You are a first-year university student and excited about moving away from home to go to university. You have saved $6,000 from your summer employment and your parents have agreed to match that $6,000. In addition, you have received a $9,000 student loan. All of this money is intended to last you for the academic year.
At September 1, you had $21,000 cash ($6,000 + $6,000 + $9,000), and a cellphone that cost $200. You have kept all of the receipts for all of your expenditures between September 1 and December 15. The following is a complete list of your cash receipts.
Residence and meal plan fees ($1,100 per month)................................$4,400
Damage deposit on residence.....................................................................400
Tuition for September to December........................................................3,500
Textbooks...................................................................................................600
Personal costs (personal items, entertainment, eating out).....................1,500
New clothes.............................................................................................1,500
Cellphone costs...........................................................................................250
Computer.................................................................................................1,000
Travel to go home at Christmas..................................................................450
On December 15, you checked the balance in your bank account and you only have $7,400 cash. You can't sleep, because you know residence for the second term will cost you $4,400 and your tuition will cost you $3,500 and you are $500 in the hole before purchasing textbooks or anything else for next term.
You need to figure out where you stand before you can talk to your parents about needing more money for the next term. You try to prepare a trial balance like you learned in your introductory accounting class, but it doesn't balance. You are getting more and more worried about what to do next.
Instructions
(a) Calculate your personal equity (deficit) at September 1, 2018.
(b) Identify the errors in the above trial balance and prepare a corrected trial balance at December 15, 2018.
(c) Calculate your total expenses for the first term and your personal equity (deficit) at December 15, 2018. Assume the $200 cellphone you started with, the computer purchased, and damage deposit paid are assets, and that the remaining costs are expenses. Did your equity change? If so, by how much?
(d) Assuming you will have the same expenses in the second term, will you have enough cash to pay for them? If not, how much are you short?
(e) Are there any expenses you might be able to avoid in the second term to save cash? What are they? What did you overspend on in the first term?
(f) Will it be necessary for you to ask your parents for more money for the next term? If so, how much do you need to ask for? Explain.
SOLUTION
(a) On September 1, 2018, my personal equity would be as follows:
Cash $21,000
Cell phone 200
Total assets 21,200
Less: student loan (9,000)
Personal equity, Sept. 1, 2018 $12,200
(b) Errors in the trial balance:
The cash amount should be the amount in the bank account at December 15.
The computer was recorded at $100 rather than the actual cost of $1,000.
The damage deposit of $400 for the residence has been omitted.
The travel costs are $450, not $540.
Personal Trial Balance
December 15, 2018
Debit Credit
Cash $ 7,400
Clothes 1,500
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