XYZ Consultants began operations on June 1, 2007 by making an investment of $30,000 in return for capital stock.

The financial statements for XYZ Consultants are shown below for the month ended June 30, 2007 (the first
month of operations). Determine the missing amounts for letters (a) through (p).

XYZ Consultants
Income Statement
For the Month Ended June 30, 2007
Fees earned $22,000
Operating expenses:
Wages expense $7,250
Rent expense (a)
Supplies expense 1,600
Utilities expense 900
Miscellaneous expense 1,550
Total operating expenses (b)
Net income $ (c)

XYZ Consultants
Statement of Retained Equity
For the Month Ended June 30, 2007
Retained earnings, June 1, 2007 0
Net income for June 30, 2007 (d)
$ (e)
Less dividends 4,000
Retained earnings, June 30, 2007 (f)
 XYZ Consultants
Balance Sheet
June 30, 2007
Assets Liabilities
Cash $ (g) Accounts payable $ (i)
Supplies 1,100 Stockholders' Equity
Land (h) Capital stock (j)
Retained earnings (k)
Total assets $45,900 Total liabilities and
Stockholders' Equity $(l)

XYZ Consultants
Statement of Cash Flows
For the Month Ended June 30, 2007
Cash flows from operating activities:
Cash received from customers $22,000
Deduct cash payments for expenses and payments to 3,200
creditors
Net cash flow from operating activities $ 18,800
Cash flows from investing activities:
Cash payments for acquisition of land (20,000)
Cash flows from financing activities:
Cash received as owner's investment $ (m)
Deduct cash dividends paid (n)
Net cash flow from financing activities (o)
Net cash flow and Dec. 31, 2007 cash balance $ (p)

Place your answers in the space provided below. Hint: Use the interrelationships among the financial
statements to solve this problem.

(a) __________
(b) __________
(c) __________
(d) __________
(e) __________
(f) __________
(g) __________
(h) __________
(i) __________
(j) __________
(k) __________
(l) __________
(m) __________
(n) __________
(o) __________
(p) __________
ANS:
(a) $4,600
(b) $15,900
(c) $6,100
(d) $6,100
(e) $6,100
(f) $2,100
(g) $24,800
(h) $20,000
(i) $13,800
(j) $30,000
(k) $2,100
(l) $45,900
(m) $30,000
(n) $ 4,000
(o) $26,000
(p) $24,800

DIF: Difficult OBJ: 01-05

NAT: AACSB Analytic | AICPA FN-Measurement

#### ABC Computer Repairs, Inc. was organized on January 1, 2007, as a corporation. List the errors that you find
in the following financial statements and prepare the corrected statements for the three months ended March
31, 2007.

ABC Computer Repairs, Inc.

Income Statement
For the Three Months Ended March 31, 2007
Fees earned $40,000
Operating expenses:
Salary expense $7,735
Rent expense 3,200
Wages expense 1,950
Utilities expense 1,225
Miscellaneous expense 2,000
Answering service expense 550
Supplies expense 2,000
Total operating expenses 29,000
Net income $11,000
 ABC, CPA
Statement of Retained Earnings
March 31, 2007
Retained Earnings January, 1, 2007 $ 0
Net income for the 3 months 11,000
11,000
Less dividends 5,000
Increase in Retained Earnings 6,000
Retained Earnings, March 31, 2007. $6,000
 Balance Sheet
For the Three Months Ended March 31, 2007
Assets Stockholders' Equity
Land $10,000Capital stock $36,000
Cash 15,860 Liabilities
Accounts payable 2,670Accounts receivable 12,225
Supplies 925 Total liabilities and
Total assets $48,125 Stockholders' Equity 48,125
ANS:
Errors in the ABC, CPA, financial statements include the following:

(1) Miscellaneous expense is incorrectly listed after utilities expense in the income statement.
Miscellaneous expense should be listed as the last expense, regardless of the amount.
(2) The operating expenses are incorrectly added. Instead of $29,000, the total should be $18,660.
(3) Because operating expenses are incorrectly added, the net income is incorrect. It should be listed as
$21,340.
(4) The statement of retained earnings should be for a period of time instead of a specific date. That is,
the statement of retained earnings should be reported "For the Three Months Ended March 31,
2007."
(5) The amount of the stockholders’ equity is incorrect. It should be $36,340.
(6) The name of the company is missing from the balance sheet heading.
(7) The balance sheet should be as of "March 31, 2007," not "For the Three Months Ended March 31,
2007."
(8) Cash, not Land, should be the first asset listed in the balance sheet.
(9) Accounts Payable is incorrectly listed as an asset in the balance sheet. Accounts Payable should be
listed as a liability.
(10) Liabilities should be listed in the balance sheet ahead of stockholders' equity.
(11) Accounts Receivable is incorrectly listed as a liability in the balance sheet. Accounts Receivable
should be listed as an asset.
(12) The total assets and the total liabilities do not foot.
Correctly prepared financial statements for ABC, CPA, are shown below.

ABC, CPA
Income Statement
For the Three Months Ended March 31, 2007
Fees earned $40,000
Operating expenses:
Salary expense $7,735
Rent expense 3,200
Wages expense 1,950
Utilities expense 1,225
Answering service expense 550
Supplies expense 2,000
Miscellaneous expense 2,000
Total operating expenses 18,660
Net income $21,340

ABC, CPA
Statement of Stockholders' Equity
For the Three Months Ended March 31, 2007
Retained earnings, January, 1, 2007 $ 0
Net income for three months 21,340
$21,340
Less dividends 5,000
Retained earnings, March 31, 2007 $16,340

ABC, CPA
Balance Sheet
March 31, 2007
Assets Liabilities
Cash $15,860 Accounts payable $ 2,670
Accounts receivable 12,225 Stockholders' Equity
Supplies 925 Capital stock 20,000
Retained earnings 16,340
Total Stockholders’ Equity 36,340
Land 10,000 Total liabilities and
Total assets $39,010 Stockholders' Equity $39,010

DIF: Difficult OBJ: 01-05

NAT: AACSB Analytic | AICPA FN-Measurement
 Telephone Expense $750
Cash $3,150
Accounts Payable $640
Dividends $300
Fees Earned $10,700
Rent Expense $1,000
Supplies $230
Accounts Receivable $1,800
Computer Equipment $15,000
Capital Stock $13,080
Wages Expense $3,600
Utilities Expense $350
Notes Payable $2,000
Office Expense $240

#### Using the above accounts and their amounts, prepare in good format an Income Statement for ABC Tutoring
Company, month ended July 31, 2007:
ANS:

ABC Tutoring Company

Income Statement
For Month Ended July 31, 2007

Fees Earned $10,700

Expenses:
Wages Expense $3,600
Rent Expense 1,000
Telephone Expense 750
Utilities Expense 350
Office Expense 240
Total Expenses 5,940
Net Income $4,760

DIF: Moderate OBJ: 01-05

NAT: AACSB Analytic | AICPA FN-Measurement

#### Using the above accounts and their amounts, prepare in good format a Statement of Retained Earnings for
ABC Tutoring Company, month ended July 31, 2007:
ANS:

ABC Tutoring Company

Statement of Retained Earnings
For Month Ended July 31, 2007

Retained Earnings $ 0
Net Income 4,760
Subtotal $ 4,760
Less: Dividends 300
Retained Earnings July 31, 2007 $ 4,460

DIF: Moderate OBJ: 01-05

NAT: AACSB Analytic | AICPA FN-Measurement
###Using the above accounts and their amounts, prepare in good format a Balance Sheet for ABC Tutoring
Company, month ended July 31, 2007:
ANS:

ABC Tutoring Company

Balance Sheet
July 31, 2007

Assets
Cash $ 3,150
Accounts Receivable 1,800
Supplies 230
Computer Equipment 15,000
Total Assets $ 20,180

Total Liabilities and Stockholders’ Equity

Liabilities:
Accounts Payable $ 640
Notes Payable 2,000
Total Liabilities $ 2,640
Capital Stock 13,080
Retained Earnings 4,460
Total Stockholders’ Equity 17,540
Total Liabilities and Stockholders’
Equity $20,180
DIF: Difficult OBJ: 01-05
NAT: AACSB Analytic | AICPA FN-Measurement

#### The account balances of DEF Travel Services at December 31, 2007 are listed below:

Accounts Payable $12,000 Capital Stock $10,000

Accounts Receivable 6,000 Supplies 2,000
Cash 16,000 Taxes Expense 300
Computer Equip 13,000 Utilities Expense 4,000
Fees Earned 47,000 Wages Expense 21,000
Rent Expense 6,000 Supplies Expense 700
Prepare and income statement, statement of retained earnings, and a balance sheet as of December 31, 2007.
ANS:

DEF Travel Services

Income Statement
For the Year Ended December 31, 2007

Fees Earned $ 47,000

Operating Expenses:
Wages Expense $ 21,000
Rent Expense 6,000
Utilities Expense 4,000
Supplies Expense 700
Taxes Expense 300
Total Operating Expenses $32,000
Net Income $15,000

DEF Travel Services

Statement of Retained Earnings
For the Year Ended December 31, 2007

Retained earnings 1/1/07 $0

Net Income for the year 15,000
Retained earnings, 12/31/07 $15,000

DEF Travel Services

Balance Sheet
December 31, 2007

Assets Liabilities
Cash $16,000
Accounts Receivable 6,000 Accounts Payable $12,000
Computer Equipment 13,000
Supplies 2,000 Stockholders’ Equity
Capital Stock 10,000
Retained Earnings 15,000
Total Stockholders’ Equity
25,000
Total Liabilities and
Total Assets $37,000 Stockholders’ Equity $37,000

DIF: Difficult OBJ: 01-05

NAT: AACSB Analytic | AICPA FN-Measurement