Question

Hart Attorney at Law experienced the follwoing transactions in 2016, the first year of operations:
1. Accepted $36,000 on 4/1/16, as a retainer for services to be performed evenly over the next 12 months
(2) Performed legal services for cash of $54,000
(3) Purchased $2,800 of office suppies on account
(4) Paid $2,400 of the amount due on accounts payable
(5) Paid a cahs dividend to the stockholders of $5,000
(6) Paid cash for operationg expenses of $31,000
(7) Determined that at the end of the accounting period $200 of office supplies remained on hand
(8) On 12/31/16, recognized the revenue that had been earned for services performed in accordance with Transaction 1
Problem: Show the effects of the events on the fianncial statements using a horizontal statement model.

Answer 1

Answer:

The accounting equation therefore holds as follows:

Total assets = Total liabilities + Total Stockholders’ Equity = $51,800

Explanation:

Note: See the attached excel file for the horizontal statement model showing the effects of the events on the financial statements.

The following calculations are made in the attached excel:

For Event 7, we have:

Office supplies = Amount of office supplies purchased - Office supplies remained on hand = $2,800 - $200 = $2,600

For Event 8, we have:

Amount of revenue that is recognized = Number of months from April 1 to December 31 * (Amount accepted on April 1 / Number of months in year) = 9 * ($36,000 /12) = 9 * $3,000 = $27,000

Also, the following can be obtained from the attached excel file:

Total assets = $51,600 + $200 = $51,800

Total liabilities = $400 + $9,000 = $9,400

Total Stockholders’ Equity = $42,400

Total liabilities + Total Stockholders’ Equity = $9,400 + $42,400 = $51,800

The accounting equation therefore holds as follows:

Total assets = Total liabilities + Total Stockholders’ Equity = $51,800