Question

Andrea Apple opened Apple Photography on January 1 of the current year. During January, the following transactions occurred and were recorded in the company's books: 1. Andrea invested 13,700 cash in the business. 2. Andrea contributed 22,000 of photography equipment to the business. 3. The company paid 2,300 cash for an insurance policy covering the next 24 months. 4. The company received 5,900 cash for services provided during January. 5. The company purchased 6,400 of office equipment on credit. 6. The company provided 2,950 of services to customers on account. 7. The company paid cash of 1,700 for monthly rent. 8. The company paid 3,300 on the office equipment purchased in transaction #5 above. 9. Paid 295 cash for January utilities. Based on this information, the balance in the A. Apple, Capital account reported on the Statement of Owner's Equity at the end of the month would be: Multiple Choice 34,200. 41,600. 33,550. 42,555. 32,855. Is the service revenue on account added to the revenue, and what about the prepaid insurance payment do you add that to expenses when figuring net income?

Accepted Answer

Answer: $42,555 Explanation: Add assets and subtract liabilities (no owner withdrawals). After recording the transactions: Cash = 13,700 -2,300 +5,900 -1,700 -3,300 -295 = 12,005 Photography equipment = 22,000 (owner contribution) Office equipment = 6,400 Prepaid insurance = 2,300 Accounts receivable = 2,950 Total assets = 12,005+22,000+6,400+2,300+2,950 = 45,655 Liabilities (accounts payable) = 6,400-3,300 = 3,100 Owner’s equity = Assets − Liabilities = 45,655 - 3,100 = 42,555. Yes — service revenue on account is included in revenue (under accrual accounting you record revenue when earned and increase Accounts Receivable). The prepaid insurance payment is recorded as an asset (Prepaid Insurance); you do not expense the full \2,300 immediately. Only the portion that applies to the period is expensed when making adjusting entries (monthly insurance expense = 2,300/24 ≈ \95.83).