Andrea Apple opened Apple Photography, Inc. on January 1 of the current year. During January, the following transactions occurred and were recorded in the company’s books: Andrea, the stockholder, invested $13.500 cash in the business. Andrea contributed $20,000 of photography equipment to the business. The company paid $2300 cash for an insurance policy covering the next 24 months. The company received $5700 cash for services provided during January. The company purchased $6, 200 of office equipment on credit. The company provided $2, 750 of services to customers on account. The company paid cash of $1.500 for monthly rent. The company paid $3100 on the office equipment purchased in transaction #5 above, Paid S275 cash for January utilities. Based on this information, the balance in the stockholders’ equity reported on the Balance Sheet at the end of the month would be: $31.400. $39.200. $31150. $30.875.
The Correct Answer and Explanation is :
The correct balance in the stockholders’ equity at the end of the month would be $31,150.
Here’s a step-by-step breakdown to explain how we arrive at this figure:
1. Initial Investment and Contribution:
- Andrea invested $13,500 cash and contributed $20,000 of photography equipment to the business. This results in a total contribution of $33,500 to the business, which would be recorded as stockholder equity.
2. Insurance Policy Payment:
- The company paid $2,300 for a 24-month insurance policy. Since the insurance policy covers multiple months, the company would record a prepaid insurance asset. However, the amount recorded as expense for January would be $2,300 / 24 = $95.83. This is deducted from the stockholders’ equity because it’s considered an expense.
3. Revenue from Services:
- The company earned $5,700 in cash for services provided during January and $2,750 in services provided on account. These amounts are considered revenues that increase stockholders’ equity. The total revenue for the month is $5,700 + $2,750 = $8,450.
4. Office Equipment Purchase:
- The company purchased $6,200 of office equipment on credit. This would increase the assets of the company, but it doesn’t directly affect stockholders’ equity because it is financed with credit. The related liability would be reflected as accounts payable.
5. Rent and Utilities Payments:
- The company paid $1,500 for rent and $275 for utilities, which are both expenses and will reduce stockholders’ equity. Total expenses for rent and utilities = $1,500 + $275 = $1,775.
6. Payment for Office Equipment:
- The company paid $3,100 in cash for the office equipment purchased earlier. This reduces cash but does not affect stockholders’ equity directly since it’s already recorded as a liability and asset.
Calculation of Stockholders’ Equity:
Starting stockholder equity = $33,500 (initial investment and equipment contribution)
Add revenue = $8,450
Subtract expenses = $95.83 (insurance) + $1,775 (rent and utilities) = $1,870.83
Ending stockholders’ equity = $33,500 + $8,450 – $1,870.83 = $31,150
Thus, the balance in stockholders’ equity is $31,150.