Chapter 1 Introduction to Accounting and Business

29
Example
Exercises
3. Billed customers for delivery services on account, $22,400.
4. Received cash from customers on account, $11,300.
5. Paid dividends, $6,000.
Indicate the effect of each transaction on the accounting equation elements (Assets,
­Liabilities, Stockholders’ Equity Capital Stock, Dividends, Revenue, and Expense). Also
indicate the specific item within the accounting equation element that is affected. To
­illustrate, the answer to (1) is shown below.
(1) Asset (Cash) increases by $25,000; Stockholders’ Equity (Capital Stock) increases by
$25,000.

EE 1-3 p. 14 PE 1-3B  Transactions OBJ. 4

Interstate Delivery Service is owned and operated by Katie Wyer. The following selected
transactions were completed by Interstate Delivery Service during May:
1. Received cash in exchange for capital stock, $18,000.
2. Paid advertising expense, $4,850.
3. Purchased supplies on account, $2,100.
4. Billed customers for delivery services on account, $14,700.
5. Received cash from customers on account, $8,200.
Indicate the effect of each transaction on the accounting equation elements (Assets,
­Liabilities, Stockholders’ Equity Capital Stock, Dividends, Revenue, and Expense). Also
indicate the specific item within the accounting equation element that is affected. To
­illustrate, the answer to (1) is shown below.
(1) Asset (Cash) increases by $18,000; Stockholders’ Equity (Capital Stock) increases by
$18,000.

EE 1-4 p. 15 PE 1-4A  Income statement OBJ. 5

The revenues and expenses of Sunset Travel Service for the year ended April 30, 2014,
are listed below.
Fees earned $1,673,000
Office expense 488,000
Miscellaneous expense 34,000
Wages expense 660,000
Prepare an income statement for the current year ended April 30, 2014.

EE 1-4 p. 15 PE 1-4B  Income statement OBJ. 5

The revenues and expenses of Sentinel Travel Service for the year ended August 31,
2014, are listed below.

Fees earned $750,000

Office expense 295,000
Miscellaneous expense 12,000
Wages expense 450,000

Prepare an income statement for the current year ended August 31, 2014.

EE 1-5 p. 16 PE 1-5A  Retained earnings statement OBJ. 5

Using the income statement for Sunset Travel Service shown in Practice Exercise 1-4A,
prepare a retained earnings statement for the current year ended April 30, 2014. Craig
Daws, the owner, invested an additional $75,000 in the business in exchange for capital
stock and cash dividends of $55,000 were paid during the year. Retained earnings as of
May 1, 2013, was $250,000.