PE 1-5A Retained Earnings Statement

Using the income statement for Ousel Travel Service shown in Practice Exercise 1-4A, prepare a retained earnings statement for the year ended November 30, 2016. Shane Ousel invested an additional $50,000 in the business in exchange for common stock during the year and cash dividends of $30,000 were paid. Retained earnings as of December 1, 2015, was $566,000. 

Answer:

OUSEL TRAVEL SERVICE 

Retained Earnings Statement 

For the Year Ended November 30, 2016 

Retained earnings, December 1, 2015 $566,000 

Net income for the year $242,000 

Less dividends 30,000 

Increase in retained earnings 212,000 

Retained earnings, November 30, 2016 $778,000 

PE 1-4B Income statement

The revenues and expenses of Sentinel Travel Service for the year ended August 31, 2016, follow: 

Fees earned $750,000

Office expense 295,000

Miscellaneous expense 12,000

Wages expense 450,000

Prepare an income statement for the year ended August 31, 2016.

Answer:

SENTINEL TRAVEL SERVICE 

Income Statement 

For the Year Ended August 31, 2016 

Fees earned $750,000 

Expenses: 

Wages expense $450,000 

Office expense 295,000 

Miscellaneous expense 12,000 

Total expenses 757,000 

Net loss $   (7,000) 

PE 1-4A Income statement

The revenues and expenses of Ousel Travel Service for the year ended November 30, 2016, follow: 

Fees earned $1,475,000

Office expense 320,000

Miscellaneous expense 28,000

Wages expense 885,000

Prepare an income statement for the year ended November 30, 2016.

Answer:

OUSEL TRAVEL SERVICE 

Income Statement 

For the Year Ended November 30, 2016 

Fees earned $1,475,000 

Expenses: 

Wages expense $885,000 

Office expense 320,000 

Miscellaneous expense 28,000 

Total expenses 1,233,000 

Net income $  242,000

PE 1-3B Transactions

Interstate Delivery Service is owned and operated by Katie Wyer. The following selected transactions were completed by Interstate Delivery Service during May:

1. Received cash in exchange for common stock, $18,000.

2. Paid advertising expense, $4,850.

3. Purchased supplies on account, $2,100.

4. Billed customers for delivery services on account, $14,700.

5. Received cash from customers on account, $8,200.

Indicate the effect of each transaction on the following accounting equation elements: 

Assets, Liabilities, Common Stock, Dividends, Revenue, and Expense. To illustrate, the answer to (1) follows: (1) Asset (Cash) increases by $18,000; Common Stock increases by $18,000.

Answer:

(2) 

Expense (Advertising Expense) increases by $4,850; 

Asset (Cash) decreases by $4,850. 

(3) 

Asset (Supplies) increases by $2,100; 

Liability (Accounts Payable) increases by $2,100. 

(4) 

Asset (Accounts Receivable) increases by $14,700; 

Revenue (Delivery Service Fees) increases by $14,700. 

(5) 

Asset (Cash) increases by $8,200; 

Asset (Accounts Receivable) decreases by $8,200. 

PE 1-3A Transactions

Arrowhead Delivery Service is owned and operated by Gates Deeter. The following selected transactions were completed by Arrowhead Delivery Service during August:

1. Received cash in exchange for common stock, $25,000.

2. Paid creditors on account, $3,750.

3. Billed customers for delivery services on account, $22,400.

4. Received cash from customers on account, $11,300.

5. Paid dividends, $6,000.

Indicate the effect of each transaction on the following accounting equation elements: 

Assets, Liabilities, Common Stock, Dividends, Revenue, and Expense. To illustrate, the answer to (1) follows:(1) Asset (Cash) increases by $25,000; Common Stock increases by $25,000.

Answer:

(2) 

Asset (Cash) decreases by $3,750; 

Liability (Accounts Payable) decreases by $3,750. 

(3) 

Asset (Accounts Receivable) increases by $22,400; 

Revenue (Delivery Service Fees) increases by $22,400. 

(4) 

Asset (Cash) increases by $11,300; 

Asset (Accounts Receivable) decreases by $11,300. 

(5) 

Asset (Cash) decreases by $6,000; 

Dividends increases by $6,000. 

PE 1-2B Accounting equation

Be-The-One is a motivational consulting business. At the end of its accounting period, December 31, 2015, Be-The-One has assets of $395,000 and liabilities of $97,000. Using the accounting equation, determine the following amounts:

a. Stockholders’ equity as of December 31, 2015.

b. Stockholders’ equity as of December 31, 2016, assuming that assets decreased by $65,000 and liabilities increased by $36,000 during 2016.

Answer:

a. A = L + SE

$395,000 = $97,000 + SE

SE = $298,000

b. A = L + SE

–$65,000 = +$36,000 + SE

SE = –$101,000

SE on December 31, 2016 = $298,000 – $101,000

SE on December 31, 2016 = $197,000

PE 1-2A Accounting equation

Dream-It LLC is a motivational consulting business. At the end of its accounting period, December 31, 2015, Dream-It has assets of $780,000 and liabilities of $150,000. Using the accounting equation, determine the following amounts:

a. Stockholders’ equity as of December 31, 2015.

b. Stockholders’ equity as of December 31, 2016, assuming that assets increased by $90,000 and liabilities increased by $25,000 during 2016.

Answer:

a. A = L + SE

$780,000 = $150,000 + SE

SE = $630,000

b. A = L + SE

+$90,000 = +$25,000 + SE

SE = +$65,000

SE on December 31, 2016 = $630,000 + $65,000

SE on December 31, 2016 = $695,000