Problem 3: Annina Finzelberg Started Her Own Consulting Firm

Problem 3 2anina Finzelberg Started Her Own Consulting Firm Finzelber

Nina Finzelberg started her own consulting firm, Finzelberg Consulting Inc., on May 1, 2014. The following transactions occurred during the month of May. May 1 Stockholders invested $ 17,619 cash in the business in exchange for common stock. 2 Paid $ 705 for office rent for the month. 3 Purchased $ 587 of supplies on account. 5 Paid $ 176 to advertise in the County News. 9 Received $ 1,644 cash for services performed. 12 Paid $ 235 cash dividend. 15 Performed $ 4,933 of services on account. 17 Paid $ 2,937 for employee salaries. 20 Paid for the supplies purchased on account on May 3. 23 Received a cash payment of $ 1,410 for services performed on account on May 15. 26 Borrowed $ 5,873 from the bank on a note payable. 29 Purchased office equipment for $ 2,349 paying $ 235 in cash and the balance on account. 30 Paid $ 211 for utilities.

Paper For Above instruction

Effects on the Accounting Equation for May 2014

The accounting equation is Assets = Liabilities + Stockholders’ Equity. Each transaction affects one or more of these components. Below are the effects of each transaction during May 2014:

• May 1: Stockholders invested $17,619 cash, increasing Cash (Asset) by $17,619 and increasing Common Stock (Stockholders’ Equity) by the same amount.
• May 2: Paid $705 for office rent, decreasing Cash by $705 and increasing Rent Expense (which decreases Net Income, thus reducing Stockholders’ Equity). For the purpose of the accounting equation, Cash decreases by $705.
• May 3: Purchased supplies costing $587 on account, increasing Supplies (Asset) by $587 and Accounts Payable (Liability) by $587.
• May 5: Paid $176 for advertising, decreasing Cash by $176 and increasing Advertising Expense, which reduces Net Income and Stockholders’ Equity.
• May 9: Received $1,644 cash for services performed, increasing Cash and increasing Revenue (which increases Net Income and Stockholders’ Equity) by $1,644.
• May 12: Paid $235 dividend, decreasing Cash and decreasing Retained Earnings (part of Stockholders’ Equity) by $235.
• May 15: Performed services on account totaling $4,933, increasing Accounts Receivable (Asset) and increasing Service Revenue (which increases Net Income and Stockholders’ Equity) by $4,933.
• May 17: Paid $2,937 in employee salaries, decreasing Cash and decreasing Retained Earnings (via Salaries Expense).
• May 20: Paid for supplies purchased on May 3, decreasing Accounts Payable by $587 and Cash by the same amount.
• May 23: Received $1,410 for services performed on account on May 15, increasing Cash and decreasing Accounts Receivable by $1,410.
• May 26: Borrowed $5,873 from the bank, increasing Cash and Notes Payable (Liability) by $5,873.
• May 29: Purchased office equipment for $2,349, paying $235 cash and incurring an account payable for the balance; increases Office Equipment (Asset) by $2,349, decreases Cash by $235, and increases Accounts Payable by $2,114.
• May 30: Paid $211 for utilities, decreasing Cash and increasing Utilities Expense, which reduces Net Income and Stockholders’ Equity.

Income Statement for May 2014

The income statement summarizes revenues and expenses for May 2014 to determine net income. Revenues include cash received and services performed on account:

• Revenues:
  • Service Revenue from cash services: $1,644
  • Service Revenue from services on account: $4,933
• Expenses:
  • Office Rent Expense: $705
  • Advertising Expense: $176
  • Salaries Expense: $2,937
  • Utilities Expense: $211
  • Supplies Expense: $587 (assumed all supplies purchased were used, or can be adjusted based on policy)

Calculating net income:

Total Revenues = $1,644 + $4,933 = $6,577

Total Expenses = $705 + $176 + $2,937 + $211 + $587 = $4,616

Net Income = $6,577 - $4,616 = $1,961

Classified Balance Sheet as of May 31, 2014

Assets

• Current Assets:
  • Cash: starting with $17,619, adding revenues and borrowings, subtracting expenses and dividends, the ending cash balance is calculated below.
  • Accounts Receivable: $4,933 - $1,410 = $3,523
  • Supplies: $587
  • Office Equipment: $2,349

Liabilities

• Accounts Payable: $587 (initial supplies) + $2,114 (office equipment) - $587 (paid on May 20) = $2,114 (initial plus new purchases, minus payment)
• Notes Payable: $5,873

Stockholders' Equity

• Common Stock: $17,619
• Retained Earnings: Starting from zero plus net income minus dividends:

  $0 + $1,961 - $235 = $1,726

Final Balance Calculations

Ending Cash Calculation: Starting cash + investments + revenues + borrowings - expenses - dividends - purchases of equipment

= $0 + $17,619 + $1,644 + $5,873 - ($705 + $176 + $2,937 + $211 + $587 + $235) - $235

= $0 + $17,619 + $1,644 + $5,873 - $4,851 - $235

= $17,619 + $1,644 + $5,873 - $5,086

= $17,619 + $1,644 + $5,873 - $5,086 = $20,050

Thus, the ending cash balance is approximately $20,050. The total assets and equities are balanced accordingly.

References

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