Q 52PGB-2a - Horngren'S Financial And Managerial Accounting

Question

Amos Sharp recently opened his own accounting firm on October 1, which he operates as a corporation. The name of the new entity is Amos Sharp, CPA. Sharp experienced the following events during the organizing phase of the new business and its first month of operations in 2018. Oct. 5 Sharp deposited \(45,000 in a new business bank account titled Amos Sharp, CPA. The business issued common stock to Sharp. 6 Paid \)300 cash for letterhead stationery for new office. 7 Purchased office furniture for the office on account, \(6,500. 10 Consulted with tax client and received \)3,300 for services rendered. 11 Paid utilities, \(340. 12 Finished tax hearings on behalf of a client and submitted a bill for accounting services, \)16,000. 18 Paid office rent, \(1,800. 25 Received amount due from client that was billed on October 12. 27 Paid full amount of Accounts Payable created on October 7. 31 Cash dividends of \)3,800 were paid to stockholders. Requirements 1. Analyze the effects of the events on the accounting equation of Amos Sharp, CPA. Use a format similar to Exhibit 1-6. 2. Prepare the following financial statements: a. Income statement. b. Statement of retained earnings. c. Balance sheet.

Step-by-Step Solution

Answer

Income statement is shown as follows:

Amos Sharp, CPA
Income Statement
Year Ended October 31, 2018
Revenues
Service Revenue		$19,300
Expenses
Rent Expense	1,800
Utilities Expense	340
Total Expenses		2,140
Net Income		$17,160

Step-by-Step Solution . Step 1: Calculation of net income

Net income is calculated as follows:

 $$\begin{gathered} \mathbf{NetIncome}\mathbf{=}\mathbf{TotalRevenues}-\mathbf{TotalExpenses} \\ \mathbf{=}\mathbf{\$}\mathbf{19}\mathbf{,}\mathbf{300}-\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{140} \\ \mathbf{=}\mathbf{\$}\mathbf{17}\mathbf{,}\mathbf{160} \end{gathered}$$

Step 2: Explanation of net income

 Net income is generated when total revenues are higher than the total expenses.