Question

Analyzing Transactions Using the Financial Statement Effects Template and Preparing Financial Statements

Schrand Aerobics, Inc., rents studio space (including a sound system) and specializes in offering aerobics classes. On January 1, 2015, its beginning account balances are as follows: Cash, $3,750; Accounts Receivable, $3,900; Equipment, $0; Notes Payable, $1,875; Accounts Payable, $750; Common Stock, $4,125; Retained Earnings, $900; Services Revenue, $0; Rent Expense, $0; Advertising Expense, $0; Wages Expense, $0; Utilities Expense, $0; Interest Expense, $0.
The following transactions occurred during January.

(1) Paid $450 cash toward accounts payable
(2) Paid $2,700 cash for January rent
(3) Billed clients $8,625 for January classes
(4) Received $375 invoice from supplier for T-shirts given to January class members as an advertising promotion
(5) Collected $7,500 cash from clients previously billed for services rendered
(6) Paid $1,800 cash for employee wages
(7) Received $510 invoice for January utilities expense
(8) Paid $15 cash to bank as January interest on notes payable
(9) Declared and paid $675 cash dividend to stockholders
(10) Paid $3,000 cash on January 31 to purchase sound equipment to replace the rental system

Required

(a) Using the financial statements effects template, enter January 1 beginning amounts in the appropriate columns of the first row. (Hint: Beginning balances for columns can include amounts from more than one account.)
(b) Report the effects for each of the separate transactions 1 through 10 in the financial statement effects template set up in part (a). Total all columns and prove that (1) assets equal liabilities plus equity at January 31, and (2) revenues less expenses equal net income for January.

Balance Sheet Transaction Cash Asset + Noncash Assets = Liabilities + Contributed Capital + Earned Capital Beginning Balances $Answer + $Answer = $Answer + $Answer + $Answer (1) Paid $450 cash toward accounts payable Answer + Answer = Answer + Answer + Answer (2) Paid rent in cash: $2,700 Answer + Answer = Answer + Answer + Answer (3) Billed clients $8,625 Answer + Answer = Answer + Answer + Answer (4) $375 invoice received for advertising Answer + Answer = Answer + Answer + Answer (5) Cash collected on account: $7,500 Answer + Answer = Answer + Answer + Answer (6) Paid wages expense in cash: $1,800 Answer + Answer = Answer + Answer + Answer (7) Invoiced for utility expense: $510 Answer + Answer = Answer + Answer + Answer (8) Paid $15 cash for interest on note Answer + Answer = Answer + Answer + Answer (9) Paid $675 cash dividend Answer + Answer = Answer + Answer + Answer (10) Paid $3,000 cash for sound equipment Answer + Answer = Answer + Answer + Answer TOTALS Answer + Answer = Answer + Answer + Answer

Income Statement Revenue - Expenses = Net Income $Answer - $Answer = $Answer Answer - Answer = Answer Answer - Answer = Answer Answer - Answer = Answer Answer - Answer = Answer Answer - Answer = Answer Answer - Answer = Answer Answer - Answer = Answer Answer - Answer = Answer Answer - Answer = Answer Answer - Answer = Answer Answer - Answer = Answer

(c) Prepare its income statement for January 2015.

Schrand Aerobics, Inc. Income Statement AnswerFor Month Ended January 31, 2015January 31, 2015
AnswerCashAccounts ReceivableEquipmentAccounts PayableNotes PayableCommon StockRetained EarningsServices RevenueRent ExpenseAdvertising ExpenseInterest ExpenseWages ExpenseUtilities Expense		$Answer
Expenses
AnswerCashAccounts ReceivableEquipmentAccounts PayableNotes PayableCommon StockRetained EarningsServices RevenueRent ExpenseAdvertising ExpenseInterest ExpenseWages ExpenseUtilities Expense	$Answer
Advertising Expense	Answer
Wages Expense	Answer
Interest Expense	Answer
Utilities Expense	Answer
Total Expenses		Answer
Net Income		$Answer

(d) Prepare its statement of stockholders' equity for January 2015.

(Enter dividends as a negative number.)

Schrand Aerobics, Inc. Statement of Stockholders' Equity AnswerFor Month Ended January 31, 2015January 31, 2015
	Common Stock	Retained Earnings	Total Stockholders' Equity
Balance at January 1, 2015	$Answer	$Answer	$Answer
Stock Issuance	Answer	Answer	Answer
Dividends	Answer	Answer	Answer
Net Income	Answer	Answer	Answer
Balance at January 31, 2015	$Answer	$Answer	$Answer

(e) Prepare its balance sheet at January 31, 2015.

Schrand Aerobics, Inc. Balance Sheet AnswerFor Month Ended January 31, 2015January 31, 2015
Assets		Liabilites
AnswerCashAccounts ReceivableEquipmentAccounts PayableNotes PayableCommon StockRetained EarningsServices RevenueRent ExpenseAdvertising ExpenseInterest ExpenseWages ExpenseUtilities Expense	$Answer	AnswerCashAccounts ReceivableEquipmentAccounts PayableNotes PayableCommon StockRetained EarningsServices RevenueRent ExpenseAdvertising ExpenseInterest ExpenseWages ExpenseUtilities Expense	$Answer
AnswerCashAccounts ReceivableEquipmentAccounts PayableNotes PayableCommon StockRetained EarningsServices RevenueRent ExpenseAdvertising ExpenseInterest ExpenseWages ExpenseUtilities Expense	Answer	Notes payable	Answer
AnswerCashAccounts ReceivableEquipmentAccounts PayableNotes PayableCommon StockRetained EarningsServices RevenueRent ExpenseAdvertising ExpenseInterest ExpenseWages ExpenseUtilities Expense	Answer	Total liabilities	Answer
		Stockholders' Equity
		AnswerCashAccounts ReceivableEquipmentAccounts PayableNotes PayableCommon StockRetained EarningsServices RevenueRent ExpenseAdvertising ExpenseInterest ExpenseWages ExpenseUtilities Expense	Answer
		AnswerCashAccounts ReceivableEquipmentAccounts PayableNotes PayableCommon StockRetained EarningsServices RevenueRent ExpenseAdvertising ExpenseInterest ExpenseWages ExpenseUtilities Expense	Answer
Total Assets	$Answer	Total Liabilities and Equity	$Answer

Answer 1

• All working forms part of the answer
• Requirement 1

		Balance Sheet									Income Statement
Transaction		Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital	Revenue	-	Expenses	=	Net Income
Beginning Balances		$                          3,750.00	+	$                              3,900.00	=	$                            2,625.00	+	$                           4,125.00	+	$                                                900.00	$                                          -	-	$                                                                              -	=	$                          -
-1	Paid $450 cash toward accounts payable	$                            (450.00)	+	$                                           -	=	$                             (450.00)	+	$                                        -	+	$                                                         -	$                                          -	-	$                                                                              -	=	$                          -
-2	Paid rent in cash: $2,700	$                        (2,700.00)	+	$                                           -	=	$                                         -	+	$                                        -	+	$                                          (2,700.00)	$                                          -	-	$                                                                 2,700.00	=	$           (2,700.00)
-3	Billed clients $8,625	$                                       -	+	$                              8,625.00	=	$                                         -	+	$                                        -	+	$                                            8,625.00	$                             8,625.00	-	$                                                                              -	=	$             8,625.00
-4	$375 invoice received for advertising	$                                       -	+	$                                           -	=	$                                375.00	+	$                                        -	+	$                                              (375.00)	$                                          -	-	$                                                                     375.00	=	$               (375.00)
-5	Cash collected on account: $7,500	$                          7,500.00	+	$                            (7,500.00)	=	$                                         -	+	$                                        -	+	$                                                         -	$                                          -	-	$                                                                              -	=	$                          -
-6	Paid wages expense in cash: $1,800	$                        (1,800.00)	+	$                                           -	=	$                                         -	+	$                                        -	+	$                                          (1,800.00)	$                                          -	-	$                                                                 1,800.00	=	$           (1,800.00)
-7	Invoiced for utility expense: $510	$                                       -	+	$                                           -	=	$                                510.00	+	$                                        -	+	$                                              (510.00)	$                                          -	-	$                                                                     510.00	=	$               (510.00)
-8	Paid $15 cash for interest on note	$                              (15.00)	+	$                                           -	=	$                                         -	+	$                                        -	+	$                                                (15.00)	$                                          -	-	$                                                                       15.00	=	$                 (15.00)
-9	Paid $675 cash dividend	$                            (675.00)	+	$                                           -	=	$                                         -	+	$                                        -	+	$                                              (675.00)	$                                          -	-	$                                                                              -	=	$                          -
-10	Paid $3,000 cash for sound equipment	$                        (3,000.00)	+	$                              3,000.00	=	$                                         -	+	$                                        -	+	$                                                         -	$                                          -	-	$                                                                              -	=	$                          -
TOTALS		$                          2,610.00	+	$                              8,025.00	=	$                            3,060.00	+	$                           4,125.00	+	$                                            3,450.00	$                             8,625.00		$                                                                 5,400.00		$             3,225.00

• Requirement 2: Income Statement

Income Statement
For Month Ended January 31, 2015
Services Revenue		$                          8,625.00
Expenses
Rent Expense	$                   2,700.00
Advertising Expense	$                       375.00
Wages Expense	$                   1,800.00
Interest Expense	$                         15.00
Utilities Expense	$                       510.00
Total Expenses		$                          5,400.00
Net Income		$                          3,225.00

• Requirement 3

Schrand Aerobics, Inc.
Statement of Stockholders' Equity
January 31, 2015
	Common Stock	Retained Earnings	Total Stockholders' Equity
Balance at January 1, 2015	$                   4,125.00	$                              900.00	$                                 5,025.00
Stock Issuance	$                                -	$                                       -	$                                              -
Dividends	$                                -	$                            (675.00)	$                                   (675.00)
Net Income	$                                -	$                          3,225.00	$                                 3,225.00
Balance at January 31, 2015	$                   4,125.00	$                          3,450.00	$                                 7,575.00

• Requirement 4

Schrand Aerobics, Inc.
Balance Sheet
As at January 31, 2015
Assets		Liabilities
Cash	$                            2,610.00	Accounts Payable	$                           1,185.00
Accounts Receivable	$                            5,025.00	Notes Payable	$                           1,875.00
EquipmentAccounts	$                            3,000.00	Total liabilities	$                           3,060.00
		Stockholders' Equity
		Common Stock	$                           4,125.00
		Retained Earnings	$                           3,450.00
Total Assets	$                          10,635.00	Total Liabilities and Equity	$                        10,635.00