2-87
EXERCISE 2-13B b. (cont.)
Janitorial Professionals, Inc.
Statement of Cash Flows
For the Year Ended December 31, 2016
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
2-88
EXERCISE 2-14B
a. A cost that is an asset is the cost of resources that are given up in
1. Purchased land
2. Purchased equipment
3. Purchased supplies for future use.
1. Paid monthly salary expense.
2. Paid monthly utilities expense.
3. Used supplies that had been previously purchased.
EXERCISE 2-15B
a.
Forestry Services 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.
Forestry Services Inc.
Income Statement
For the Year Ended December 31, 2016
Revenue
$18,000
Expense
(11,000)
Net Income
$ 7,000
Forestry Services Inc.
Balance Sheet
As of December 31, 2016
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
2-90
2-91
EXERCISE 2-15B b. (cont.)
Forestry Services Inc.
Statement of Cash Flows
For the Year Ended December 31, 2016
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
2-92
EXERCISE 2-16B
a.
Ark Corporation
Accounting Equation 2016
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 stockholders’ equity would
both be overstated on the balance sheet by $2,450. On the income
statement, expenses would be understated causing net income to
be overstated by $2,450.
2-93
EXERCISE 2-17B
a.
Interior Design Consultants 2016
Event
Assets
=
Liabilities
+
Stockholders
’ Equity
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, 2016
Revenue
$6,000
Expense
-0-
Net Income
$6,000
Interior Design Consultants
Balance Sheet
As of December 31, 2016
Assets
Cash
$24,000
Total Assets
$24,000
Liabilities
-0-
Unearned Revenue
$18,000
Total Liabilities
$18,000
Stockholders’ Equity
Retained Earnings
$ 6,000
Total Stockholders’ Equity
6,000
Total Liab. and Stockholders’ Equity
$24,000
2-94
EXERCISE 2-17B b. (cont.)
Interior Design Consultants
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Cash Receipt from Revenue
$24,000
Net Cash Flow from Operating Activities
$24,000
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
2-95
EXERCISE 2-18B
Note: This exercise can be used to assess writing skills.
2-96
EXERCISE 2-19B
Warren Attorney At Law
Effect of Transactions on the Financial Statements for 2016
Balance Sheet
Income Statement
Statement of
Assets
=
Liabilities
+
S. Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
No.
Cash
+
Supplies
=
Acct.
Payable
+
Unearn.
Revenue
+
Retained
Earnings
1.
NA
+
1,500
=
1,500
+
NA
+
NA
NA
−
NA
=
NA
NA
2.
36,000
+
NA
=
NA
+
36,000
+
NA
NA
−
NA
=
NA
36,000 OA
3.
84,000
+
NA
=
NA
+
NA
+
84,000
84,000
−
NA
=
84,000
84,000 OA
4.
(32,000)
+
NA
=
NA
+
NA
+
(32,000)
NA
−
32,000
=
(32,000)
(32,000) OA
5.
(8,000)
+
NA
=
NA
+
NA
+
(8,000)
NA
−
NA
=
NA
(8,000) FA
6.
(1,200)
+
NA
=
(1,200)
+
NA
+
NA
NA
−
NA
=
NA
(1,200) OA
7.
NA
+
(1,350)
=
NA
+
NA
+
(1,350)
NA
−
1,350
=
(1,350)
NA
8.
NA
+
NA
=
NA
+
(33,000)*
+
33,000
33,000
−
NA
=
33,000
NA
Totals
78,800
+
150
=
300
+
3,000
+
75,650
117,000
−
33,350
=
83,650
78,800 NC
*$36,000 x 11/12 = $33,000
2-97
EXERCISE 2-20B
a.
Brandon Baily Personal Financial Planning
Horizontal Statements Model for 2016
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
2–98
EXERCISE 2-21B
a.
Stokes Company Accounting Equation – 2016
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)
*$4,800 x 3/12 = $1,200
b.
Eastport Rentals Accounting Equation – 2016
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
2–99
EXERCISE 2-22B
a. accrual
b. accrual
2–100
EXERCISE 2-23B
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 increased is either Cash or
2–101
EXERCISE 2-24B
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
2–102
EXERCISE 2-25B
a.
Event
Classification
1.
FA
2.
OA
3.
OA
4.
NA
5.
OA
6.
NA
7.
NA
8.
OA
9.
FA
10.
OA
b.
Blair Company
Statement of Cash Flows
For the Year Ended December 31, 2016
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
2–103
EXERCISE 2-26B
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
2–104
EXERCISE 2-27B
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
2–105
EXERCISE 2-28B
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.
2–106
EXERCISE 2-29B
a. Asset Source
b. Asset Use