Question

Cecil Jameson, Attorney-at-Law, is a proprietorship owned and operated by Cecil Jameson. On July 1, 2007, 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 office 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 office 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 office 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, 2007.
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, 2007.
4. (Optional). Prepare a statement of cash flows for July.

Answer 1

Answer:

1. Determine the amount of owner’s equity (Cecil Jameson’s capital) as of July 1, 2007.

equity = assets - liabilities = $15,050 - $1,530 = $13,520

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.

since there is not enough room here, I used an excel spreadsheet

   

3. Prepare an income statement for July, a statement of owner’s equity for July, and a balance sheet as of July 31, 2007.

Cecil Jameson, Attorney-at-Law

Income Statement

For the month ended July 31, 2007

Service revenue                                                       $5,953

Expenses:

• Paralegal services $1,635
• Wages expense $850
• Rent $1,200
• Answering service expense $250
• Utilities expense $325
• Supplies expense $115
• Miscellaneous expense $75                           $4,450

Operating income                                                     $1,503

Cecil Jameson, Attorney-at-Law

Balance Sheet

For the month ended July 31, 2007

Assets:

Cash $6,873

Accounts receivables $2,225

Supplies $980

Land $10,000

Total assets $20,078

Liabilities:

Accounts payable $720

Paralegal fees payable $1,635

Total liabilities $2,355

Equity:

Jameson, Cecil, capital $18,723

Jameson, Cecil, drawings -$1,000

Total equity $17,723

Liabilities + Equity = $20,078

Cecil Jameson, Attorney-at-Law

Statement of Owner’s Equity

For the month ended July 31, 2007

Jameson, Cecil, capital balance July 1, 2007       $13,520

Investment during the month                                  $3,700

Net income                                                                $1,503

Subtotal                                                                    $18,723

Drawings                                                                  ($1,000)

Jameson, Cecil, capital balance July 31, 2007     $17,723

4. (Optional). Prepare a statement of cash flows for July.

Cecil Jameson, Attorney-at-Law

Statement of Cash Flows

For the month ended July 31, 2007

Cash flows from operating activities  

Net income                                                                  $1,503

Adjustments to net income:

• Decrease in accounts receivables $975
• Decrease in accounts payables ($810)
• Increase in supplies inventory ($130)
• Increase in paralegal fees payable $1,635       $1,670

Net increase in cash from operating activities          $3,173

Cash flows from investing activities                                $0

Cash flows from financing activities  

Additional paid in capital                                           $3,700

Drawings                                                                    ($1,000)

Net increase in cash from financing activities         $2,700

Net increase in cash                                                  $5,873

Cash balance July 1, 2007                                        $1,000

Cash balance July 31, 2007                                      $6,873

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