Question 1.

Legal Services Company Ltd. was formed on July 1, 2017. During the first month of operations, the following transactions occurred.
1. Shareholders invested $10,000,000 in cash in exchange for ordinary shares of Legal Services Company Ltd.
2. Paid $800,000 for July rent on office space.
3. Purchased office equipment on account $3,000,000.
4. Performed legal services for clients for cash $1,500,000.
5. Borrowed $700,000 cash from a bank on a note payable.
6. Performed legal services for client on account $2,000,000.
7. Paid monthly expenses: salaries $500,000, utilities $300,000, and advertising $100,000.
Instructions
(a) Prepare a tabular summary of the transactions.
(b) Prepare the income statement, retained earnings statement, and statement of financial position at July 31 for Legal Services Company Ltd
Solution:
a)
Tabular Summary of transactions for legal services company Ltd.
Assets = Liabilities + Equities
Retained Earnings
Transacti Accounts Accounts Notes
Cash + + Equipment = + + share capital + Di
on Receivable Payable Payable Revenue - Expense -
v
+$ +$
1 Issued Shares
10,000,000 10,000,000
-$
2 -$ 800,000 Rent Expense
800,000
+$ +$
3
3,000,000 3,000,000
+$ +$ Service
4
1,500,000 1,500,000 Revenue
+$
5 +$ 700,000
700,000
+$ +$ Service
6
2,000,000 2,000,000 Revenue
-$ Salary
500,000 Expense
-$ Utilities
7 -$ 900,000
300,000 Expense
-$
          Ads. Expense
100,000
$10,500,00 $3,000,00 $3,500,00 $1,700,0
Balance + $2,000,000 + = $3,000,000 + $700,000 + $10,000,000 + -
0 0 0 00
                           
$15,500,000 $15,500,000
 b)

LEGAL SERVICES COMPANY LTD.

Income Statement
For The Month Ended July 31, 2017
Revenues
service revenues $3,500,000

Expenses
Salaries and Wages Expense $500,000
Rent Expense $800,000
Utilities Expense $300,000
Advertising Expense $100,000
Total Expenses $1,700,000
Net Income $1,800,000

LEGAL SERVICES COMPANY LTD.

Retained Earnings Statement
For The Month Ended July 31, 2017
Retained Earnings , July 1 $0
Add: Net income $1,800,000
Retained Earnings , July 31 $1,800,000
 LEGAL SERVICES COMPANY LTD.
Statement of Financial Position
July 31, 2017
Assets
$10,500,00
Cash 0
Account Receivable $2,000,000
Equipment $300,000
$12,800,0
Total Asset 00
Liability and Equity
Equity
$10,000,0
Share capital-Ordinary 00
$1,800,00 $11,800,0
Retained Earnings 0 00
Liability
$3,000,00
Account payable 0
$3,700,00
$700,000
Note payable 0
$15,500,0
Total Equity and liability 00
Question 2.
Lynn Dreise is the bookkeeper for Sanculi Company SpA. Lynn has been trying to get the statement of financial position of Sanculi Company SpA to
balance. Sanculi’s statement of financial position is shown below.
Solution:

SANCULI COMPANY SpA

Statement of Financial Position
December 31, 2017
Assets
Cash €14,000
Account Receivable €8,500
Equipment €48,000
Supplies €8,000
€78,50
Total Asset 0
Liability and Equity
Equity
€50,00
Share capital-Ordinary 0
€12,50 €62,50
Retained Earnings 0 0
Liability
€16,00
Account payable 0
€16,00
 
0
€78,50
Total Equity and liability 0