Chapter 1 Exercise and Solutions

P1-3A
On May 1, Yoon Flying School, a company that provides flying lessons, was started with an investment
of $45,000 cash in the business. Following are the assets and liabilities of the company on May 31, 2011,
and the revenues and expenses for the month of May.
Cash $ Notes Payable $30,000

5,600
Accounts Receivable 7,200 Rent Expense 1,200
Equipment 64,000 Repair Expense 400
Lesson Revenue 7,500 Fuel Expense 2,500
Advertising Expense 500 Insurance Expense 400
Accounts Payable 800
No additional investments were made in May, but the company paid dividends of $1,500 during the month.
Instructions
(a) Prepare an income statement and a retained earnings statement for the month of May and a statement of financial
position at May 31.
PROBLEM 1-3A
YOON FLYING SCHOOL

Income Statement
For the Month Ended May 31, 2011
Revenues
Lesson revenue................................................................... $7,500
Expenses
Fuel expense........................................................................ $2,500
Rent expense....................................................................... 1,200
Advertising expense........................................................... 500
Insurance expense.............................................................. 400
Repair expense................................................................... 400
Total expenses........................................................... 5,000
Net income .................................................................................... $ 2,500
YOON FLYING SCHOOL
Retained Earnings Statement
For the Month Ended May 31, 2011
Retained Earnings, May 1........................................................... $ 0

Add: Net income..................................................................... 2,500
2,500
Less: Dividends............................................................................ 1,500
Retained earnings, May 31.......................................................... $ 1,000
YOON FLYING SCHOOL
Statement of Financial Position
May 31, 2011
Assets
Equipment.............................................................................................................. 64,000
Accounts receivable............................................................................................... 7,200
Cash ........................................................................................................................ 5,600
Total assets.................................................................................................... $ 76,800
Equity and Liabilities
Equity
Share capital—ordinary......................................................... $45,000
Retained earnings................................................................... 1,000
Total equity.................................................................... $46,000
Liabilities
Notes payable........................................................................... $30,000
Accounts payable.................................................................... 800
Total liabilities............................................................... 30,800
Total equity and liabilities................................................................ $76,800
EXERCISE 1
Prepare an income statement, a retained earnings statement, and a statement of financial position for ABC company, from the items listed below for
the month of July, 2020
$
Retained earnings, July 1 15,000
Share capital-ordinary 20,000
Accounts payable 5,000
Equipment 35,000
Service revenue 70,000
Dividends 10,000
Electricity expenses 5,000
Cash 10,000
Other office expenses 15,000
Salaries expenses 15,000
Rent expenses 5000

Accounts receivable 15000
Answer:
Net Income = 30000
Ending R/E = 35000
A = 60000; L + OE = 60000
EXERCISE 2
Prepare an income statement, a retained earnings statement, and a statement of financial position for XYZ company, from the items listed below for
the month of June, 2020
$
Retained earnings, June 1 15,000
Share capital-ordinary 20,000
Accounts payable 15,000
Equipment 40,000
Service revenue 60,000
Dividends 10,000
Electricity expenses 3,000
Cash 10,000
Other office expenses 15,000
Salaries expenses 10,000
Rent expenses 7,000

Accounts receivable 15000
Answer:
Net Income = 25000 Ending R/E = 30000 A = 65000 L + OE = 65000

Chapter 1 Exercise and Solutions

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P1-3A

Cash $ Notes Payable $30,000

Accounts Receivable 7,200 Rent Expense 1,200

Equipment 64,000 Repair Expense 400

Lesson Revenue 7,500 Fuel Expense 2,500

Advertising Expense 500 Insurance Expense 400

Accounts Payable 800

YOON FLYING SCHOOL

Retained Earnings, May 1........................................................... $ 0

Retained earnings, July 1 15,000

Share capital-ordinary 20,000

Accounts payable 5,000

Service revenue 70,000

Electricity expenses 5,000

Other office expenses 15,000

Salaries expenses 15,000

Rent expenses 5000

Net Income = 30000

Ending R/E = 35000

Retained earnings, June 1 15,000

Share capital-ordinary 20,000

Accounts payable 15,000

Service revenue 60,000

Electricity expenses 3,000

Other office expenses 15,000

Salaries expenses 10,000

Rent expenses 7,000

Net Income = 25000 Ending R/E = 30000 A = 65000 L + OE = 65000

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