Reference no: EM132546967

Question - Analyzing transactions and preparing financial statements

Littlechild started a new kitchen and bath design business called Littlechild Enterprises. The following activities occurred during its first month of operations, March 2017:

a. Littlechild invested $160,000 cash and office equipment valued at $20,000 in the business.

b. Purchased a small building for $600,000 to be used as an office. Paid $100,000 in cash and signed a note payable promising to pay the balance over several years.

c. Purchased $3,000 of office supplies for cash.

d. Purchased $72,000 of office equipment on credit.

e. Littlechild made reservations at a hotel hosting a kitchen and bath design conference in August 2017. He will send a $1,000 deposit on July 1, 2017.

f. Completed a project on credit and billed the client $5,200 for the work.

g. Paid a local online newspaper $3,500 for an announcement that the office had opened.

h. Completed a project for a client and collected $4,000 cash.

i. Made a $4,000 payment on the equipment purchased in (d).

j. Received $2,500 from the client described in (f).

k. Paid $7,000 cash for the office secretary's wages.

l. Littlechild withdrew $3,600 cash from the company bank account to pay personal living expenses.

Required -

1. Create a table like the one in Exhibit 1.15, using the following headings for the columns: Cash; Accounts Receivable; Office Supplies; Office Equipment; Building; Accounts Payable; Notes Payable; and George Littlechild, Capital. Leave space for an Explanation of Equity Transaction column to the right of the Capital column. Identify revenues and expenses by name in the Explanation of Equity Transaction column.

Use additions and subtractions to show the transactions' effects on the elements of the equation. Do not determine new totals for the items of the equation after each transaction. Next to each change in equity, state whether the change was caused by an investment, a revenue, an expense, or a withdrawal. Determine the final total for each item and verify that the equation is in balance.

2. Prepare an income statement, a statement of changes in equity, and a balance sheet using the formats provided.