Reference no: EM132620778

Analyzing Transactions Using the Financial Statement Effects Template and Preparing Financial Statements

Schrand Aerobics, Inc., rents studio space (including a sound system) and specializes in offering aerobics classes. On January 1, 2013, its beginning account balances are as follows: Cash, $5,000; Accounts Receivable, $5,200; Equipment, $0; Notes Payable, $2,500; Accounts Payable, $1,000; Common Stock, $5,500; Retained Earnings, $1,200; Services Revenue, $0; Rent Expense, $0; Advertising Expense, $0; Wages Expense, $0; Utilities Expense, $0; Interest Expense, $0.

The following transactions occurred during January.

Required

(1) Paid $600 cash toward accounts payable

(2) Paid $3,600 cash for January rent

(3) Billed clients $11,500 for January classes

(4) Received $500 invoice from supplier for T-shirts given to January class members as an advertising promotion

(5) Collected $10,000 cash from clients previously billed for services rendered

(6) Paid $2,400 cash for employee wages

(7) Received $680 invoice for January utilities expense

(8) Paid $20 cash to bank as January interest on notes payable

(9) Declared and paid $900 cash dividend to stockholders

(10) Paid $4,000 cash on January 31 to purchase sound equipment to replace the rental system

Problem (a) Using the financial statements effects template, enter January 1 beginning amounts in the appropriate columns of the first row. (Hint: Beginning balances for columns can include amounts from more than one account.)

Problem (b) Report the effects for each of the separate transactions 1 through 10 in the financial statement effects template set up in part (a). Total all columns and prove that (1) assets equal liabilities plus equity at January 31, and (2) revenues less expenses equal net income for January.