Question & Answer: On May 1, Nimbus Flying School, a company that provides flying lessons, was started with an investment of $45,000 cash in…..

P1-3A On May 1, Nimbus Flying School, a company that provides flying lessons, was started with an investment of $45,000 cash in the business. Following are the assets and P liabilities of the company on May 31, 2015, and the revenues and expenses for the month of May r Cash Accounts Receivable Equipment Service Revenue Advertising Expense Accounts Payable $ 4,650 7,400 64,000 6,800 Notes Payable Rent Expense $28,000 900 Maintenance and 350 2,500 400 Repairs Expense 500 Gasoline Expense 1,400 Utilities Expense No additional investments were made in May, but the company paid dividends of $500 during the month. Instructions (a) Prepare an income statement and a retained earnings statement for the month of May and a balance sheet at May 31. 3 (b) Prepare an income statement and a retained earnings statement for May assuming the following data are not included above: (1) $900 worth of services were performed and billed but not collected at May 31, and (2) $1,500 of gasoline expense was in- curred but not paid.

On May 1, Nimbus Flying School, a company that provides flying lessons, was started with an investment of $45,000 cash in the business. Following are the assets and liabilities of the company on May 31, 2015, and the revenues and expenses for the month of May No additional investments were made in May, but the company paid dividends of $500 during the month. (a) Prepare an income statement and a retained earnings statement for the month of May and a balance sheet at May 31. (b) Prepare an income statement and a retained earnings statement for May assuming the following data are not included above: (1) $900 worth of services were performed and billed but not collected at May 31, and (2) $1, 500 of gasoline expense was incurred but not paid.

Expert Answer

(a) Nimbus Flying School Income Statement For the month of May, 2015

Particulars Amount ( In $ )

Service Revenue 6,800

Less : Advertising Expense ( 500 )

Less : Rent Expense ( 900 )

Less : Maintenance Expense ( 350 )

Less : Gasoline Expense ( 2,500 )

Less : Utilities Expense ( 400 )

Net Income 2,150

Nimbus Flying School Statement of Retained Earnings For the month of May, 2015

Particulars Amount ( In $ )

Net Income from Income Statement 2,150

Less : Dividends Paid ( 500 )

Closing Balance of Retained Earnings 1,650

Nimbus Flying School Balance Sheet As on 31 May, 2015

Assets Amount ( In $ )

Cash 4,650

Equipment 64,000

Accounts Receivable 7,400

Total 76,050

Liabilities Amount ( In $ )

Accounts Payable 1,400

Notes Payable 28,000

Retained Earnings 1,650

Share Capital 45,000

Total 76,050

Point of Explanation

In Liabilities side of Balance Sheet Share Capital of $ 45,000 is shown because it is the same amount with which the business was started on May 1, 2015 with investment in Cash for amount of $ 45,000

(b) Nimbus Flying School Income Statement For the month of May, 2015

Particulars Amount ( In $ )

Service Revenue [ 6,800 + 900 ] 7,700

Less : Advetising Expense ( 500 )

Less : Rent Expense ( 900 )

Less : Maintenance and Repairs Expense ( 350 )

Less : Gasoline Expense [ 2,500 + 1,500 ] ( 4,000 )

Less : Utilities Expense ( 400 )

Net Income 1,550

Nimbus Flying School Statement of Retained Earnings For the month of May, 2015

Particulars Amount ( In $ )

Net Income from Income Statement 1,550