Accounting

Week 3

Part 1

(1) Please identify four of the financial statements a for-profit organization will compile, define them, and then describe how they interact with each other.

(2) Write a 2-page paper explaining how it works.

Part 2

Exercise 3-9A Recording receivables and identifying their effect on financial statements

Davos Company performed services on account for $160,00 in 2016. Davos collected cash from accounts receivable during 2016. And the remaining $40,000 was collected in cash during 2017.

Required

a. Record the 2016 transaction in T-accounts

b. Record the 2016 transaction in horizontal statements model like the following one

Assets = Liab. + Equity	Rev. - Exp. = Net Inc.	Cash Flow
Cash + Accts.Rec. = Ret. Earn.

c. Determine the amount of revenue Davos would report on the 2016 income statement.

d. Determine the amount of cash flow from operating activities Davos would report on the 2016 statement of cash flows.

e. Open a T-account for Retained Earnings, and close the 2016 Service Revenue account to the retained earnings accounts.

f. Record the 2017 cash collection in appropriate T-accounts

g. Record the 2017 transactions in a horizontal statements model like the one shown in Requirement b.

h. Assuming no other transaction occur in 2017, determine the amount of net income and the net cash flow from operating activities for 2017.

Exercise 3-10 A Recording supplies and identifying their effect on financial statements

Sye Chase started and operated a small family architectural firm in 2016. The firm was affected by two events: (1) Chase provided $25,000 of services on account. And (2) he purchased $2,800 of supplies on account. There were $250 of supplies on hand as of December 31,2016.

Required

a. Open T- accounts and record the two transactions in the accounts

b. Record the required year-end adjusting entry to reflect then use of supplies.

c. Record the preceding transaction in a horizontal statements model like the following one.

Assets = Liab. + Equity	Rev. - Exp. = Net Inc.	Cash Flow
Acct. Rec. + Supplies = Acct. + Ret. Pay Earn.

d. Explain why the amounts of net income and net cash flow from operating activities differ.

e. Record and post the required closing entries and prepare a post-closing trial balance.

Exercise 3-15A Required prepaid items and identifying their effect on financial statements

Cherokee Company began operations when it issued common stock for $80,000 cash. It paid $60,000 cash in advance for a one- year contract to lease delivery equipment for the business. It signed the lease agreement on March 1, 2016, which was effective immediately. Cherokee received $98,000 of cash revenue in 2016.

a. Record the March 1 cash payment in general journal format.

b. Record in general journal format the adjustment required as of December 31, 2016

c. Record all events in a horizontal statement model like the following one.

Assets = Liab. + Equity	Rev. - Exp. = Net Inc.	Cash Flow
Cash + Prep. Common Ret. Rent Stock + Earn.

d. What amount of net income will Cherokee Company report on the 2016 income statement?

e. Determine the amount of prepaid rent Cherokee Company would report on the December 2016, balance sheet.

Exercise 3-17 A Preparing Closing Entries

The following financial information was taken from the books of Zone Health Club, a small spa and fitness club.

Account Balances as of December 31, 2016 Accounts Receivable---------------------------------------------------$12,450 Accounts Payable----------------------------------------------------------6,200 Salaries Payable------------------------------------------------------------3,150 Cash-------------------------------------------------------------------------36,750 Dividends--------------------------------------------------------------------2,000 Operating Expense--------------------------------------------------------35,300 Prepaid Rent----------------------------------------------------------------1,200 Rent Expense---------------------------------------------------------------8,400 Retained Earnings 1/1/2016---------------------------------------------41,250 Salaries Expense----------------------------------------------------------14,500 Service Revenue----------------------------------------------------------65,400 Supplies-----------------------------------------------------------------------650 Supplies Expense-----------------------------------------------------------3,150 Common Stock-------------------------------------------------------------7,000 Unearned--------------------------------------------------------------------6,400 Land------------------------------------------------------------------------15,000

a. Prepare the journal entries necessary to close the temporary accounts at December 31, 2016, for the Zone Health Club.

b. What is the balance to the Retained Earnings account after the closing entries are posted?

Problems 3- of 31 Effects errors on the trial balance

The following trail balance was prepared from the ledger accounts of Ricardo Company

Ricardo Company Trial Balance April 30, 2016 Accounts Title----------------------------------------------------------Debit----------------------------Credit Cash----------------------------------------------------------------------$68,900 Accounts Receivable----------------------------------------------------30,000 Supplies--------------------------------------------------------------------1,800 Prepaid Insurance--------------------------------------------------------3,600 Land-------------------------------------------------------------------------------------------------------$12,000 Accounts Payable------------------------------------------------------------------------------------------9,600 Common Stock-------------------------------------------------------------------------------------------100.000 Retained Earnings-----------------------------------------------------------------------------------------27,510 Dividends------------------------------------------------------------------ 8,000 Service Revenue-------------------------------------------------------------------------------------------60,000 Rent Expense---------------------------------------------------------------9,600 Salaries Expense----------------------------------------------------------31.500 Operating Expense--------------------------------------------------------32,400 Totals $185,800 $209,110

When the trial balance failed to balance, the accountant reviewed the records and discovered the following errors

1. The company received $560 as payment for services rendered. The credit to Service Revenue was recorded correctly, but the debit to Cash was recorded as $650

2. A $900 receipt of cash that was received from a customer receivable was not recorded.

3. A $600 purchase of supplies on account was properly recorded as a debit to the Supplies account. However, the credit to Accounts Payable was not recorded.

4. Land valued at $12,000 was contributed to the business in exchange for common stock. The entry to record the transaction was recorded as $12,000 credit to both the Land account and the Common Stock account.

5. A $500 rent payment was properly recorded as a credit to Cash. However, the Salaries Expense account was incorrectly debited for $500.

Exercise 4- 17A Comprehensive exercise with sales discounts

Junker’s Stash started the 2016 accounting period with the balances given in the financial statements model shown below. During 2016 Junker’s Stash experienced the following business events.

1. Paid cash to purchase $70,000 of merchandise inventory.

2. The goods that were purchased in Event1 were delivered FOB destination. Freight cost of $1,400 were paid in cash by the responsible party.

3a. Sold merchandise for $72,000 under terms 1/10,n/30

3b. Recognized $41,900 of cost of goods sold.

4a. Junker’s Stash customers returned merchandise that was sold for $2,100.

4b. The merchandise in Event 4a had cost Junker’s Stash $1,250.

5. The merchandise in Event 3a was sold to customers FOB destination. Freight cost of $1,650 were paid in cash by responsible party.

6a. The customers paid for the merchandise sold in Event 3a within the discount period.

Recognize the sales discount.

6b. Collected the balance in the accounts receivable account.

7. Paid cash of $6,850 for selling and administrative expenses.

8. Sold the land for $9,100 cash.

Required

a. Record the above transaction in financial statement model like the one shown below.

Event Accts. Com. Ret. No Cash + Rec. + Inventory + Land = Stk. + Earn.	Rev./ Gain - Exp. = Net Inc.	Cash Flow
Bal.	$80,000 + 0 + 15,000 + 11,000 = 70,000 + 36,000	NA - NA = NA	NA

b. Determine the amount of net sales.

c. Prepare a multistep income statement. Include common size percentages on the in the income statement.

d. Junker’s Stash return on sales ratio in 2015 was 12 percent. Based on the common size data in the income statement, did Junker’s Stash expenses increase or decrease in2016?

e. Explain why the term loss is used to describe the results due to the sale of land.