Reference no: EM132482661
After several months of planning, Joanne Cardinal started a haircutting business called The Cutlery. The following business activities occurred during its first month, August 2017:
a. On August 1, Cardinal put $16,000 cash into a chequing account in the name of The Cutlery. She also invested $10,000 of equipment that she already owned.
b. On August 2, she paid $2,000 cash for furniture for the shop.
c. On August 3, she paid $3,200 cash to rent space in a strip mall for August.
d. On August 4, she equipped the shop by installing the old equipment and some new equipment that she bought on credit for $21,000. This amount is to be repaid in three equal payments at the end of August, September, and October.e. On August 5, The Cutlery opened for business. Receipts from services provided for cash in the first week and a half of business (ended August 15) were $1,100.
f. On August 15, Cardinal provided haircutting services on account for $750.
g. On August 17, Cardinal received a $750 cheque in the mail for services previously rendered on account.
h. On August 17, Cardinal paid wages of $250 to an assistant for working during the grand opening.
i. On August 18, Cardinal interviewed a job applicant. The applicant was successful in getting the position and will receive $750 per week for parttime work starting in September.
j. Cash receipts from services provided during the second half of August was $1,950.
k. On August 31, Cardinal paid an installment on the account payable created in (d).
l. On August 31, the August hydro bill for $450 was received. It will be paid on September 14.
m. On August 31, Cardinal withdrew $500 cash for her personal use.
Required
Question 1. Arrange the following asset, liability, and equity titles in a table similar to the one in Exhibit 1.15:
Cash; Accounts Receivable; Furniture; Store Equipment; Accounts Payable; and Joanne Cardinal,
Capital. Show the effects of each transaction on the equation. Explain each of the changes in equity.
Question 2. income statement for August.
Question 3. statement of changes in equity for August.
Question 4. balance sheet as of August 31.
Analysis Component:
Question a. Identify how much of the assets held by The Cutlery are owned by the owner, Joanne Cardinal.
Planning the Solution
- Set up a table with the appropriate columns, including a final column for describing the transactions that affect equity.
- Identify and analyze each transaction and show its effects as increases or decreases in the appropriate columns. Be sure that the accounting equation remains in balance after each transaction.
- To prepare the income statement, find the revenues and expenses in the Explanation of Equity Transaction column. List those items on the statement, calculate the difference, and label the result as profit or loss.
- Use the information in the Explanation of Equity Transaction column to prepare the statement of changes in equity.
- Use the information in the last row of the table to prepare the balance she