PR 1-3A Financial statements

Seth Feye established Reliance Financial Services on July 1, 2016. Reliance Financial Services offers financial planning advice to its clients. The effect of each transaction and the balances after each transaction for July follow:

Assets 5Liabilities1 Stockholders’ Equity Cash + Accounts Receivable + Supplies = Accounts Payable + Common Stock − Dividends + Fees Earned − Salaries Expense − Rent Expense − Auto Expense − Supplies Expense −Misc. Expense a. +50,000 +50,000 b. +7,000 +7,000 Bal.     50,000    7,000  7,000    50,000 c. –3,600 −3,600 Bal.     46,400    7,000  3,400   50,000 d. +110,000+110,000 Bal. 156,400    7,000  3,400   50,000    110,000 e. –33,000–33,000 Bal. 123,400    7,000  3,400    50,000    110,000 –33,000 f. −20,800–16,000 –4,800 Bal.    102,600    7,000  3,400   50,000   110,000 –33,000 –16,000 –4,800 g. −55,000–55,000 Bal.    47,600 7,000  3,400    50,000    110,000 –55,000 –33,000 –16,000 –4,800 h. –4,500–4,500 Bal.    47,600    2,500  3,400    50,000    110,000 55,000 –33,000 –16,000 –4,500 –4,800 i. +34,500+ 34,500 Bal.    47,600    34,500    2,500  3,400    50,000 144,500 –55,000 –33,000 –16,000 –4,500 –4,800 j. –15,000–15,000 Bal.    32,600    34,500    2,500  3,40050,000 –15,000 144,500 –55,000 –33,000 –16,000 –4,500 –4,800

Instructions

1. Prepare an income statement for the month ended July 31, 2016.

2. Prepare a retained earnings statement for the month ended July 31, 2016.

3. Prepare a balance sheet as of July 31, 2016.

4. (Optional) Prepare a statement of cash flows for the month ending July 31, 2016.

Answer:

RELIANCE FINANCIAL SERVICES Income Statement For the Month Ended July 31, 2016 Fees earned $144,500 Expenses: Salaries expense $55,000 Rent expense 33,000 Auto expense 16,000 Supplies expense 4,500 Miscellaneous expense 4,800 Total expenses 113,300 Net income $ 31,200 RELIANCE FINANCIAL SERVICES Retained Earnings Statement For the Month Ended July 31, 2016 Retained earnings, July 1, 2016 $ 0 Net income for July $31,200 Less dividends 15,000 Increase in retained earnings 16,200 Retained earnings, July 31, 2016 $16,200 RELIANCE FINANCIAL SERVICES Balance Sheet July 31, 2016 Assets Liabilities Cash $32,600 Accounts payable $ 3,400 Accounts receivable 34,500 Supplies 2,500 Stockholders’ Equity Common stock $50,000 Retained earnings 16,200 Total stockholders’ equity 66,200 Total liabilities and Total assets $69,600 stockholders’ equity $69,600 4. (Optional) Cash flows from operating activities: Cash received from customers $110,000 Deduct cash payments for expenses and payments to creditors* (112,400) Net cash flows used for operating activities $ (2,400) Cash flows from investing activities 0 Cash flows from financing activities: Cash received from issuing common stock $ 50,000 Deduct cash dividends (15,000) Net cash flows from financing activities 35,000 Net increase in cash and July 31, 2016, cash balance $32,600 * $3,600 + $33,000 + $20,800 + $55,000; these amounts are taken from the cash column shown in the problem.