000 LESS WITHDRAWALS 5,000 INCREASE IN OWNER'S EQUITY 31,000ERIC WO...

36,000

Less withdrawals

5,000

Increase in owner's equity

31,000

Eric Wood, capital, March 31, 2011

$31,000

Balance Sheet

For the Three Months Ended March 31, 2011

Assets

Owner's

Equity

Land

$13,000 Eric Wood, Capital

$31,000

Cash

10,860

Liabilities

Accounts payable

2,670 Accounts receivable

2,225

Answer

Errors in the Eric Wood, CPA, financial statements include the following:

(1)

Miscellaneous expense is incorrectly listed after utilities expense in the income statement. Miscellaneous expense should be

listed as the last expense, regardless of the amount.

(2)

The operating expenses are incorrectly added. Instead of $28,000, the total should be $32,660.

(3)

Because operating expenses are incorrectly added, the net income is incorrect. It should be listed as $9,340.

(4)

The statement of owner's equity should be for a period of time instead of a specific date. That is, the statement of owner's

equity should be reported "For the Three Months Ended March 31, 2011."

(5)

The amount of the owners' equity is incorrect. It should be $24,340.

(6)

The name of the company is missing from the balance sheet heading.

(7)

The balance sheet should be as of "March 31, 2011," not "For the Three Months Ended March 31, 2011."

(8)

Cash, not Land, should be the first asset listed in the balance sheet.

(9)

Accounts Payable is incorrectly listed as an asset in the balance sheet. Accounts Payable should be listed as a liability.

(10)

Liabilities should be listed in the balance sheet ahead of owner's equity.

(11)

Accounts Receivable is incorrectly listed as a liability in the balance sheet. Accounts Receivable should be listed as an asset.

(12)

The total assets and the total liabilities and owner’s equity do not foot.

Correctly prepared financial statements for Eric Wood, CPA, are shown below.

Eric Wood, CPA

Income Statement

Fees earned

$42,000

Operating expenses:

Salary expense

$9,735

Rent expense

5,200

Advertising expense

3,950

Utilities expense

3,225

Answering service expense

2,550

Supplies expense

4,000

Miscellaneous expense

4,000

Total operating expenses

32,660

Net income

$9,340

Statement of Owner's Equity

Eric Wood, capital, January, 1, 2011

$ 0

Investment on January 1, 2011

$20,000

Net income for three months

9,340

$29,340

Increase in owner's equity

24,340

Eric Wood, capital, March 31, 2011

$24,340

March 31, 2011

Assets

Liabilities

Cash

$10,860

Accounts payable

$ 2,670

Accounts receivable

2,225

Owner's Equity

Supplies

925

Eric Wood, Capital

24,340

Land

13,000

Total liabilities and

Total assets

$27,010

owner's equity

$27,010

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Question Using the following accounts and their amounts, prepare in good format an Income Statement for Bright Futures Company, month ended

August 31, 2011:

Telephone Expense

$1,150

Cash

$3,000

Accounts Payable

$1,540

Jason Bright, Drawing

$800

Fees Earned

$15,700

Rent Expense

$1,400

Supplies

$140

Accounts Receivable

$1,500

Computer Equipment

$20,000

Jason Bright, Capital

$14,320

Wages Expense

$4,800

Utilities Expense

$750

Notes Payable

$2,400

Office Expense

$420

Answer

Bright Futures Company

For Month Ended August 31, 2011

Expenses:

Wages Expense

$4,800

Rent Expense

1,400

Telephone Expense

1,150

Utilities Expense

750

Office Expense

420

Total Expenses

8,520

Net Income

$ 7,180

Question Using the following accounts and their amounts, prepare in good format a Statement of Owner’s Equity for Bright Futures Company,

month ended August 31, 2011:

Statement of Owner’s Equity

Jason Bright, Capital, August 1, 2011

$ 14,320

Net Income

7,180

Subtotal

$ 21,500

Less: Withdrawals

800

Jason Bright, Capital August 31, 2011

$ 20,700

Question Using the following accounts and their amounts, prepare in good format a Balance Sheet for Bright Futures Company, month ended

August 31, 2011

Assets

Cash

$ 3,000

Accounts Receivable

1,500

Supplies

140

Computer Equipment

20,000

Total Assets

$ 24,640

Total Liabilities and Owner’s Equity

Liabilities:

Accounts Payable

$ 1,540

Notes Payable

2,400

Total Liabilities

$ 3,940

Jason Bright, Capital

20,700

Total Liabilities and Owner’s Equity

$ 24,640

Question The account balances of Trendsetter Travel Services at December 31, 2011 are listed below:

Accounts Payable

$12,000

J. Trendsetter, Capital 1/1/11

$10,000

Accounts Receivable

6,000

Supplies

1,000

Cash

18,000 Taxes

Expense

1,300

Computer Equipment

21,000

Utilities Expense

8,000

Fees Earned

70,000

Wages Expense

25,000

Rent Expense

10,000

Supplies Expense

1,700

Prepare an income statement, statement of owner’s equity, and a balance sheet as of December 31, 2011.

Trendsetter Travel Services

For the Year Ended December 31, 2011

Fees Earned

$ 70,000

Operating

Expenses:

Wages

Expense

$

25,000

Rent

Expense

10,000

Utilities

Expense

8,000

Supplies

Expense

1,700

Taxes Expense

1,300

Total Operating Expenses

$46,000

Net

Income

$24,000

Net Income for the year

24,000

J. Trendsetter, Capital, 12/31/11

$34,000

December 31, 2011

Assets

Liabilities

Cash

$18,000 Accounts

Payable

$12,000

Accounts Receivable

6,000

Computer Equipment

21,000

Owner’s Equity

Supplies

1,000 J. Trendsetter, Capital

34,000

$46,000

Total Assets

$ 46,000

Total Liabilities and Owner’s Equity

Question The accountant for Flagger Company prepared the following list of account balances from the company’s records for the year ended

December 31, 2011:

Fees Earned

$165,000

Cash

$ 30,000

Accounts Receivable

14,000

Selling Expenses

44,000

Equipment

42,000

Flagger,

Capital

36,000

Accounts Payable

12,000

Interest Income

3,000

Salaries & Wages Expense

40,000

Rent Expense

51,000

Income Taxes Payable

5,000

Prepaid Rent

2,000

Notes Payable

20,000

Income Taxes Expense

18,000

Prepare an Income Statement for Flagger Company in good form.

Flagger Company

Revenues:

Fees earned

$ 165,000

Interest income

3,000

$ 168,000

Expenses:

Rent expense

$ 51,000

Salaries & wages expense

40,000

Selling

expenses

44,000

Income taxes expense

18,000

153,000

Net income

$ 15,000