Using the material learned from the first three chapters, answer the following question. Vanishing Games (VGC) operates a massive multi-player online game, charging players a monthly subscription of $15. At the start of 2017, VGC’s income statement accounts had zero balances and its account balances were as follows:
In addition to the above accounts, VGC’s chart of accounts includes the following: Subscription Revenue, Licensing Revenue, Wages Expense, Advertising Expense, and Utilities Expense.
Required:
1. Analyze the effect of the January 2017 transactions listed below on the accounting equation, using the format shown in this chapter’s Demonstration Case B.
a. Received $50,000 cash from customers for subscriptions that had already been earned in 2016
b. Received $25,000 cash from Electronic Arts, Inc. for licensing revenue earned in the month of January 2017
c. Purchased ten new computer servers for $33,500; paid $10,000 cash and signed a threeyear note for the remainder owed
d. Paid $10,000 for an Internet advertisement run on Yahoo! in January 2017
e. Sold 15,000 monthly subscriptions at $15 each for services provided during the month of January 2017; half was collected in cash and half was sold on account
f. Received an electric and gas utility bill for $5,350 for January 2017 services; bill will be paid in February
g. Paid $378,000 in wages to employees for work done in January 2017
h. Purchased $3,000 of supplies on account
i. Paid $3,000 cash to the supplier in (h) 2. Prepare journal entries for the January 2017 transactions listed in requirement 1, using the letter of each transaction as a reference.
3. Create T-accounts, enter the beginning balances shown above, post the journal entries to the T-accounts, and show the unadjusted ending balances in the T-accounts.
4. Prepare an unadjusted trial balance as of January 31, 2017.
5. Prepare an income statement for the month ended January 31, 2017, using unadjusted balances from requirement 4.
6. Prepare a statement of retained earnings for the month ended January 31, 2017, using the beginning balance given above and the net income from requirement 5. Assume VGC has no dividends.
7. Prepare a classified at January 31, 2017, using your response to requirement 6.
8. Why does the income statement total not equal the change in cash?
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