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Teri West operates her own catering service
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?
Expert Solution
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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