Preparation and Analysis of Financial Statements of a Firm


                                     XYZ, Inc. – Review of the Basics

Three financial statements: the balance sheet, income statement, and statement of retained earnings for XYZ, Inc., an accounting and consulting firm, are included below.

Preparation and Analysis of Financial Statements of a Firm

Preparation and Analysis of Financial Statements of a Firm


During January 2016, XYZ engaged in the following transactions:

1) Paid in full with cash the December 31 balance of accounts payable

2) Furnished professional services and billed $25,000. It collected $13,000 of the December 31 balance of accounts receivables and none of the January billings.

3) Paid all marketing expenses with cash as they arose, $4,500.

4) Incurred supplies expenses of $5,100. The unused supplies (i.e. Supplies inventory) balance on January 31 was $4,000. All of the January inventory purchases were on credit.

5) Paid the bank $5,000 to reduce the principal of the long-term note payable ($5,000 payment due each January), and additionally paid one month’s interest in cash at a 12% per year rate on the month’s beginning balance. You need to record a principal reduction of $5,000 as well as the appropriate amount of cash paid for interest as a separate item or amount from the $5,000 principal reduction.

6) Sold the land for $25,000

7) Paid utilities payable outstanding as of December 31, 2015. The $1,200 bill for January’s utility consumption will be paid in February.

8) On January 31, purchased computer equipment for $1,000 cash and a $5,000 installment note payable at 10% interest due in six months (i.e. no cash was exchanged for the note). Use an “equipment” account for this transaction.

9) Declared (obligated itself to pay) a dividend of $3,000. It will be paid in February.

10) Additional information: Equipment originally cost $40,000 has an estimated salvage value of $4,000 and is being depreciated straight-line over six years. Please record the adjustment for accumulated depreciation in the “Equipment (net)” account.

11) Paid salaries payable outstanding as of December 31, 2015. Incurred and paid with cash salaries expense of $7,500 in January (none outstanding at the end of January).



  1. Using the financial effects template and beginning with the 12/31/2015 balances in the balance sheet accounts, analyze these transactions in a worksheet. At the end, you should have balances for the 1/31/2016 balance sheet and income statement. Set up a separate column for each balance sheet and income statement account affected.
  2. Prepare the income statement, statement of retained earnings, and statement of cash flows for the month of January. Classify each cash flow as (1) operating, (2) investing, or (3) financing.
  3. Prepare a “Classified” balance sheet as of January 31, 2016. As appropriate, a “Classified” balance sheet separates assets into (1) Current assets, (2) Investments, (3) Property, Plant, & Equipment, (4) Intangible assets, and (5) Other assets, and separates liabilities into (1) Current liabilities and (2) Long-term liabilities.

Note: work should be done in excel



The question belongs to Accounting and it discusses about preparation and analysis of financial statements of a company.





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