-term note payable	800
Owner's equity	18330
Total liabilities and owner's equity	19130