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

XYZ, Inc.
Balance Sheet
As of December 31, 2018
Assets:			Liabilities and Shareholder's Equity:
Cash	$12,000		Accounts payable	$2,000
Accounts receivable	22,000		Salaries payable	6,000
Supplies	7,000		Utilities payable	1,000
Land	18,000		Notes payable	25,000
Equipment (net)	30,000		Common stock	42,000
			Retained earnings	13,000
Total assets	$89,000		Total liabilities & stockholder's equity	$89,000

XYZ, Inc.
Income Statement
For the Year Ended December 31, 2018
Consulting revenue		$150,000
Salaries expense		(90,000)
Marketing expense		(24,000)
Administrative expense		(22,000)
Net Income		$14,000

XYZ, Inc.
Statement of Retained Earnings
For the Year Ended December 31, 2018
Beginning balance		$0
Plus: Net income		14,000
Less: Dividends		(1,000)
Ending balance		$13,000

During January 2019, XYZ engaged in these 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 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., inventory) balance on January 31 was $4,000. All of the January inventory purchases were on credit. (Hint: You need to record the expenses and also need to record January’s supplies purchases)

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 cash.

7. Paid utilities payable outstanding as of December 31, 2018. 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 $0 and is being depreciated straight-line over six years. Record the adjustment for accumulated depreciation in the "Equipment (net)" account.

11. Paid salaries are payable outstanding as of December 31, 2018. Incurred and paid with cash salaries expense of $7,500 in January (none outstanding at the end of January).
12. Required:

1. Beginning with the 12/31/2018 balances in the balance sheet accounts, analyze each of the transactions (1 – 11) using a version of the financial statement effects template. In the end, you should have balances for the 1/31/2019 balance sheet. Set up a separate column for each balance sheet account. Put any revenues, expenses, and dividends in the "Retained Earnings" column, and in the next column to the right, put the name of the revenue, or expense account affected or "Dividends."

2. Prepare the income statement (multi-step), statement of retained earnings, and statement of cash flows for the month of January. You can construct the cash flow statement from the detail in the financial statement effects template for cash. Classify each cash flow as (1) operating, (2) investing, or (3) financing.

3. Prepare a "classified" balance sheet as of January 31, 2019. 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.

4. Use your financial statement effects template and the financial statements created in steps “b” and “c” to take the Section 3 quiz in eLC.