Question 1.IP: Cecil Jameson, Attorney-at-Law, is a proprietorship owned an......
Cecil Jameson, Attorney-at-Law, is a proprietorship owned and operated by Cecil Jameson. On July 1, 2011, Cecil Jameson, Attorney-at-Law, has the following assets and liabilities: cash, $1,000; accounts receivable, $3,200; supplies, $850; land, $10,000; accounts payable, $1,530. Office space and office equipment are currently being rented, pending the construction of an offi ce complex on land purchased last year. Business transactions during
July are summarized as follows:
a. Received cash from clients for services, $3,928.
b. Paid creditors on account, $1,055.
c. Received cash from Cecil Jameson as an additional investment, $3,700.
d. Paid office rent for the month, $1,200.
e. Charged clients for legal services on account, $2,025.
f. Purchased supplies on account, $245.
g. Received cash from clients on account, $3,000.
h. Received invoice for paralegal services from Legal Aid Inc. for July (to be paid on August 10), $1,635.
i. Paid the following: wages expense, $850; answering service expense, $250; utilities expense, $325; and miscellaneous expense, $75.
j. Determined that the cost of supplies on hand was $980; therefore, the cost of supplies used during the month was $115.
k. Jameson withdrew $1,000 in cash from the business for personal use.
Instructions
1. Determine the amount of owner’s equity (Cecil Jameson’s capital) as of July 1, 2011.
2. State the assets, liabilities, and owner’s equity as of July 1 in equation form similar to that shown in this chapter. In tabular form below the equation, indicate the increases and decreases resulting from each transaction and the new balances after each transaction.
3. Prepare an income statement for July, a statement of owner’s equity for July, and a balance sheet as of July 31, 2011.
4. (Optional). Prepare a statement of cash flows for July.
1.
Assets − Liabilities = Owner’s Equity (Cecil Jameson, capital)
($1,000 + $3,200 + $850 + $10,000) − $1,530 = Owner’s Equity (Cecil Jameson, capital)
$15,050 − $1,530 = Owner’s Equity (Cecil Jameson, capital)
$13,520 = Owner’s Equity (Cecil Jameson, capital)
3.
Cecil Jameson, Attorney-at-Law
Income Statement
For the Month Ended July 31, 2011
Fees earned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,953
Expenses:
Paralegal expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,635
Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
Wages expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 850
Utilities expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325
Answering service expense . . . . . . . . . . . . . . . . . . . . . . . . . . 250
Supplies expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Miscellaneous expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \underline{75}
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \underline{4,450}
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \underline{\$ 1,503}
Cecil Jameson, Attorney-at-Law
Statement of Owner’s Equity
For the Month Ended July 31, 2011
Cecil Jameson, capital, July 1, 2011 . . . . . . . . . . . . . . . . . . . . . . $13,520
Additional investment by owner. . . . . . . . . . . . . . . . . . . . . . . . $3,700
Net income for the month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \underline{1,503}
$5,203
Less withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \underline{1,000}
Increase in owner’s equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \underline{4,203}
Cecil Jameson, capital, July 31, 2011 . . . . . . . . . . . . . . . . . . . . . \underline{\$ 17,723}
Cecil Jameson, Attorney-at-Law
Balance Sheet
July 31, 2011
Assets Liabilities
Cash . . . . . . . . . . . . . . . . . . . . $ 6,873 Accounts payable . . . . . . . . . $ 2,355
Accounts receivable . . . . . 2,225 Owner’s Equity
Supplies . . . . . . . . . . . . . . . . . 980 Cecil Jameson, capital . . . . . 17,723
Land . . . . . . . . . . . . . . . . . . . . \underline{10,000} Total liabilities and owner’s
Total assets . . . . . . . . . . . . . \underline{\$ 20,078} equity. . . . . . . . . . . . . . . . . . . \underline{\overline{\$ 20,078}}
4. Optional.
Cecil Jameson, Attorney-at-Law
Statement of Cash Flows
For the Month Ended July 31, 2011
Cash flows from operating activities:
Cash received from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,928*
Deduct cash payments for operating expenses . . . . . . . . . . . \underline{3,755}**
Net cash flows from operating activities . . . . . . . . . . . . . . . . . . $3,173
Cash flows from investing activities . . . . . . . . . . . . . . . . . . . . . . . —
Cash flows from financing activities:
Cash received from owner as investment. . . . . . . . . . . . . . . . . $3,700
Deduct cash withdrawals by owner. . . . . . . . . . . . . . . . . . . . . . . \underline{1,000}
Net cash flows from financing activities. . . . . . . . . . . . . . . . . . . \underline{2,700}
Net increase in cash during year . . . . . . . . . . . . . . . . . . . . . . . . . . $5,873
Cash as of July 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \underline{1,000}
Cash as of July 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \underline{\$ 6,873}
*$6,928 = $3,928 + $3,000
**$3,755 = $1,055 + $1,200 + $1,500
2.
| Assets | = Liabilities + | Owner’s Equity | |||||||||||||
| Cash | Accts.
+ Rec. |
+ Supp. | + Land | Accts = Pay. |
Cecil Jameson, + Capital |
Cecil Jameson, -Drawing |
Fees +Earned |
Paralegal – Exp. |
Rent – Exp. |
Wages – Exp. |
Utilities – Exp. |
Answering Service – Exp. |
Supp -Exp. |
Misc. -Exp |
|
| Bal. | 1,000 | 3,200 | 850 | 10,000 | 1,530 | 13,520 | |||||||||
| a. | \underline{+3,928} | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ 3,928} | ||||||||
| Bal. | 4,928 | 3,200 | 850 | 10,000 | 1,530 | 13,520 | 3,928 | ||||||||
| b. | \underline{−1,055} | \underline{ } | \underline{ } | \underline{ } | \underline{−1,055} | \underline{ } | \underline{ } | ||||||||
| Bal. | 3,873 | 3,200 | 850 | 10,000 | 475 | 13,520 | 3,928 | ||||||||
| c. | \underline{+3,700} | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{+3,700} | \underline{ } | ||||||||
| Bal. | 7,573 | 3,200 | 850 | 10,000 | 475 | 17,220 | 3,928 | ||||||||
| d. | \underline{−1,200} | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{−1,200} | |||||||
| Bal. | 6,373 | 3,200 | 850 | 10,000 | 475 | 17,220 | 3,928 | −1,200 | |||||||
| e. | \underline{ } | \underline{+ 2,025} | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{+ 2,025} | \underline{ } | |||||||
| Bal. | 6,373 | 5,225 | 850 | 10,000 | 475 | 17,220 | 5,953 | −1,200 | |||||||
| f. | \underline{ } | \underline{ } | \underline{+245} | \underline{ } | \underline{+245} | \underline{ } | \underline{ } | \underline{ } | |||||||
| Bal. | 6,373 | 5,225 | 1,095 | 10,000 | 720 | 17,220 | 5,953 | −1,200 | |||||||
| g. | \underline{+3,000} | \underline{−3,000} | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | |||||||
| Bal. | 9,373 | 2,225 | 1,095 | 10,000 | 720 | 17,220 | 5,953 | −1,200 | |||||||
| h. | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{+1,635} | \underline{ } | \underline{ } | \underline{ –1,635} | \underline{ } | ||||||
| Bal. | 9,373 | 2,225 | 1,095 | 10,000 | 2,355 | 17,220 | 5,953 | –1,635 | −1,200 | ||||||
| i. | \underline{−1,500} | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{–850} | \underline{–325} | \underline{–250} | \underline{–75} | ||
| Bal. | 7,873 | 2,225 | 1,095 | 10,000 | 2,355 | 17,220 | 5,953 | –1,635 | −1,200 | –850 | –325 | –250 | −75 | ||
| j. | \underline{ } | \underline{ } | \underline{−115} | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{−115} | \underline{ } | |
| Bal. | 7,873 | 2,225 | 980 | 10,000 | 2,355 | 17,220 | 5,953 | –1,635 | −1,200 | –850 | –325 | –250 | −115 | −75 | |
| k. | \underline{−1,000} | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{–1,000} | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } | \underline{ } |
| Bal. | \underline{6,873} | \underline{ 2,225} | \underline{ 980} | \underline{10,000} | \underline{2,355} | \underline{17,220} | \underline{–1,000} | \underline{5,953} | \underline{ –1,635} | \underline{−1,200} | \underline{–850} | \underline{–325} | \underline{–250} | \underline{−115} | \underline{–75} |