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Teri West operates her own catering service

Accounting

Teri West operates her own catering service. Summary financial data for July are presented In equation form as follows. Each line designated by a number indicates the effect of a transaction on the equation. Each increase and decrease in stockholders' equity, except transaction (5), affects net income.

  Assets         = Liabilities +   Stockholder Equity            
  Cash + Supplies + Land = Accounts Payable + Common Stock Retained Earnings - Dividends + Fees Earned - Expenses
Bal. 40,000   3,000   82,000   7,500   50,000 67,500            
1. +71,800                         +71,800    
2. 15,000     +15,000                        
3. -47,500                             -47,500
4.     +1,100       +1,100                  
5. -5,000                     - 5,000        
6. -4,000           -4,000                  
7.     -1,500                         -1,500
Bal. 40,300   2,600   97,000   4,600   50,000 67,500   -5,000   71,800   -49,000

a. Describe each transaction.

b. What is the amount of the net increase in cash during the month?

c. What is the amount of the net increase in stockholders' equity during the month?

d. What is the amount of the net income for the month?

e. How much of the net income for the month was retained in the business?

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Answer a)

1. This transaction means that the company has earned a cash income of $71,800.

2. This transaction means that the company has purchased land in cash for $15,000.

3. This transaction means that the company has incurred cash expensed of $47,500.

4. This transaction means that the company has purchased supply on credit for $1,100.

5. This transition means that the company has paid a cash dividend of $5,000.

6. This transaction means the company has paid $4,000 to creditors.

7 This transition means that the company consumed the supply worth $1,500.

 

Answer b)

Net Increase in Cash = (Closing Cash - Opening Cash)

Net Increase in Cash = (40,300 - 40,000)

Net Increase in Cash = 300

 

Answer c)

Net Increase in the Stockholders Equity = (Earnings - Expenses - Dividends)

Net Increase in the Stockholders Equity = (71,800 - 49,000 - 5,000)

Net Increase in the Stockholders Equity = 17,800

 

Answer d)

Net Income = (Earnings - Expenses)

Net Income = (71,800 - 49,000)

Net Income = 22,800

 

Answer e)

Income Retained = (Net Income - Dividend Paid)

Income Retained = 22,800 - 5,000

Income Retained = 17,800

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