Question

Transactions of Sky Company for the month of December 2017 are presented below: 1. The owner invested $400,000 to start his business. 2. Purchased equipment for $48,000, paying $12,000 cash and the remaining amount will be paid after 10 days. 3. Purchased office supplies on credit for $3,200. 4. Invested additional $160,000 cash in the business. 5. Services billed to customers amounted to $20,000. 6. Received a bill for $1,200 for advertising of the current month. 7. Paid $10,000 as salaries of the month. 8. The owner withdrew $1,400 cash from the business for his personal use. Required: a. Using the following table, show the effect of the above transactions on the accounting equation b. Prepare the income statement, statement of owner’s equity, and balance sheet of Sky Company on 31 December 2017

Answer 1

a)

	Assets	=	Liabilities	+	Shareholders Equity
1	$ 400,000.00	=	$                 -	+	$                 400,000.00
2	$    36,000.00	=	$ 36,000.00	+	$                                   -
3	$      3,200.00	=	$    3,200.00	+	$                                   -
4	$ 160,000.00	=	$                 -	+	$                 160,000.00
5	$    20,000.00	=	$                 -	+	$                   20,000.00
6	$                   -	=	$    1,200.00	+	$                   (1,200.00)
7	$ (10,000.00)	=	$                 -	+	$                 (10,000.00)
8	$ (14,000.00)	=	$                 -	+	$                 (14,000.00)

b)

Income Statement
Service Revenue		$ 20,000.00
Expenses:
Advertising Expense	$    1,200.00
Salaries Expense	$ 10,000.00
Total Expenses		$ 11,200.00
Net Profit		$    8,800.00

statement of owner’s equity
Net Income	$      8,800.00
Investment During the Month	$ 560,000.00
Drawings	$    (1,400.00)
Net Balance	$ 567,400.00

Balance Sheet
Assets:
Equipment	$    48,000.00
Current Assets
Cash	$ 536,600.00
Accounts Receivable	$    20,000.00
Office Supplies	$      3,200.00
Total Current Assets	$ 559,800.00
Total Assets	$ 607,800.00
Liabilites
Accounts Payable	$    39,200.00
Deferred Expenses	$      1,200.00
Owners Equity	$ 567,400.00
Total Liabilites and Equity	$ 607,800.00