Question: Joan Robinson opens her own law office on July 1, 2010

15 Aug 2024,8:22 PM

Joan Robinson opens her own law office on July 1, 2010. During the first month of operations, the following transactions occurred.

1. Joan invested $11,000 in cash in the law practice.

2. Paid $800 for July rent on office space.

3. Purchased office equipment on account $3,000.

4. Provided legal services to clients for cash $1,500.

5. Borrowed $700 cash from a bank on a note payable.

6. Performed legal services for client on account $2,000.

7. Paid monthly expenses: salaries $500, utilities $300, and telephone $100.

8. Joan withdraws $1,000 cash for personal use.

Instructions

(a) Prepare a tabular summary of the transactions.

(b) Prepare the income statement, owner’s equity statement, and balance sheet at July 31 for Joan Robinson, Attorney.

 

DRAFT/STUDY TIPS

Let's start with the solution to the given scenario. We will first address part (a) and prepare a tabular summary of the transactions for the month of July. Then, we will proceed with part (b) to create the income statement, owner’s equity statement, and balance sheet.

Part (a) Tabular Summary of Transactions

We will create a tabular summary with the following columns:

• Cash
• Office Equipment
• Accounts Receivable
• Accounts Payable
• Notes Payable
• Owner’s Equity (Capital)
• Revenue
• Expenses
• Owner’s Drawing

Beginning Balances:

• All accounts start with $0 except for Joan's initial investment in cash.

Date	Cash	Office Equipment	Accounts Receivable	Accounts Payable	Notes Payable	Owner’s Equity (Capital)	Revenue	Expenses	Owner’s Drawing	Explanation
July 1	11,000	0	0	0	0	11,000	0	0	0	Joan invests in the business
July 3	10,200	0	0	0	0	11,000	0	800	0	Paid rent for July
July 5	10,200	3,000	0	3,000	0	11,000	0	800	0	Purchased office equipment on account
July 10	11,700	3,000	0	3,000	0	11,000	1,500	800	0	Provided legal services for cash
July 15	12,400	3,000	0	3,000	700	11,000	1,500	800	0	Borrowed $700 from the bank
July 20	12,400	3,000	2,000	3,000	700	11,000	3,500	800	0	Performed legal services on account
July 31	11,500	3,000	2,000	3,000	700	11,000	3,500	1,700	0	Paid monthly expenses (salaries, utilities, telephone)
July 31	10,500	3,000	2,000	3,000	700	10,000	3,500	1,700	1,000	Joan withdraws cash for personal use

Part (b) Financial Statements

1. Income Statement for the Month Ended July 31

Joan Robinson, Attorney
Income Statement	July 31, 2010
Revenues:
Legal services revenue	$3,500
Total Revenues	$3,500
Expenses:
Rent expense	$800
Salaries expense	$500
Utilities expense	$300
Telephone expense	$100
Total Expenses	$1,700
Net Income	$1,800

2. Owner’s Equity Statement for the Month Ended July 31

Joan Robinson, Attorney
Owner’s Equity Statement	July 31, 2010
Joan Robinson, Capital, July 1	$0
Add: Investments by owner	$11,000
Add: Net income	$1,800
Subtotal	$12,800
Less: Owner's drawings	($1,000)
Joan Robinson, Capital, July 31	$11,800

3. Balance Sheet as of July 31

Joan Robinson, Attorney
Balance Sheet	July 31, 2010
Assets
Cash	$10,500
Accounts Receivable	$2,000
Office Equipment	$3,000
Total Assets	$15,500
Liabilities
Accounts Payable	$3,000
Notes Payable	$700
Total Liabilities	$3,700
Owner’s Equity
Joan Robinson, Capital	$11,800
Total Liabilities and Owner’s Equity	$15,500

This provides a complete breakdown of Joan Robinson's financial situation at the end of the first month of operations.