1.11: Solutions

Discussion Questions

1. Generally accepted accounting principles (GAAP) are a set of principles and assumptions that guide the preparation of financial statements, and that have gained wide-spread acceptance among users and practitioners.
2. The revenue recognition principle assumes that revenue is earned by the entity at the time when a service is provided or when a sale is made, not necessarily when cash is received.
3. The matching concept states that revenue is recognized in the time period when goods and services are provided and that the assets of the entity that have been used up during the time period (expenses) must be matched with the asset inflows (revenues) during the same period.
4. Accounting information should be comparable, verifiable, timely and understandable. Accounting information should only be disclosed if it is material – that is, of sufficient size or importance to influence the judgement of a reasonably knowledgeable user. Accounting information should also be disclosed in such a manner that the benefits of doing so outweigh the costs.
5. An asset is anything of value that is owned by the entity. Assets are economic resources controlled by an entity. They have some future value to the entity, usually for generating revenue.
6. A liability is an obligation to pay an asset or to provide services or goods in the future. Until the obligations are paid, creditors have claims against the assets of the entity.

   Equity represents the amount of assets owing to the owners of the entity. The total assets of an entity belong either to the shareholders or to the creditors.

7. The exchange of assets or obligations by a business entity, expressed in monetary terms like dollars, is called a financial transaction. The exchange of cash for land or a building is an example of such a transaction.
8. The three forms of business organization are corporations, sole proprietorships, and partnerships.
9. A business entity is a unit of accountability that exists independently from other units. A set of accounting records is kept for each unit or entity. The entity exists separately from its owners. This concept is important because it keeps separate all the various activities in which the owner is involved; lumping all the activities together would not yield useful information for keeping track of the financial performance each financial unit.
10. Financial statements evaluate the performance of an entity and measure its progress. Financial information is collected, then summarized and reported in the financial statements (balance sheet, income statement, statement of cash flows, and statement of changes in equity).
11. The date line on the income statement, statement of changes in equity, and statement of cash flows represents a period of time. The income statement details the revenues and expenses that occurred over a given period of time. The statement of changes in equity shows how equity changed over a given period of time. The statement of cash flows shows how the balance in cash changed over a given period of time. The date line on the balance sheet is a point in time because each account listed on the balance sheet identifies the account balance on a specific date.
12. The purpose of the income statement is to communicate the inflow of assets, in the form of revenues, and the outflow or consumption of assets, in the form of expenses, over a period of time. Total inflows greater than total outflows creates net income or profit, which is reported on the Income statement and in retained earnings in the equity section of the balance sheet. The purpose of the balance sheet is to communicate what the entity owns (its assets), what the entity owes (its liabilities), and the difference between assets and liabilities (its equity) at a point in time.

    If revenue is recorded on the income statement, there is usually a corresponding increase in assets on the balance sheet. Similarly, if expenses are recorded on the income statement, there is generally a decrease in assets or increase of liabilities on the balance sheet.

13. Revenue is an increase in an entity's assets or a decrease in liabilities in return for services performed or goods sold, expressed in monetary units like dollars. An expense is an asset belonging to the entity that is used up or obligations incurred in selling goods or performing services.
14. Net income is the difference between revenues and expenses. It communicates whether the activities of the entity are being conducted profitably. Thus it is one measure of the success of the entity. Net income is one of the criteria used to determine the amount of dividends to be declared.
15. The statement of changes in equity shows why share capital and retained earnings have changed over a specified period of time – for instance, when shares are issued or net income is earned. The statement of cash flows explains to the users of the financial statements the entity's sources (inflows) and the uses (outflows) of cash over a specified period of time.
16. Financial statements are prepared at regular intervals to keep a number of interested groups informed about the financial performance of an entity. The timing is determined in response to the needs of management in running the entity or of outside parties, such as bankers to aid in granting loans to the entity, shareholders, or others interested in evaluating the progress of the entity. They are generally used as a means to inform investing and lending decisions.
17. The accounting equation has the following form:

    ASSETS	=	LIABILITIES	+	EQUITY
    (economic resources owned by an entity)		(creditors' claims to assets)		(owners' claims to assets – residual claims)

    The entity has assets, which are the resources it owns. The total assets owned by an entity must always equal the total claims of creditors and owners, who have the residual claims.

    A company's accounting equation is expanded to include major categories of the balance sheet, like cash and share capital. An expanded form of the accounting equation could be as follows:

    ASSETS	=	LIABILITIES	+	EQUITY
    Cash+Accounts Receivable+Equipment+Truck		Accounts Payable		Share Capital+Retained Earnings

18. The double entry accounting system reflects the fact that each financial transaction affects at least two items in the accounting equation, in order to maintain the equality of the equation. For example,
    1. A truck is sold for cash: The asset truck decreases and the asset cash increases.
    2. An obligation is paid: The liability accounts payable decreases and the asset cash decreases.
    3. An account is collected: The asset cash increases and the asset accounts receivable decreases.

    In this way, the equation always remains in balance after each transaction is recorded.

19. A year-end is the last day of the fiscal year of the entity. The income statement, statement of cash flows, and statement of changes in equity reflect financial translations for the year up to this date. The balance sheet reflects the financial position of the entity at the year-end date. Interim financial statements may be prepared more frequently, say quarterly or monthly; these are prepared for each entity only if required by certain users, usually shareholders of large corporations with many shareholders. Year-end financial statements must be prepared for all entities.
20. A fiscal year refers to a 12-month accounting period and that may not coincide with the calendar year. A company whose fiscal year-end coincides with the calendar year has a December 31 year-end.

Exercises

EXERCISE 1–1

1. Partnership
2. International Financial Reporting Standards
3. Ethics
4. Financial accounting
5. Managerial accounting
6. Separate legal entity
7. Limited liability
8. Unlimited liability

EXERCISE 1–2

1. Violation Cost principle
2. Violation: Business entity principle
3. Violation: Business entity principle
4. Violation: Revenue recognition principle
5. Correct: Materiality principle
6. Correct: Monetary unit principle
7. Correct: Matching principle
8. Violation: Consistency principle
9. Violation: Full disclosure principle and possibly going concern principle if the company is no longer viable

EXERCISE 1–3

1. 30,000
2. 9,000
3. 95,000
4. In a, debt financing = (20,000/50,000) × 100=40%. In b, debt financing = (9,000/10,000) × 100=90%. In c, debt financing = (15,000/95,000) × 100 = 15.79% (rounded to two decimal places). Therefore, the greatest percentage of debt financing is reflected in b.
5. In a, equity financing = 100 − 40 = 60%. In b, equity financing = 100 − 90 = 10%. In c, equity financing = 100 − 15.79 = 84.21%. Therefore, the greatest percentage of equity financing is reflected in c.

EXERCISE 1–4

ASSETS			=	LIABILITIES	+	EQUITY
Cash	+	Equipment	=	Accounts Payable	+	Share Capital	+	Retained Earnings

A.	Retained earnings	= $5,000 (3,000 + 8,000 − 4,000 − 2,000)
B.	Accounts payable	= $3,000 (1,000 + 6,000 − 3,000 − 1,000)
C.	Cash	= $1,000 (4,000 − 1,500 − 3,000 − 500)
D.	Retained earnings	= $6,000 (6,000 + 7,000 − 3,000 − 4,000)
E.	Equipment	= $3,500 (2,500 −4,500 − 500 − 1,000)

EXERCISE 1–5

1. ASSETS = LIABILITIES + EQUITY

   Equity at Jan. 1 = $10,000 ($50,000 − 40,000)

   Equity at Dec. 31 = $20,000 ($40,000 − 20,000)

   The increase in equity during the year was $10,000 ($20,000 ending equity − 10,000 beginning equity). Given that during the year no share capital was issued and no dividends were declared, $10,000 is the amount of net income earned during 2015.

2. ASSETS = LIABILITIES + EQUITY

   Equity at Jan. 1 = $10,000 ($50,000 − 40,000)

   Equity at Dec. 31 = $20,000 ($40,000 − 20,000)

   The increase in equity during the year was $10,000 ($20,000 ending equity − 10,000 beginning equity). Given that during the year no share capital was issued and $5,000 of dividends were declared, $15,000 is the amount of net income earned during 2015 [calculated as net income − $5,000 dividends = $10,000 increase in equity; net income = 10,000 + 5,000 or 15,000].

3. ASSETS = LIABILITIES + EQUITY

   Equity at Jan. 1 = $10,000 ($50,000 − 40,000)

   Equity at Dec. 31 = $20,000 ($40,000 − 20,000)

   The increase in equity during the year was $10,000 ($20,000 ending equity − 10,000 beginning equity). Given that during the year $12,000 of share capital was issued and no dividends were declared, a net loss of $2,000 was realized for 2015 (calculated as net income + $12,000 share capital issued = $10,000 increase in equity; net income = $10,000 − $12,000; net income is therefore a negative $2,000 which represents a net loss).

4. ASSETS = LIABILITIES + EQUITY

   Equity at Jan. 1 = $10,000 ($50,000 − 40,000)

   Equity at Dec. 31 = $20,000 ($40,000 − 20,000)

   The increase in equity during the year was $10,000 ($20,000 ending equity − 10,000 beginning equity). Given that during the year $8,000 of share capital was issued and $12,000 of dividends were declared, $14,000 is the amount of net income earned during 2015 (calculated as net income + $8,000 share capital issued − $12,000 dividends = $10,000 increase in equity; net income = $10,000 − $8,000 + $12,000; net income = $14,000).

EXERCISE 1–6

a.	L	h.	A	o.	L
b.	A	i.	A	p.	E
c.	L	j.	E	q.	A
d.	A	k.	E	r.	E
e.	A	l.	A	s.	E
f.	E	m.	E	t.	A
g.	L	n.	E

EXERCISE 1–7

1.	ASSETS	=	Cash + Accounts Receivable + Unused Supplies + Land + Building+ Equipment
		=	$33,000 + $82,000 + $2,000 + $25,000 + $70,000 + $30,000
		=	$242,000 Total Assets
2.	LIABILITIES	=	Bank Loan + Accounts Payable
		=	$15,000 + $27,000
		=	$42,000 Total Liabilities
3.	ASSETS	=	LIABILITIES + EQUITY
	EQUITY	=	$242,000 Total Assets − $42,000 Total Liabilities
		=	$200,000 Total Equity

Since equity is $200,000 and retained earnings is $40,000, share capital must be $160,000.

EXERCISE 1–8

EDW Inc. Income Statement Month Ended March 31, 2015			EDW Inc. Statement of Changes in Equity Month Ended March 31, 2015
Revenues				Share Capital	Retained Earnings	Total Equity
Service Revenue		$20,000
Expenses			Opening Balance	$ -0-	$ -0-	$ -0-
Wages Expense	$9,000		Shares Issued	2,000		2,000
Miscellaneous Expense	2,500		Net Income		6,000	6,000
Insurance Expense	1,500		Ending Balance	$2,000	$6,000	$8,000
Office Supplies Expense	1,000	14,000
Net Income		$6,000

EDW Inc. Balance Sheet March 31, 2015
Assets		Liabilities
Cash	$1,000	Accounts Payable		$5,000
Accounts Receivable	4,000
Equipment	8,000	Equity
		Share Capital	$2,000
		Retained Earnings	6,000
		Total Equity		8,000
Total Assets	$13,000	Total Liabilities and Equity		$13,000

NOTE:

The $2,000 amount for shares issued was calculated using A = L + E or, using the accounts in the order given in the alphabetized information; 4,000 + 1,000 + 8,000 = 5,000 − 1,500 − 2,500 − 1,000 + 20,000 + Share Capital − 9,000; 13,000 = 11,000 + Share Capital; 13,000 − 11,000 = 2,000 Share Capital.

Alternatively, you could have inserted all the values from the alphabetized information into the financial statements and then solved for the unknown Share Capital amount. There is often more than one approach to solving math related questions.

EXERCISE 1–9

Algonquin Inc. Income Statement Year Ended July 31, 2015			Algonquin Inc. Statement of Changes in Equity Year Ended July 31, 2015
Revenues				Share Capital	Retained Earnings	Total Equity
Service Revenue		$81,000
Expenses			Opening Balance	$10,000	$6,000	$16,000
Advertising Expense	$5,000		Net Income		5,000	5,000
Insurance Expense	7,000		Dividends		(2,000)	(2,000)
Salaries Expense	64,000	76,000	Ending Balance	$10,000	$9,000	$19,000
Net Income		$5,000

Algonquin Inc. Balance Sheet July 31, 2015
Assets		Liabilities
Cash	$9,000	Accounts Payable	$3,000
Accounts Receivable	17,000	Note Payable	18,000
Machinery	14,000	Total Liabilities		$21,000
		Equity
		Share Capital	$10,000
		Retained Earnings	9,000
		Total Equity		19,000
Total Assets	$40,000	Total Liabilities and Equity		$40,000

EXERCISE 1–10

Algonquin Inc. Income Statement Year Ended July 31, 2015			Algonquin Inc. Statement of Changes in Equity Year Ended July 31, 2015
Revenues				Share Capital	Retained Earnings	Total Equity
Service Revenue		$81,000
Expenses			Opening Balance	$7,000	$6,000	$13,000
Advertising Expense	$5,000		Shares Issued	3,000		3,000
Insurance Expense	7,000		Net Income		5,000	5,000
Salaries Expense	64,000	76,000	Dividends		(2,000)	(2,000)
Net Income		$5,000	Ending Balance	$10,000	$9,000	$19,000

Algonquin Inc. Balance Sheet July 31, 2015
Assets		Liabilities
Cash	$9,000	Accounts Payable	$3,000
Accounts Receivable	17,000	Note Payable	18,000
Machinery	14,000	Total Liabilities		$21,000
		Equity
		Share Capital	$10,000
		Retained Earnings	9,000
		Total Equity		19,000
Total Assets	$40,000	Total Liabilities and Equity		$40,000

NOTE:

Given that additional shares were issued for cash of $3,000 during the year ended July 31, 2015 and share capital had a balance of $10,000 at July 31, 2015, the end of the year, the beginning balance in share capital must have been $7,000.

EXERCISE 1–11

Wallaby Inc. Income Statement Month Ended March 31, 2015			Wallaby Inc. Statement of Changes in Equity Month Ended March 31, 2015
Revenues				Share Capital	Retained Earnings	Total Equity
Fees Earned		$12,000
Expenses			Opening Balance	$6,400	$4,000	$10,400
Equipment Rental Expense	$9,400		Net Loss		(1,300)	(1,300)
Wages Expense	3,400		Ending Balance	$6,400	$2,700	$9,100
Fuel Expense	500	13,300
Net Loss		$1,300

Wallaby Inc. Balance Sheet March 31, 2015
Assets		Liabilities
Cash	$6,000	Rent Payable	$2,500
Accounts Receivable	1,600	Note Payable	18,000
Truck	22,000	Total Liabilities		$20,500
		Equity
		Share Capital	$6,400
		Retained Earnings	2,700
		Total Equity		9,100
Total Assets	$29,600	Total Liabilities and Equity		$29,600

EXERCISE 1–12

Adams Ltd. Income Statement For the Month Ended January 31, 2015
Revenue
Service Revenue		$3,335
Expenses
Rent expense	$300
Repairs expense	500
Salaries expense	1,000
Miscellaneous expense	335
Total expenses		2,135
Net Income		$1,200

Adams Ltd. Statement of Changes in Equity For the Month Ended January 31, 2015
	Share Capital	Retained Earnings	Total Equity
Opening balance	$ -0-	$ -0-	$ -0-
Shares issued	3,000	-0-	3,000
Net income	-0-	1,200	1,200
Ending balance	$3,000	$1,200	$4,200

Adams Ltd. Balance Sheet At January 31, 2015
Assets
Cash	$1,000
Land	1,000
Building	2,500
Total assets		$4,500
Liabilities
Accounts payable		$300
Equity
Share capital	$3,000
Retained earnings	1,200
Total equity		4,200
Total liabilities and equity		$4,500

EXERCISE 1–13

Mitch's Architects Ltd. Income Statement For the Year Ended December 31, 2015
Revenues
Consulting fees earned		$150,000
Expenses
Office rent expense	$60,000
Salaries and benefits expense	40,000
Utilities expense	12,000
Insurance expense	5,000
Supplies and postage expense	2,400	119,400
Net income		$30,600

EXERCISE 1–14

Mitch's Architects Ltd. Statement of Changes in Equity For the Year Ended December 31, 2015
	Share Capital	Retained Earnings	Total Equity
Opening balance*	$20,400	$6,000	$26,400
Shares issued**	10,000		10,000
Net income		30,600	30,600
Dividends***		(1,000)	(1,000)
Ending balance	$30,400	$35,600	$66,000

* Share capital opening balance ($30,400−10,000)
* Retained earnings opening balance ($5,000 balance+1,000 dividends)
** Share capital issued during the current year given in the question as $10,000
*** Dividends paid during the current year given in the question as $1,000

EXERCISE 1–15

Mitch's Architects Ltd. Balance Sheet At December 31, 2015
Assets		Liabilities
Cash	$23,000	Accounts payable	$30,000
Accounts receivable	24,000	Unearned consulting fees	15,000
Office supplies inventory	2,000	Total liabilities		$45,000
Prepaid insurance	7,000	Equity
Truck	40,000	Share capital	$30,400
Office equipment	15,000	Retained earnings	35,600
		Total equity		66,000
Total assets	$111,000	Total liabilities and equity		$111,000

EXERCISE 1–16

Gillespie Corp. Income Statement For the Year Ended May 31, 2015
Revenues
Service revenue	$382,000
Rent revenue	90,000
Total Revenue	472,000
Expenses
Warehouse rent expense	100,000
Salaries and benefits expense	110,000
Utilities expense	42,000
Insurance expense	15,000
Shop supplies expense	6,000
Net income	$199,000

Gillespie Corp. Statement of Changes in Equity At May 31, 2015
	Share Capital	Retained Earnings	Total Equity
Opening balance	$5,000	$140,000	$145,000
Net income		199,000	199,000
Dividends		(10,000)	(10,000)
Ending balance	$5,000	$329,000	$334,000

Gillespie Corp. Balance Sheet For the Year Ended May 31, 2015
Assets		Liabilities
Cash	$50,000	Accounts payable	$130,000
Accounts receivable	85,000	Unearned service revenue	25,000
Prepaid advertising	17,000	Total liabilities		$155,000
Shop supplies	52,000	Equity
Building	240,000	Share capital	$5,000
Office equipment	45,000	Retained earnings	329,000
		Total equity		334,000
Total assets	$489,000	Total liabilities and equity		$489,000

EXERCISE 1–17

Using the same calculation as the retained earnings column in the statement of changes in equity:

Opening retained earnings + Net income (or minus net loss) – Dividends = Ending retained earnings

1. $50,000 + Net income ? – 20,000 = $40,000
   Net income = $40,000 – 50,000 + 20,000 = $10,000
2. Retained earnings opening balance ? + 150,000 – 40,000 = $130,000
   Retained earnings opening balance = $130,000 – 150,000 + 40,000 = $20,000
3. $75,000 – 35,000 – Dividends ? = $40,000
   Dividends = $40,000 – 75,000 + 35,000 = 0

EXERCISE 1–18

a.	Assets	=	Liabilities	+	Equity
Balances at April 1, 2015	$100,000		$60,000		$40,000
					10,000	April net income(loss)
Balances at April 30, 2015	$180,000	=	$130,000	+	$50,000
b.	Assets	=	Liabilities	+	Equity
Balances at April 1, 2015	$100,000		$60,000		$40,000
					$50,000	Shares issued in April
					(40,000)	April net income(loss)
Balances at April 30, 2015	$180,000	=	$130,000	+	$50,000
c.	Assets	=	Liabilities	+	Equity
Balances at April 1, 2015	$100,000		$60,000		$40,000
					14,000	April net income(loss)
					(4,000)	Dividends paid in April
Balances at April 30, 2015	$180,000	=	$130,000	+	$50,000

EXERCISE 1–19

a.	Assets	=	Liabilities	+	Equity
Balances at June 1, 2015	$160,000		$100,000		$60,000
					$70,000	June net income(loss)
					(20,000)	Dividends paid in June
Balances at June 30, 2015	$200,000	=	$90,000	+	$110,000
b.	Assets	=	Liabilities	+	Equity
Balances at June 1, 2015	$160,000		$100,000		$60,000
					$40,000	Shares issued in June
					$90,000	June net income(loss)
					(80,000)	Dividends paid in June
Balances at June 30, 2015	$200,000	=	$90,000	+	$110,000
c.	Assets	=	Liabilities	+	Equity
Balances at June 1, 2015	$160,000		$100,000		$60,000
					$130,000	Shares issued in June
					($80,000)	June net income(loss)
					-0-	Dividends paid in June
Balances at June 30, 2015	$200,000	=	$90,000	+	$110,000

EXERCISE 1–20

a.	3	Purchased a truck for cash.
b.	1	Issued share capital for cash.
c.	2	Incurred a bank loan as payment for equipment.
d.	3	Made a deposit for electricity service to be provided to the company in the future.
e.	4	Paid rent expense.
f.	NT	Signed a new union contract that provides for increased wages in the future.
g.	NT	Wrote a letter of complaint to the prime minister about a mail strike and hired a messenger service to deliver letters.
h.	4	Received a collect telegram from the prime minister; paid the messenger.
i.	1	Billed customers for services performed.
j.	5	Made a cash payment to satisfy an outstanding obligation.
k.	3	Received a payment of cash in satisfaction of an amount owed by a customer.
l.	1	Collected cash from a customer for services rendered.
m.	4	Paid cash for truck operation expenses.
n.	5&4	Made a monthly payment on the bank loan; this payment included a payment on part of the loan and also an amount of interest expense. (Hint: This transaction affects more than two parts of the accounting equation.)
o.	7	Issued shares in the company to pay off a loan.

Problems

PROBLEM 1–1

Dumont Inc. Income Statement For the Month Ended January 31, 2015			Dumont Inc. Balance Sheet At January 31, 2015
			Assets
			Cash	$1,300
Revenue			Accounts receivable	2,400
Service revenue		$7,500	Prepaid expenses	550
			Unused supplies	750
Expenses			Truck	9,000
Advertising expense	$500		Total assets		$14,000
Commissions expense	720
Insurance expense	50
Interest expense	80		Liabilities
Rent expense	400		Bank loan	$8,000
Supplies expense	100		Accounts payable	1,000
Telephone expense	150		Total liabilities		9,000
Wages expense	2,500		Equity
Total expenses		4,500	Share capital	$2,000
Net income		$3,000	Retained earnings	3,000
			Total equity		5,000
			Total liabilities and equity		$14,000

Dumont Inc. Statement of Changes in Equity For the Month Ended January 31, 2015
	Share Capital	Retained Earnings	Total Equity
Opening balance	$ -0-	$ -0-	$ -0-
Shares issued	2,000	-0-	2,000
Net income	-0-	3,000	3,000
Ending balance	$2,000	$3,000	$5,000

PROBLEM 1–2

1. The income statement and statement of changes in equity are as follows:

   			Laberge Sheathing Inc. Balance Sheet August 31, 2015
   Laberge Sheathing Inc. Income Statement For the Month Ended August 31, 2015
   			Assets
   			Cash	$400
   			Accounts receivable	3,800
   Revenue			Unused supplies	100
   Service revenue		$2,000	Equipment	8,700
   			Total assets		$13,000
   Expenses
   Advertising expense	$300
   Interest expense	500		Liabilities
   Maintenance expense	475		Accounts payable		$7,800
   Supplies expense	125
   Wages expense	2,600		Equity
   Total expenses		4,000	Share capital	3,200
   Net loss		$2,000	Retained earnings	2,000	5,200
   			Total liabilities and equity		$13,000

   Laberge Sheathing Inc. Statement of Changes in Equity Month Ended August 31, 2015
   	Share Capital	Retained Earnings	Total Equity
   Opening balance	$3,200	$4,000	$7,200
   Net loss	-0-	(2,000)	(2,000)
   Ending balance	$3,200	$2,000	$5,200

2. The percentage of assets financed by equity is 40% calculated as (5,200/13,000) × 100. Although part 2 of this question did not require that the percentage of assets financed by debt be calculated, it is 60% calculated as 100% − 40%.

PROBLEM 1–3

Figure \(\PageIndex{2}\)

PROBLEM 1–4

			Larson Services Inc. Balance Sheet At August 31, 2015
Larson Services Inc. Income Statement For the Month Ended August 31, 2015
			Assets
			Cash	$3,900
			Accounts receivable	10,000
			Prepaid expenses	600
Revenues			Unused supplies	500
Fees earned		$11,500	Truck	8,000
			Total assets		$23,000
Expenses
Advertising expense	$200		Liabilities
Rent expense	350		Bank loan	$10,000
Salaries expense	2,150		Accounts payable	250
Supplies expense	250		Unearned revenue	1,500
Telephone expense	50		Total liabilities		11,750
Truck operation expense	250
Total expenses		3,250	Equity
Net income		$8,250	Share capital	3,000
			Retained earnings	8,250
			Total equity		11,250
			Total liabilities and equity		$23,000

Larson Services Inc. Statement of Changes in Equity For the Month Ended August 31, 2015
	Share Capital	Retained Earnings	Total Equity
Opening balance	$ -0-	$ -0-	$ -0-
Shares issued	3,000	-0-	3,000
Net income	-0-	8,250	8,250
Ending balance	$3,000	$8,250	$11,250

PROBLEM 1–5

	Cash	Accounts receivable	Office supplies	Prepaid expenses	Equipment	Office furniture	Accounts payable	Note/Loan payable	Unearned revenue	Share capital	Retained earnings
Open Bal	+10,000	+25,000	+2,000	0	+25,000	+15,000	+35,000	0	0	+8,000	+34,000
1	+5,000								+5,000
2	-5,000										-5,000
3			+3,000				+3,000
4		+27,000									+27,000
5					+3,000			+3,000
6
7							+300				-300
8	+20,000							+20,000
9	-8,000						-8,000
10	-3,000										-3,000
11		+25,000									+25,000
12	+25,000	-25,000
13
14
15	-3,500										-3,500
16	-5,000			+5,000
17	-50										-50
18						+3,000	+3,000
Bal	+35,450	+52,000	+5,000	+5,000	+28,000	+18,000	+33,300	+23,000	+5,000	+8,000	+74,150

PROBLEM 1–6

Olivier Bondar Ltd. Balance Sheet At May 31, 2016
Assets		Liabilities
Cash	$35,450	Accounts payable	$33,300
Accounts receivable	52,000	Note/Loan payable	23,000
		Unearned revenue	5,000
Office supplies	5,000	Total liabilities		$61,300
Prepaid expenses	5,000
Equipment	28,000	Equity
Office furniture	18,000	Share capital	$8,000
		Retained earnings	74,150
		Total equity		82,150
Total assets	$143,450	Total liabilities and equity		$143,450