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, 2013, 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.

Required

(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

Prepare Balance Sheet

Prepare its income statement for January 2013.

Prepare its statement of stockholders' equity for January 2013.

Prepare its balance sheet at January 31, 2013.

Answer 1

• All working forms part of the answer
• For preparing Income Statement and other requirements asked, following Trail Balance is constructed for ease of understanding which includes Beginning balances and effect of January Transactions:

	Beginning balances		During January [transaction effect]		Ending balances
	Debit	Credit	Debited by	Credited by	Debit	Credit
Cash	$                          3,750.00		$                     7,500.00	$                            9,150.00	$                            2,100.00
Accounts receivables	$                          3,900.00		$                     8,625.00	$                            7,500.00	$                            5,025.00
Equipment	$                                       -		$                     3,000.00		$                            3,000.00
Notes Payable		$            1,875.00				$                          1,875.00
Accounts payable		$               750.00	$                         450.00	$                               375.00		$                              675.00
Common Stock		$            4,125.00				$                          4,125.00
retained Earnings		$               900.00	$                         675.00			$                              225.00
Service Revenue				$                            8,625.00		$                          8,625.00
Rent Expense			$                     2,700.00		$                            2,700.00
Advertising expense			$                         375.00		$                                375.00
Wages expense			$                     1,800.00		$                            1,800.00
Utilities expense			$                         510.00		$                                510.00
Interest expense			$                           15.00		$                                  15.00
Total	$                          7,650.00	$            7,650.00	$                   25,650.00	$                         25,650.00	$                          15,525.00	$                        15,525.00

• On the basis of above balances, following requirements are answered
• Requirement 1: Income Statement

Service Revenue	$                8,625.00
Expenses:
Rent Expense	$                2,700.00
Advertising expense	$                    375.00
Wages expense	$                1,800.00
Utilities expense	$                    510.00
Interest expense	$                      15.00
Total Expenses	$                5,400.00
Net Income	$                3,225.00

• Requirement 2: Statement of Stockholder’s Equity

Common Stock		$                4,125.00
Retained Earnings:
Beginning balance	$                    900.00
Add: Net Income	$                3,225.00
Less: Dividends	$                    675.00
Ending balance		$                3,450.00
Total Stockholder's Equity		$                7,575.00

OR

	Common Stock	Retained Earnings	Total Stockholder's Equity
Beginning balances	$             4,125.00	$                        900.00	$                5,025.00
Add: Issued			$                             -
Add: Net Income		$                    3,225.00	$                3,225.00
Less; Dividends		$                        675.00	$                    675.00
Ending balance	$             4,125.00	$                    3,450.00	$                7,575.00

• Requirement 3: Balance Sheet

ASSETS
Cash	$                2,100.00
Accounts receivables	$                5,025.00
Equipment	$                3,000.00
Total Assets	$              10,125.00
LIABILITIES & EQUITY
Liabilities:
Notes Payable	$                1,875.00
Accounts payable	$                    675.00
Total Liabilities	$                2,550.00
Total Stockholders' Equity [as calculated above]	$                7,575.00
Total Liabilities & Equity	$              10,125.00