Question

on december 1, joanna ernst organized ernst consulting. on december 3, the owner contributed $82,780 to assets in exchange for its common stock to launch the business. on december 31, the company’s records show the following items: cash $13,900; accounts receivable 12,500; office supplies 1,960; office equipment 16,500; land 46,000; accounts payable 7,500; common stock 82,780; cash dividends $600; consulting revenue 12,590; rent expense 2,270; salaries expense 5,450; telephone expense 760; miscellaneous expense 580. exercise 1-20 (algo) preparing a balance sheet lo p2 use the above information to prepare a december 31 balance sheet for ernst consulting. balance sheet chart follows

Explanation:

Step1: Identify Assets

Assets include Cash, Accounts Receivable, Office Supplies, Office Equipment, and Land.

• Cash: $13,950
• Accounts Receivable: $12,500
• Office Supplies: $1,960
• Office Equipment: $16,500
• Land: $46,000

Sum of Assets: $13,950 + $12,500 + $1,960 + $16,500 + $46,000 = $90,910

Step2: Identify Liabilities

Liability is Accounts Payable: $7,550

Step3: Identify Equity

Equity is Common Stock plus Retained Earnings. First, calculate Retained Earnings.
Retained Earnings = Consulting Revenue - Cash Dividends - Rent Expense - Salaries Expense - Telephone Expense - Miscellaneous Expense

• Consulting Revenue: $12,590
• Cash Dividends: $600
• Rent Expense: $2,270
• Salaries Expense: $3,450
• Telephone Expense: $760
• Miscellaneous Expense: $580

Retained Earnings = $12,590 - $600 - $2,270 - $3,450 - $760 - $580 = $4,930
Common Stock: $82,780
Equity = $82,780 + $4,930 = $87,710

Step4: Prepare Balance Sheet

Assets	Amount	Liabilities	Amount
Accounts Receivable	$12,500
Office Supplies	$1,960	Equity
Office Equipment	$16,500	Common Stock	$82,780
Land	$46,000	Retained Earnings	$4,930
Total Assets	$90,910	Total Liabilities and Equity	$90,910

Answer:

The balance sheet for Ernst Consulting as of December 31 is presented above with total assets, liabilities, and equity each equal to $90,910.