Question

Maria Gomez owns and manages a consulting firm called Accel, which began operations on December 1. She asks us to assist her with some financial reporting questions

Answer 1

Question Completion:

Financial data:

Unearned revenue 3,600

Notes payable 2,800

Accounts payable 4,800

Advertising expense 2,800

Rent expense 4,000

Salaries expense 6,000

Utility expense 2,400

Consulting revenue 34,000

Rental revenue 7,000

Accounts receivable 10,000

Cash 12,000

Equipment 10,200

Notes receivable 5,000

Prepaid insurance 2,000

Supplies 3,000

Common Stock 9,200

Dividends 4,000

Prepare Income Statement, Statement of Retained Earnings, and Balance Sheet as of December 31.

Answer:

Accel Consulting Firm (owned and managed by Maria Gomez)

a. Income Statement for the month ended December 31:

Consulting revenue            $34,000

Rental revenue                        7,000

Total Revenue                     $41,000

Less expenses:

Advertising expense 2,800

Rent expense            4,000

Salaries expense      6,000

Utility expense          2,400   15,200

Net Income                        $25,800

b. Statement of Retained Earnings for the month ended December 31:

Net Income                             $25,800

Dividends                                    4,000

Retained earnings, Dec. 31    $21,800

c. Balance Sheet as of December 31:

Assets:

Cash                                  $12,000

Accounts receivable           10,000

Notes receivable                  5,000

Prepaid insurance                2,000

Supplies                                3,000

Equipment                           10,200

Total Assets                     $42,200

Liabilities:

Unearned revenue           $3,600

Notes payable                     2,800

Accounts payable               4,800

Total Liabilities                 $11,200

Common Stock                  9,200

Retained earnings            21,800

Total liabilities + Equity $42,200

Explanation:

Accel's income statement is a summary of the temporary accounts, which are not carried forward in the next accounting period.  They are used to calculate the profit performance of the consulting firm.  They include the revenues and the expenses incurred for generating the revenue.

Accel's statement of retained earnings shows the difference between the net income generated over the years for a business that has been in operation for years and the payouts from the net income in form of dividends to stockholders.  For Maria Gomez's consulting business, the retained earnings statement shows what is remaining after paying dividend for the month of December to Gomez.

Accel's balance sheet is the final financial statement that is needed to be prepared to show the financial position of the firm.  It shows what the firm owns as assets and the value that the firm owes other creditors for services not paid for or not yet rendered and the equity value for the stockholder, Maria.