2-1
EXERCISE 2-6
a. & c.
Event
Revenue
Expense
Statement of Cash
Flows
1.
NA
NA
$50,000 FA
2.
$67,000
NA
NA
3.
NA
NA
(5,000) FA
4.
NA
NA
45,000 OA
5.
NA
$49,000
(49,000) OA
6.
10,000
NA
10,000 OA
7.
NA
2,000
NA
b.
Computation of Net Income
Revenue
$77,000
Less: Expenses
(51,000)
Net Income
$26,000
d.
$55,000
(49,000)
$ 6,000
e. The before-closing balance in the Revenue account is $77,000. After it is closed to
f. The balance of Retained Earnings on the 2014 Balance Sheet will be the amount of Net
EXERCISE 2-7
Zoe, Inc.
Effect of Events on the General Ledger Accounts
Assets
=
Liabilities
+
Stockholders’ Equity
Event
Cash
Accounts
Receivable
Land
=
Accounts
Payable
+
Com.
Stock
+
Retained
Earnings
1. Sales on
Account
62,000
62,000
2-2
2. Coll.
Accts. Rec.
51,000
(51,000)
3. Incurred
Expense
39,000
(39,000)
4. Pd. Acc.
Pay.
(31,000)
(31,000)
5. Issue of
Stock
40,000
40,000
6. Purchase
Land
(21,000)
21,000
Totals
39,000
11,000
21,000
=
8,000
+
40,000
+
23,000
a. Revenue recognized, $62,000.
d. Accounts receivable collected, $51,000, less cash paid for expenses, $31,000 = $20,000 cash
flow from operating activities.
g. $40,000 cash inflow from the issue of common stock.
h. Total assets = $71,000 ($39,000 + $11,000 + $21,000)
2-3
EXERCISE 2-8
a.
Copy Express
Effect of Events on Financial Statements for 2014
Assets
=
Liab.
+
Stockholders’ Equity
Income Statement
Event
No.
Cash
+
Supplies
=
Accts.
Pay.
+
Com.
Stock
+
Retained
Earnings
Rev.
−
Exp.
=
Net
Income
Cash
Flows
Beg.
Bal.
9,000
+
-0-
=
-0-
+
5,000
+
4,000
-0-
−
-0-
=
-0-
-0-
1.
NA
+
9,500
=
9,500
+
NA
+
NA
NA
−
NA
=
NA
NA
2.
32,500
+
NA
=
NA
+
NA
+
32,500
32,500
−
NA
=
32,500
32,500 OA
3.
(7,200)
+
NA
=
(7,200)
+
NA
+
NA
NA
−
NA
=
NA
(7,200) OA
4.
NA
+
(7,800)
=
NA
+
NA
+
(7,800)
NA
−
7,800
=
(7,800)
NA
Totals
34,300
+
1,700
=
2,300
+
5,000
+
28,700
32,500
−
7,800
=
24,700
25,300 NC
b. The difference in net income and cash flow from operating activities of $600 ($24,700
−
$25,300) is attributed to recognizing
2-4
EXERCISE 2-9
a.
Accounting Professionals, Inc.
Effect of Events on the Accounting Equation
Assets
=
Liab.
+
Stk. Equity
Event
Cash
Supplies
=
Accounts
Payable
Retained
Earnings
1. Provided Service
20,000
20,000
2. Purchased Supplies
4,000
4,000
3. Used Supplies
(3,000)
(3,000)
Totals
20,000
1,000
=
4,000
17,000
b.
Accounting Professionals, Inc.
Income Statement
For the Year Ended December 31, 2014
Revenue
$20,000
Expense
(3,000)
Net Income
$17,000
Accounting Professionals, Inc.
Balance Sheet
As of December 31, 2014
Assets
Cash
$20,000
Supplies
1,000
Total Assets
$21,000
Liabilities
Accounts Payable
$ 4,000
Total Liabilities
$ 4,000
Stockholders’ Equity
Retained Earnings
$17,000
Total Stockholders’ Equity
17,000
Total Liab. and Stockholders’ Equity
$21,000
EXERCISE 2-9 b. (cont.)
Accounting Professionals, Inc.
2-5
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash Flows From Operating Activities:
Cash Receipt from Revenue
$20,000
Net Cash Flow from Operating Activities
$20,000
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities:
-0-
Net Change in Cash
20,000
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$20,000
c. The balance of the Supplies account on January 1, 2015 is $1,000, the same as the
d. The balance of the Supplies Expense account on January 1, 2015 is zero because the
EXERCISE 2-10
a. A cost that is an asset is the cost of resources that are given up in acquiring some type of
b. Examples of costs that are assets:
1. Purchased land
c. Examples of costs that are expenses:
1. Paid monthly salary expense.
2-6
EXERCISE 2-11
a.
Therapy, Inc.
Effect of Events on the Accounting Equation
Assets
=
Stockholders’ Equity
Event
Cash
Prepaid Rent
=
Retained Earnings
1. Performed Services
18,000
18,000
2. Prepaid Rent
(12,000)
12,000
3. Used Rent
(11,000)*
(11,000)
Totals
6,000
1,000
=
7,000
*$12,000 x 11/12 = $11,000
b.
Therapy, Inc.
Income Statement
For the Year Ended December 31, 2014
Revenue
$18,000
Expense
(11,000)
Net Income
$ 7,000
Therapy, Inc.
Balance Sheet
As of December 31, 2014
Assets
Cash
$6,000
Prepaid Rent
1,000
Total Assets
$7,000
Liabilities
$ -0-
Stockholders’ Equity
Retained Earnings
$7,000
Total Stockholders’ Equity
7,000
Total Liab. and Stockholders’ Equity
$7,000
EXERCISE 2-11 b. (cont.)
Therapy, Inc.
2-7
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash Flows From Operating Activities:
Cash Receipt from Revenue
$18,000
Cash Payment for Rent
(12,000)
Net Cash Flow from Operating Activities
$6,000
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities:
-0-
Net Change in Cash
6,000
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$6,000
c. The balance of the Prepaid Rent will be expensed in 2015, $1,000.EXERCISE 2-12
a.
Cole Corporation
Accounting Equation 2014
Assets
=
Stockholders’ Equity
Event
Cash
Prepaid
Insurance
=
Com.
Stock
+
Retained
Earnings
Pur. Insurance
(8,400)
8,400
Adj. Ins Exp.
(2,450)*
(2,450)
Totals
(8,400)
5,950
=
-0-
+
(2,450)
*$8,400 x 7/24 = $2,450
b. The required entry would decrease assets by $2,450 [($8,400
24) x 7] and decrease
stockholders’ equity by $2,450 (retained earnings). If this entry is not made, assets and
EXERCISE 2-13
a.
Interior Design Consultants 2014
Event
Assets
=
Liabilities
+
Stockholders’
Equity
Assets
Cash
Total Assets
Liabilities
Unearned Revenue
Total Liabilities
Retained Earnings
$24,000
Cash
=
Unearned
Revenue
+
Retained
Earnings
Coll. Unearned rev
24,000
24,000
Recog. revenue earned
(6,000)*
6,000
24,000
=
18,000
6,000
*$24,000 x 3/12 = $6,000
b.
Interior Design Consultants
Income Statement
For the Year Ended December 31, 2014
Revenue
$6,000
Expense
-0-
Net Income
$6,000
2-9
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities:
-0-
Net Change in Cash
24,000
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$24,000
c. Nine months of unearned revenue will be recognized in 2015:
EXERCISE 2-14
Note: This exercise can be used to assess writing skills.
The tutoring fees of $800 received in advance by Kim Wong from Joe Pratt should be
2-10
EXERCISE 2-15
Ross Attorney At Law
Effect of Transactions on the Financial Statements for 2014
Balance Sheet
Income Statement
Assets
=
Liabilities
+
S. Equity
Rev.
−
Exp.
=
Net Inc.
No.
Cash
+
Supplies
=
Acct.
Payable
+
Unearn.
Revenue
+
Retained
Earnings
1.
NA
+
1,500
=
1,500
+
NA
+
NA
NA
−
NA
=
NA
2.
36,000
+
NA
=
NA
+
36,000
+
NA
NA
−
NA
=
NA
3.
84,000
+
NA
=
NA
+
NA
+
84,000
84,000
−
NA
=
84,000
4.
(32,000)
+
NA
=
NA
+
NA
+
(32,000)
NA
−
32,000
=
(32,000)
5.
(8,000)
+
NA
=
NA
+
NA
+
(8,000)
NA
−
NA
=
NA
6.
(1,200)
+
NA
=
(1,200)
+
NA
+
NA
NA
−
NA
=
NA
7.
NA
+
(1,350)
=
NA
+
NA
+
(1,350)
NA
−
1,350
=
(1,350)
8.
NA
+
NA
=
NA
+
(33,000)*
+
33,000
33,000
−
NA
=
33,000
Totals
78,800
+
150
=
300
+
3,000
+
75,650
117,000
−
33,350
=
83,650