Hart Attorney at Law experienced the follwoing transactions in 2016, the first year of operations: 1. Accepted $36,000 on April 1, Year 1, as a retainer for services to be performed evenly over the next 12 months.
2. Performed legal services for cash of $54,000.
3. Purchased $2,800 of office supplies on account.
4. Paid $2,400 of the amount due on accounts payable.
5. Paid a cash dividend to the stockholders of $5,000.
6. Paid cash for operating expenses of $31,000.
7. Determined that at the end of the accounting period $200 of office supplies remained on hand.
8. On December 31, Year 1, recognized the revenue that had been earned for services performed in accordance with Transaction 1.

Required:
Draw the effects of the events on the financial statements.

Assets = Liabilities + Stockholders’ Equity = $51,800

Explanation:

Note: See the attached excel file for the the effects of the events on the financial statements.

In the attached excel the following calculations are made:

Event 7: Office supplies = Office supplies used or expense = Office supplies purchased - Office supplies remained on hand = $2,800 - $200 = $2,600

Event 8 = Revenue recognised = (Amount accepted on April 1 / Number of months in year) * Number of months from April 1 to Decembe 31 = ($36,000 / 12) * 9 = $27,000

From the attached excel file, the following can be obtained:

Assets = Total assets = $51,600 + $200 = $51,800

Liabilities = Total liabilities = $400 + $9,000 = $9,400

Stockholders’ Equity = Total Stockholders’ Equity = $42,400

Liabilities + Stockholders’ Equity = $9,400 + $42,400 = $51,800

Therefore, the accounting equation holds as follows:

Assets = Liabilities + Stockholders’ Equity = $51,800

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