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week_2_accounting.docxRunning Head: WEEK 2 ACCOUNTING
Financial Accounting
Name
Instructor’s Name
Course
Date of submission
Exercise 2-15A - Prepaid items on financial statements
Life Inc. experienced the following events in 2013, its first year of operation:
1. Performed counseling services for $36,000 cash.
2. On February 1, 2013, paid $18,000 cash to rent office space for the coming year.
3. Adjusted the accounts to reflect the amount of rent used during the year.
Based on this information alone
a. Record the events under an accounting equation.
Solution
|
|
DR |
CR |
|
Cash |
36000 |
|
|
Service revenue |
|
36000 |
|
|
DR |
Cr |
|
Prepaid rent |
18000 |
|
|
Cash |
|
18000 |
Adjusted Account
|
|
DR |
CR |
|
Rent Expense |
16500 |
|
|
Prepaid rent |
|
16500 |
Accounting equation:
Assets = Owner`s equity + liabilities
36000(Increase) =36000(Increase) + No Effect
18000(Increase) = No Effect+ No Effect
18000(Decrease) = No Effect+ No Effect
16500 (Decrease) =16500 (Decrease) + No Effect
b. Prepare an income statement, balance sheet, and statement of cash flows for the 2013 accounting period.
Solution
Income statement
Income from counseling services $36000
Less Expense:
Rent 16500
Net Income 19500
Balance sheet
Current Assets: Cash 18000
Prepaid rent 1500
Total Assets 19500
Equity & Liability:
Owners Equity 19500
Total Equity & liability 19500
c. Ignoring all other future events, what is the amount of rent expense that would be recognized in 2014?
Solution
Rent expense = Cash Income – Prepaid rent
=36000-18000
=$ 18000
Exercise 2-19 A Supplies, unearned revenue, and the financial statements model
Hart, Attorney at Law, experienced the following transactions in 2013, the first year of operations:
1. Accepted $36,000 on February 1, 2013, as a retainer for services to be performed evenly over the next 12 months.
2. Performed legal services for cash of $ 54,000.
3. Purchased $2800 of office supplies on account.
4. Paid $2400 of the amount due on accounts payable.
5. Paid a cash dividend to the stockholders of $5,000.
6. Paid cash for salaries expense of $31,000.
7. Determined that at the end of the accounting period, $200 of office supplies remained on hand.
8. On December 31, 2013, recognized the revenue that had been earned for services performed in accordance with Transaction 1
Required:
Show the effects of the events on the financial statements using horizontal statements model like the following one. In the cash flows column, use the initials OA to designate operating activity, IA for investing activity, FA for financial Activity and NC for net change in cash. Use NA to show accounts not affected by the events
Solution
|
EVENTS |
ASSETS |
= Liabilities + Stock equity = Account + Unearned + Retained Payable Revenue earnings
|
Rev - expenses = Net Income |
CASHFLOWS |
|||||
|
|
Cash + Supplies |
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|
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|||||
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1 2 3 4 5 6 7 8 |
36000 54000 NA (2400) (5000) (31000) NA NA |
NA NA 2800 NA NA NA (2600) NA |
NA NA 2800 (2400) NA NA NA NA |
36000 NA NA NA NA NA NA (33000) |
NA 54000 NA NA (5000) (31000) (2600) 33000 |
36000 54000 NA NA NA NA NA 33000 |
NA NA 2800 2400 5000 31000 2800 NA |
36000 54000 (2800) (2400) (5000) (31000) (2800) 33000 |
36000 OA 54000 OA (2800) FA (2400) FA (5000) NC (31000) OA (2800) FA 33000 OA |
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TOTALS |
51600 |
200 |
400 |
3000 |
48400 |
123000 |
41200 |
79200 |
79200 |
|
|
51800 |
51800 |
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Exercise 2-27A Effect of accounting events on the income statement and statement of cash flows.
Required
Explain how each of the following events or series of events and the related adjusting entry will affect the amount of net income and the amount of cash flow from operating activities reported on the year-end financial statements. Identify the direction of change (increase, decrease, or NA) and the amount of the change. Organize your answers according to the following table. The first event is recorded as an example. If an event does not have a related adjusting entry, record only the effects of the event
|
Net Income Cash Flow from Operating Activities Event Direct of Amount of Direction of Amount of Change Change Change Change
3 NA NA NA NA
a. Paid $9,000 cash on October 1 to purchase a one-year insurance policy. b. Purchased $2,000 of supplies on account. Paid $500 cash on accounts payable. The ending balance in the Supplies account, after adjustment, was $300. c. Provided services for $10,000 cash. d. Collected $2,400 in advance for services to be performed in the future. The contract called for services to start on May 1 and to continue for one year. e. Accrued salaries amounting to $5600. f. Sold land that cost $3,000 for $3,000 cash. g. Acquired $15,000 cash from the issue of common stock. h. Earned $12,000 of revenue on account. Collected $8,000 cash from accounts receivable i. Paid cash for other operating expenses of $4,500
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NET INCOME |
Cash flows from Operating activities
|
||
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Event |
Direction of change |
Amount of change |
Direction of change |
Amount of change |
|
A
|
NA |
NA |
Decrease
|
9000
|
|
B
|
NA |
NA |
Decrease |
500 |
|
C |
Increase |
10000 |
Increase |
10000 |
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D
|
NA
|
NA
|
Increase
|
2400
|
|
E
|
Decrease
|
5600
|
NA
|
NA
|
|
F
|
Increase |
3000 |
NA |
NA |
|
G
|
NA |
NA |
Increase |
15000 |
|
H
|
Increase
|
12000
|
Increase
|
8000
|
|
I
|
NA |
NA |
Decrease |
4500 |
|
|
Exercise 2-29A Identifying source, use, and exchange transactions
Required
Indicate whether each of the following transactions is an asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE) transaction:
a. Acquired cash from the issue of common stock. (AS)
b. Paid a cash dividend to the stockholders. (AU)
c. Paid cash on accounts payable. (AU)
d. Incurred other operating expenses on account. (AU)
e. Paid cash for salary expense. (AU)
f. Performed services for cash. (AS)
g. Collected cash from accounts receivable. (AE)
h. Performed services for clients on account. (AS)
i. Received cash for services to be performed in the future. (AS)
j. Purchased land with cash. (AE)
Exercise 2-30A Identifying asset source, use, and exchange transactions
Required
Solutions
a. Name an asset use transaction that will not affect the income statement.
Deposits for future Services
b. Name an asset exchange transaction that will affect the statement of cash flows.
Cash received from accounts receivable
C. Name an asset source transaction that will not affect the income statement
Cash received from issuing of common stock
d. Name an asset source transaction that will not affect the statement of cash flows
Equity from owners
e. Name an asset source transaction that will affect the income statement
Revenue from operations
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