Andrea Apple opened Apple Photography on January 1 of the current year. During January, the following transactions occurred and were recorded in the company’s books:
- Andrea invested $15,400 cash in the business in exchange for common stock.
- Andrea contributed $39,000 of photography equipment to the business.
- The company paid $4,000 cash for an insurance policy covering the next 24 months.
- The company received $7,600 cash for services provided during January.
- The company purchased $8,100 of office equipment on credit.
- The company provided $4,650 of services to customers on account.
- The company paid cash of $3,400 for monthly rent.
- The company paid $5,000 on the office equipment purchased in transaction
Based on this information, the balance in the A. Apple, Capital account reported on the Statement of Owner’s Equity at the end of the month would be:__
The Correct Answer and Explanation is:
To determine the balance in the A. Apple, Capital account at the end of January, we need to consider the initial investment, the additional contributions, and any changes in the equity due to the company’s operations during the month. Let’s break it down step by step using the transactions provided.
Step 1: Initial Investment by Andrea
- Transaction 1: Andrea invested $15,400 cash in the business in exchange for common stock. This increases the Capital account by $15,400.
Step 2: Contribution of Photography Equipment
- Transaction 2: Andrea contributed $39,000 worth of photography equipment to the business. This also increases the Capital account by the value of the equipment, which is $39,000.
Step 3: Insurance Policy Payment
- Transaction 3: The company paid $4,000 cash for an insurance policy covering the next 24 months. While this is an expense (and reduces cash), it does not immediately affect the Capital account. The expense would be recorded later as an adjustment in the income statement, but for now, it does not directly impact the owner’s equity.
Step 4: Revenue from Services
- Transaction 4: The company received $7,600 cash for services provided during January. This represents earned revenue and increases the company’s equity. It will be recorded as income, which increases Retained Earnings, and in turn, increases the Capital account.
Step 5: Office Equipment Purchased on Credit
- Transaction 5: The company purchased $8,100 of office equipment on credit. This transaction affects the company’s assets (equipment) and liabilities (accounts payable) but does not directly impact the Capital account.
Step 6: Services Provided on Account
- Transaction 6: The company provided $4,650 of services to customers on account. This is another revenue-generating event, so it will increase the Capital account (through increased Retained Earnings) when recognized.
Step 7: Rent Payment
- Transaction 7: The company paid $3,400 in cash for monthly rent. This is an expense, so it will reduce the Capital account when recorded on the income statement.
Step 8: Payment on Office Equipment
- Transaction 8: The company paid $5,000 in cash for the office equipment purchased in Transaction 5. This reduces the company’s cash balance but does not directly impact the Capital account since it’s a liability repayment.
Calculation of Ending Capital:
Now, let’s calculate the balance in the Capital account:
- Initial Capital (Investment): $15,400 (cash) + $39,000 (equipment) = $54,400
- Revenues: $7,600 (cash services) + $4,650 (on-account services) = $12,250
- Expenses: $3,400 (rent) + $4,000 (insurance) = $7,400
Ending Capital = Initial Capital + Revenues – Expenses
= $54,400 + $12,250 – $7,400
= $59,250
Therefore, the balance in the A. Apple, Capital account at the end of January would be $59,250.