On July 31, 2018, the general ledger of Hills Legal Services Inc. showed these balances: Cash $4,000; Accounts Receivable $1,500; Supplies $500; Equipment $5,000; Accounts Payable $4,100; Common Shares $3,500; and Retained Earnings $3,400. During August, the following transactions occurred:

Aug. 2Collected $1,200 of accounts receivable due from customers.

3 Received $1,300 for issuing common shares to new investors.

6 Paid $2,700 cash on accounts payable owing.

7 Earned fees of $6,500, of which $3,000 was collected in cash and the remainder was due on account.

13 Purchased additional equipment for $1,200, paying $400 in cash and the balance on account.

17 Paid salaries, $3,500, rent, $900, and advertising expenses, $275, for the month of August.

17 Collected the balance of the fees earned on August 7.

20 Declared and paid $500 of dividends to shareholders.

22 Billed a client $1,000 for legal services provided.

24 Received $2,000 from Laurentian Bank; the money was borrowed on a bank loan payable that is due in six months.

27 Signed an engagement letter to provide legal services to a client in September for $4,500. The client will pay the amount owing after the work has been completed.

28 Received the utility bill for the month of August in the amount of $275; it is due September 15.

31 Paid income tax for the month, $500.

Instructions

(a) Beginning with the July 31 balances, prepare an equation analysis of the effects of the opening balances and above transactions on the expanded accounting equation, similar to those shown in Illustrations 3.3 and 3.4.

(b) Prepare an income statement, a statement of changes in equity, and a statement of financial position for August.