Using your answer to Problem 1-7B, prepare an income statement, a statement of changes in equity, and a balance sheet — 1-7B

Using your answer to Problem 1-7B, prepare an income statement, a statement of changes in equity, and a balance sheet.

In problem 1-7

During July, the following occurred:

July 1 Cantu invested $20,000 cash in the business.

1 Rented office space and paid the month's rent of $1,000.

1 Purchased excavating equipment for $8,000 by paying $3,000 in cash and agreeing to pay the balance in 30 days.

6 Purchased office supplies by paying $1,000 cash.

8 Completed work for a customer and immediately collected $4,400 for doing the work.

10 Purchased $7,600 of office equipment on credit.

15 Completed work for a customer on credit in the amount of $4,800.

17 Purchased $3,840 of office supplies on credit.

23 Paid for the office equipment purchased on July 10.

25 Billed a customer $10,000 for completed work; the balance is due in 30 days.

28 Received $4,800 for the work completed on July 15.

31 Paid an assistant's salary of $4,500.

31 Paid the monthly utility bills of $1,700.

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31 Cantu withdrew $2,400 cash from the business to pay personal expenses.

Analysis Component: Assets are financed by debt and equity. Owner investment is a component of equity. Therefore, owner investment helps to finance assets. Explain how/if owner investment helped to finance assets for Cantu Excavating for the month ended July 31, 2014.

SOLUTION

CANTU EXCAVATING
Income Statement
For Month Ended July 31, 2014
Revenues:
Excavating fees earned.....................................		$19,200	$19,200
Operating expenses:
Salaries expense.................................................	$4,500
Rent expense......................................................	1,000
Utilities expense................................................	1,700
Total operating expenses..................................			7,200
Net income..................................................................		$12,000	$12,000
CANTU EXCAVATING
Statement of Changes in Equity
For Month Ended July 31, 2014
Robert Cantu, capital, June 30..................................		$45,560	$45,560
Add: Investments by owner.......................................	$20,000
Net income........................................................	12,000	32,000	32,000
Total............................................................................		$77,560	$77,560
Less: Withdrawals by owner.....................................			2,400
Robert Cantu, capital, July 31...................................		$75,160	$75,160

CANTU EXCAVATING

Balance Sheet

July 31, 2014

Assets Liabilities

Cash...................................... $20,000 Accounts payable................... $15,040

Accounts receivable............ 14,600

Office supplies..................... 6,400

Office equipment................. 17,200 Equity

Excavating equipment........ 32,000 Robert Cantu, capital.............. 75,160

Total assets.......................... $90,200 Total liabilities and equity...... $90,200

Analysis component:

The owner of Cantu Excavating invested $120,000 during the month ended July 31, 2014 therefore having a positive impact on equity. Equity increased during July largely because of this additional investment by the owner. As a sole proprietor, a goal is to increase equity because of positive earnings; not through owner investment.