The Gorman Group is a financial planning services firm owned and operated by Nicole Gorman. As of October 31, 2019, the end of the fiscal year, the accountant for The Gorman Group prepared an end-of-period spreadsheet, part of which follows:
11,000 28,150 6,350 9,500 75,000 250,000 240,000 20,000 291,000 17,500 15,500 9,000 8,500 6,600 3,450 3,000 5,450 1,000,000 1 2 3 4 5 6 7 8 9 101 2 3 4 5 6 7 8 9 201 2 3 4 5 6 7 8 9 301 2 3
The Gorman Group End-of-Period Spreadsheet For the Year Ended October 31, 2019 Adjusted Trial Balance Dr. Cr.Account Title Cash Accounts Receivable Supplies Prepaid Insurance Land Buildings Accumulated Depreciation—Buildings Equipment Accumulated Depreciation—Equipment Accounts Payable Salaries Payable Unearned Rent Nicole Gorman, Capital Nicole Gorman, Drawing Service Fees Rent Revenue Salaries Expense Depreciation Expense—Equipment Rent Expense Supplies Expense Utilities Expense Depreciation Expense—Buildings Repairs Expense Insurance Expense Miscellaneous Expense 117,200 151,700 33,300 3,300 1,500 220,000 468,000 5,000 1,000,000
Instructions
1. Prepare an income statement, a statement of owner’s equity (no additional investments were made during the year), and a balance sheet.
2. Journalize the entries that were required to close the accounts at October 31.
3. If the balance of Nicole Gorman, Capital had instead increased $115,000 after the closing entries were posted and the withdrawals remained the same, what would have been the amount of net income or net loss?
Answer:
1.
Revenues:
Service fees$468,000
Rent revenue5,000
Total revenues$473,000
Expenses:
Salaries expense$291,000
Depreciation expense—equipment 17,500
Rent expense15,500
Supplies expense9,000
Utilities expense8,500
Depreciation expense—buildings6,600
Repairs expense3,450
Insurance expense3,000
Miscellaneous expense5,450
Total expenses360,000
Net income$113,000
Nicole Gorman, capital, November 1, 2018$220,000
Net income for the year$113,000
Withdrawals(20,000)
Increase in owner’s equity93,000
Nicole Gorman, capital, October 31, 2019$313,000
THE GORMAN GROUP
Balance Sheet
October 31, 2019
Assets
Current assets:
Cash$ 11,000
Accounts receivable28,150
Supplies6,350
Prepaid insurance9,500
Total current assets$ 55,000
Property, plant, and equipment:
Land$ 75,000
Buildings$250,000
Less accumulated depreciation 117,200 132,800
Equipment$240,000
Less accumulated depreciation 151,700 88,300
Total property, plant, and equipment296,100
Total assets$351,100
Current liabilities:
Accounts payable$ 33,300
Salaries payable3,300
Unearned rent1,500
Total liabilities$ 38,100
Nicole Gorman, capital313,000
Total liabilities and owner’s equity$351,100
2. 2019
Oct. 31 Service Fees468,000
Rent Revenue5,000
Salaries Expense291,000
Depreciation Expense—Equipment 17,500
Rent Expense15,500
Supplies Expense9,000
Utilities Expense8,500
Depreciation Expense—Buildings 6,600
Repairs Expense3,450
Insurance Expense3,000
Miscellaneous Expense5,450
Nicole Gorman, Capital113,000
31 Nicole Gorman, Capital 20,000
Nicole Gorman, Drawing20,000
3. $135,000 ($115,000 + $20,000) net income. The $115,000 increase is caused by
the net income of $135,000 less the $20,000 withdrawals.