Engineering Economy 16th Edition by William Sullivan ,Elin Wicks, Koelling,

Exercise 2

Daniel Peavy owns and operates an architectural firm called Peavy Design. Table P2-A-2 summarizes the financial position of his business on April 30, 2015.
During May 2015, the following events occurred:
a. Peavy received $12,000 as a gift and deposited the cash in the business bank account.
b. He paid off the beginning balance of accounts payable.
c. He performed services for a client and received cash of $1,100.
d. He collected cash from a customer on account, $750.
e. Peavy purchased supplies on account, $720.
f. He consulted on the interior design of amajor office building and billed the client for services rendered, $5,000.
g. He invested personal cash of $1,700 in the business.
h. He recorded the following business expenses for the month:
1. Paid office rent, $1,200.
2. Paid advertising, $660.
i. Peavy sold supplies to another interior designer for $80 cash, which was the cost of the supplies.
j. He withdrew cash of $4,000 for personal use.
Required
(a) Analyze the effects of the preceding transactions on the accounting equation of Peavy Design. Adapt the format of Figure 2-A-1.
(b) Prepare the income statement of Peavy Design for the month ended May 31, 2015. List expenses in decreasing order by amount.
(c) Prepare the balance sheet of Peavy Design at May 31, 2015.
Figure 2-A-1 Accounting Effects of Transactions: XYZ Firm
TABLE P2-A-2 Data for Problem 2-A-2