2-1
EXERCISE 2-16
a.
Ed Arnold Personal Financial Planning
Horizontal Statements Model for 2014
Assets
=
Liabilities
+
Stk. Equity
Income Statement
Statement
Event
Cash
=
Unearned
Revenue
+
Retained
Earnings
Rev.
−
Exp.
=
Net
Income
of
Cash Flows
1. Advance Payment
120,000
=
120,000
+
NA
NA
−
NA
=
NA
120,000OA
2. Revenue Earned
NA
=
(80,000)*
+
80,000
80,000
−
NA
=
80,000
NA
Totals
120,000
=
40,000
+
80,000
80,000
−
-0-
=
80,000
120,000NC
b. Revenue that will be recognized in 2015 is $40,000, the remainder of the unearned revenue.
2-2
EXERCISE 2-17
a.
Caldonia Company Accounting Equation – 2014
Event
Assets
=
Liab.
+
Stockholders’ Equity
Cash
Prepaid
Rent
=
+
Common
Stock
+
Retained
Earnings
Paid 12 months rent
(4,800)
4,800
Adj. for 3 months used
(1,200)*
(1,200)
b.
East Alabama Rentals Accounting Equation – 2014
Event
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
=
Unearned
Revenue
+
Common
Stock
+
Retained
Earnings
Recd. 12 months rent
4,800
4,800
Earned 3 months rent
(1,200)*
1,200
*$4,800 x 3/12 = $1,200
EXERCISE 2-18
a. accrual
b. accrual
j. deferral
k. accrual
2-3
EXERCISE 2-19
Note: There are many examples of events that illustrate the required effects. An example is
given of each event.
a. Recognized revenue on account. The asset is either Cash or Accounts Receivable.
b. Recognized revenue where the cash had been received in advance. The liability is Unearned
Revenue
long-lived asset that is depreciated or amortized.
EXERCISE 2-20
b. The temporary accounts (Revenue, Expense, and Dividends) are closed at the end of each
c. The relationship between the beginning and ending balances in the Retained Earnings
accounts is:
Beginning Retained Earnings Balance (January 1, 2014) ?
+ Net Income (Revenue $15,100 − Expenses 9,200) 5,900
− Dividends (1,500)
the time of recognition. The balance in the Retained Earnings account on June 30, 2014 is
the same as it was on January 1, 2014 which is $15,000.
2-4
EXERCISE 2-21
a.
Event
Requires year-end adjusting
entry?
1.
No
2.
Yes
3.
No
4.
Yes
5.
No
6.
No
7.
No
8.
No
9.
Yes
10.
No
b. Adjusting entries are recorded before closing entries. Adjusting entries are required to
update the accounts so that the correct amounts of income and expenses are recognized.
2-5
EXERCISE 2-22
a.
Permanent Accounts
Cash
Notes Payable
Land
Common Stock
Retained Earnings
Temporary (Nominal) Accounts
Revenue
Expenses
Dividends
b.
Beginning Retained Earnings
$5,200
Add: Revenue
7,000
Less: Expenses
(4,200)
Less: Dividends
(1,000)
Ending Retained Earnings
$7,000
c.
Computation of Net Income
Revenue
$7,000
Less: Expenses
(4,200)
Net Income
$2,800
d. Net income is only the current year’s net income. Retained Earnings is an accumulation of
net income over the life of the business less any dividends that have been paid over the years.
EXERCISE 2-23
a.
Account
Classification
1. Service Revenue
T
2. Dividends
T
3. Common Stock
P
4. Notes Payable
P
5. Cash
P
6. Rent Expense
T
7. Accounts Receivable
P
8. Utilities Expense
T
9. Prepaid Insurance
P
10. Retained Earnings
P
b. The four stages of the accounting cycle are:
recording transactions
The first stage of the cycle must be recording accounting data in accounts to put it into usable
form. Once the accounting data is summarized in the accounts, adjustments are made to
accounting period.
EXERCISE 2-24
a. Directly matched
EXERCISE 2-25
a.
Event
Classification
1.
FA
2.
OA
3.
OA
4.
NA
5.
OA
6.
NA
7.
NA
8.
OA
2-7
9.
FA
10.
OA
b.
Blair Company
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash Flows From Operating Activities:
Cash from the collection of accts. rec.
$51,000
Cash from service revenue
12,000
Cash from svc. to be performed in future
21,000
Cash payment on accounts payable
(22,000)
Cash payment for rent
(7,200)
Net Cash Flow from Operating Activities
$54,800
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities:
Cash receipt from stock issue
$30,000
Cash payment for dividends
(5,000)
Net Cash Flow from Financing Activities
25,000
Net Change in Cash
$79,800
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$79,800
EXERCISE 2-26
Item/Account
Statement
Item/Account
Statement
a. Consulting Revenue
IS
u. Rent Expense
IS
b. Market Value of Land
NA
v. Salary Expense
IS
c. Supplies Expense
IS
w. Total Stockholders’
Equity
BS/SE
d. Salaries Payable
BS
x. Unearned Revenue
BS
e. Notes Payable
BS
y. Cash Flow from
Investing Activities
CF
f. Ending Common Stock
SE/BS
z. Insurance Expense
IS
g. Beginning Cash Balance
CF
aa. End. Retained Earn.
BS/SE
h. Prepaid Rent
BS
bb. Interest Revenue
IS
i. Net Change in Cash
CF
cc. Supplies
BS
j. Land
BS
dd. Beg. Retained Earn.
SE
k. Operating Expenses
IS
ee. Utilities Payable
BS
l. Total Liabilities
BS
ff. Cash Flow from
Financing Activities
CF
m. “As of” Date Notation
BS
gg. Accounts Receivable
BS
n. Salaries Expense
IS
hh. Prepaid Insurance
BS
o. Net Income
IS/SE
ii. Ending Cash Balance
BS/CF
p. Service Revenue
IS
jj. Utilities Expense
IS
q. Cash Flow from
Operating Activities
CF
kk. Accounts Payable
BS
r. Operating Income
IS
ll. Beg. Common Stock
SE
s. Interest Receivable
BS
mm. Dividends
SE/CF
t. Interest Revenue
IS
nn. Total Assets
BS
EXERCISE 2-27
Horizontal Statement Model
Stk. Equity
Income Statement
Type of
Com.
Ret.
Net
Cash
Event
Event
Assets
=
Liab.
+
Stock
+
Earn.
Rev.
−
Exp.
=
Inc.
Flows
a.
AE
I/D
NA
NA
NA
NA
NA
NA
D
IA
b.
AS
I
NA
I
NA
NA
NA
NA
I
FA
c.
AE
I/D
NA
NA
NA
NA
NA
NA
I
OA
d.
AU
D
NA
NA
D
NA
I
D
D
OA
e.
CE
NA
I
NA
D
NA
I
D
NA
f.
AS
I
I
NA
NA
NA
NA
NA
NA
g.
AS
I
NA
NA
I
I
NA
I
NA
h.
AE
I/D
NA
NA
NA
NA
NA
NA
D
OA
i.
AU
D
NA
NA
D
NA
I
D
NA
j.
AS
I
NA
NA
I
I
NA
I
I
OA
k.
AU
D
D
NA
NA
NA
NA
NA
D
OA
l.
AU
D
NA
NA
D
NA
NA
NA
D
FA
m.
AU
D
NA
NA
D
NA
I
D
NA
n.
CE
NA
I
NA
D
NA
I
D
NA
o.
AU
D
D
NA
NA
NA
NA
NA
D
OA
p.
AS
I
I
NA
NA
NA
NA
NA
I
OA
q.
AS
I
NA
NA
I
I
NA
I
NA
EXERCISE 2-28
Net Income
Cash Flow from
Operating Activities
Event
Direction of
Change
Amount of
Change
Direction of
Change
Amount of
Change
a.
NA
NA
NA
NA
b.
Increase
$20,000
Increase
$15,000
c.
Decrease
1,2001
Decrease
4,800
d.
Increase
5,0002
Increase
12,000
e.
Decrease
5,000
NA
NA
f.
NA
NA
NA
NA
g.
Increase
9,200
Increase
9,200
h.
Decrease
1,2003
Decrease
1,500
i.
Decrease
2,200
Decrease
2,200
1$4,800 x 3/12 = $1,200
2$12,000 x 5/12 = $5,000
3$2,000 − $800 = $1,200
EXERCISE 2-29
Note: These are only sample transactions. Other similar transactions will satisfy the
requirements of this exercise.
a. The business invested cash by purchasing a building.
Collected accounts receivable.
b. Purchased land with a note (liability).
Purchased supplies on account.
2-10
Recorded the liability for the utility bill received, but not due until the next period.
f. The business issued common stock to its owners.
EXERCISE 2-30
a. Asset Source
b. Asset Use
c. Asset Source
d. Claims Exchange
j. Asset Exchange
EXERCISE 2-31
Note: These are only sample transactions. Other similar transactions will satisfy the
requirements of this exercise.
a. Payment of rent expense; payment of other operating expense.
b. Payment of accounts payable; payment of dividends.
2-11
c. Received a note receivable in exchange for the sale of a delivery van.
d. Collection of accounts receivable; purchase of land.
e. Proceeds of a loan; issue of common stock.