Analyzing Transactions Using the Financial Statement Effects

Analyzing Transactions Using the Financial Statement Effects Template and Preparing an Income Statement On June 1,2015, a group of pilots in Melbourne, Australia, formed Outback Flights by issuing com mon stock for $50,000 cash. The group then leased several amphibious aircraft and docking facili- ties, equipping them to transport campers and hunters to outpost camps owned by various resorts in remote parts of Australia. The following transactions occurred during June 2015, and company accounts include the following: Cash, Accounts Receivable, Prepaid Insurance, Accounts Payable, Common Stock, Retained Earnings, Flight Services Revenue, Rent Expense, Entertainment Expense, Advertising Expense, Insurance Expense, Wages Expense, and Fuel Expense. 1. Issued common stock for $50,000 cash. 2. Paid $4,800 cash for June rent of aircraft, dockage, and dockside office 3. Received $1,600 invoice for the cost of a reception to entertain resort owners in June. 4. Paid $900 cash for June advertising in various sport magazines 5. Paid $1,800 cash for insurance premium for July. 6. Rendered flight services for various groups for $22,700 cash. 7. Billed client $2,900 for transporting personnel, and billed various firms for $13,000 in flight services 8. Paid $1,500 cash to cover accounts payable 9. Received $13,200 on account from clients in transaction 7 10. Paid $16,000 cash to cover June wages. 11. Received $3,500 invoice for the cost of fuel used during June 12. Declared and paid a $3,000 cash dividend. REQUIRED a. Report the effects for each of the separate transactions 1 through 12 using the financial state- ment effects template. Total al columns and prove that (1) assets equa lties plus equity at June 30, 2015, and (2) revenues less expenses equal net income for June. Prepare an income statement for the month of June. b.

Solution

(a) Financial statements effects template:

(b) Income Statement for the month of June:

		Balance sheet		Income Statement
SNo	Transaction	Current Assets	+	Non Current Assets	=	Liabilities	+	Contribution Capital	+	Earned Capital		Revenues	-	Expenses	=	Net Income
1	Issued common stock for 50,000 cash	50,000						50,000
		(Cash)						(equity shares)
2	Paid 4,800 cash for rent	-4,800								-4,800			-	4,800		-4,800
		(Cash)								(Retained earnings)				(Rent expense)
3	Received invoice for 1,600 for entertaining resort owners					1,600				-1,600			-	1,600		-1,600
						(Accounts Payable)				(Retained earnings)				(Entertainment expense)
4	Paid 900 cash for adverstising for June	-900								-900			-	900		-900
		(Cash)								(Retained earnings)				(Advertising Expense)
5	Paid 1,800 cash Insurance Premium for July	0
		(Cash = -1,800 and Prepaid Insurance = +1800)
6	Rendered Flight Services For 22,700 cash	22,700								22,700		22,700				22,700
		(Cash)								(Retained earnings)		(Flight Services Revenue)
7	Billed Client 2,900 for transporting personnel and Billed firms for 13,000 in flight services	15,900								15,900		15,900				15,900
		(Accounts Receivable)								(Retained earnings)		(Flight Services Revenue)
8	Paid 1500 cash to cover accounts payable	-1,500				-1,500
		(Cash)				(Accounts Payable)
9	Received 13,200 on account from clients in transaction 7	0
		(Cash = +13,200 and Accounts receivables = -13,200)
10	Paid 16,000 cash to cover June wages	-16,000								-16,000			-	16,000		-16,000
		(Cash)								(Retained earnings)				(Wages Expense)
11	Received 3,500 invoice for cost of fuel used during June					3,500				-3,500			-	3,500		-3,500
						(Accounts Payable)				(Retained earnings)				(Fuel Expense)
12	Declared and paid a 3,000 cash dividend	-3,000						-3,000
		(Cash)						(Dividend paid)
	Total	62,400	+	0	=	3,600	+	47,000	+	11,800		38,600	-	26,800	=	11,800