Question

Abby Perry recently opened her own law office on December 1, which she operates as a corporation. The name of the new entity is Abby Perry, Attorney. Perry experienced the following events during the organizing phase of the new business and its first month of operation, December 2018. Some of the events were personal and did not affect the law practice. Others were business transactions and should be accounted for by the business. Dec. 1 Sold personal investment in Nike stock, which she had owned for several years, receiving \(30,000 cash. 2 Deposited the \)30,000 cash from the sale of the Nike stock in her personal bank account. 3 Deposited \(89,000 cash in a new business bank account titled Abby Perry, Attorney. The business issued common stock to Perry. 5 Paid \)600 cash for ink cartridges for the printer. 7 Purchased computer for the law office, agreeing to pay the account, \(8,000, within three months. 9 Received \)2,900 cash from customers for services rendered. 15 Received bill from The Lawyer for magazine subscription, \(300. (Use Miscellaneous Expense account.) 23 Finished court hearings on behalf of a client and submitted a bill for legal services, \)8,000, on account. 28 Paid bill from The Lawyer. 30 Paid utilities, \(900. 31 Received \)2,800 cash from clients billed on Dec. 23. 31 Cash dividends of $3,000 were paid to stockholders. Requirements 1. Analyze the effects of the preceding events on the accounting equation of Abby Perry, Attorney. Use a format similar to Exhibit 1-6. 2. Prepare the following financial statements: a. Income statement. b. Statement of retained earnings. c. Balance sheet. d. Statement of cash flows

Short answer

Income statement is shown as follows:

Abby Perry, Attorney
Income Statement
Month Ended December 31, 2018
Revenues
Service Revenue		$10,900
Expenses
Miscellaneous Expense	300
Utilities Expense	900
Total Expenses		(1,200)
Net Income		$9,700

Step-by-step solution

Step-by-Step Solution Step 1: Calculation of net income

Net income is calculated as follows:

$$\begin{gathered} \mathbf{NetIncome}\mathbf{=}\mathbf{TotalRevenues}-\mathbf{TotalExpenses} \\ \mathbf{=}\mathbf{\$}\mathbf{10}\mathbf{,}\mathbf{900}-\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{200} \\ \mathbf{=}\mathbf{\$}\mathbf{9}\mathbf{,}\mathbf{700} \end{gathered}$$

Explanation of net income

In the situation when the total revenues are exceeds the total expenses of the entity, then it results in net income.