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: • Andrea invested $13,500 cash in the business in exchange for common stock.
• Andrea contributed $20,000 of photography equipment to the business in exchange
For common stock.
• The company paid $2,100 cash for an insurance policy covering the next 24 months.
• The company received $5,700 cash for services provided during January.
• The company purchased $6,200 of office equipment on credit.
• The company provided $2,750 of services to customers on account.
• The company paid cash of $1,500 for monthly rent.
• The company paid $3,100 on the office equipment purchased in transaction #5 above.
• Paid $275 cash for January utilities.
Based on this information, the amount of total stockholders' equity reported on the Balance Sheet at the end of the month would be:
A) $31,400.
B) $39,200.
C) $31,150.
D) $40,175.
E) $30,875.

Question

Quizplus · Accepted Answer

The total stockholders' equity at the end of the month would be the sum of the common stock and retained earnings.

Common stock:
-$13,500 + $20,000 = $6,500

Retained earnings:
Revenue from services provided = $5,700 
Expenses:
-Insurance = $2,100/24 = $87.50 (this represents the portion of the insurance policy that has expired during the month)
-Rent = $1,500 
-Office equipment expense = $3,100 
-Utilities = $275 
Total expenses = $5,962.50 
Net income = $5,700 - $5,962.50 = ($262.50)

Since the company incurred a net loss for the month, the amount of retained earnings will decrease by $262.50.

Therefore, the total stockholders' equity at the end of the month would be: 
$6,500 (common stock) - $262.50 (retained earnings) = $6,237.50 
$6,237.50 * 6 (since the company's fiscal year is comprised of 12 months) = $37,425

Therefore, the answer is D) $40,175.

Andrea Apple Opened Apple Photography on January 1 of the Current