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2-107
EXERCISE 2-30B
Note: These are only sample transactions. Other similar transactions will
2-108
EXERCISE 2-31B
Horizontal Statement Model
Stk. Equity
Income Statement
Statemen
t of
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
2-109
EXERCISE 2-32B
One provision of the Sarbanes-Oxley Act of 2002 clarifies the legal
responsibility of company management, including the CFO and controller.
2-110
EXERCISE 2-33B (Appendix)
a.
Highland Grill
Accounting Equation for 2016
Assets
=
Stockholders’ Equity
Event
Cash
Stove
Accum.
Depr.
=
Com.
Stock
+
Retained
Earnings
1. Acq. Cap.
40,000
40,000
2. Pur. Stove
(24,000)
24,000
3. Rev.
21,000
21,000
4. Paid Exp.
(3,500)
(3,500)
5. Depr. Exp.
(5,000)*
(5,000)
Totals
33,500
24,000
(5,000)
=
40,000
+
12,500
*(24,000 − $4,000) 4 = $5,000 depreciation per year
b.
Highland Grill
Balance Sheet
As of December 31, 2016
Assets
Cash
$33,500
Stove
$24,000
Less: Accum. Depreciation
(5,000)
19,000
Total Assets
$52,500
Liabilities
$ -0-
Stockholders’ Equity
Common Stock
$40,000
Retained Earnings
12,500
Total Stockholders’ Equity
52,500
Total Liab. and Stockholders’ Equity
$52,500
2-111
EXERCISE 2-33B b. (cont.) (Appendix)
Highland Grill
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Cash Receipts from Revenue
$21,000
Cash Payment for Salaries
(3,500)
Net Cash Flow from Operating Activities
$17,500
Cash Flows From Investing Activities:
Cash Outflow for Stove
(24,000)
Net Cash Flow from Investing Activities
(24,000)
Cash Flows From Financing Activities:
Cash Receipts from Issue of Stock
40,000
Net Cash Flow from Financing Activities
40,000
Net Change in Cash
33,500
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$33,500
2-112
EXERCISE 2-34B (Appendix)
a. Compute the depreciation expense per year.
(Cost – Salvage) ÷ Useful Life = Depreciation expense per year.
expense.
2-113
EXERCISE 2-35B (Appendix)
a. $10,000 x 9% = $900; $900 x 4/12 = $300
b. $300
c. $-0-, No interest was paid in 2016; $900 of interest will be paid in 2017 when the note
matures.
d.
Connelly Company
Statements Model for 2016
Balance Sheet
Income Statement
Statement of
Cash Flows
Event
Assets
=
Liabilities
+
Stockholders’ Equity
Rev.
-
Exp.
=
Net Inc.
No.
Cash
=
Notes
Payable
+
Int.
Payable
+
Common
Stock
+
Ret. Earn.
1.
I
NA
NA
NA
I
I
NA
I
I OA
2.
I
I
NA
NA
NA
NA
NA
NA
I FA
3.
NA
NA
I
NA
D
NA
I
D
NA
2-114
EXERCISE 2-36B (Appendix)
a. Interest revenue recognized for 2016: $120,000 x 3% = $3,600;
$3,600 x 5/12 = $1,500
b.
California Company
Accounting Equation for 2016
Assets
=
Liab.
+
Stockholders’ Equity
Event
Cash
+
Interest
Rec.
+
CD
=
+
Common
Stock
+
Retained
Earnings
CD
(120,000)
120,000
Accrue Int. Rev.
1,500
1,500
See the adjusting entry in the accounting equation above (assets increase, equity increases).
c. $-0-. All interest will be paid at maturity, August 1, 2017, for this CD.
d. $1,500
e. $3,600 ($120,000 x 3%). All interest will be collected when the CD matures.
f. $2,100 ($120,000 x 3% x 7/12)
g. $-0-
2-115
2-116
PROBLEM 2-37B
The Accounting Equation
Total Assets
=
Liabilities
+
Stockholders’ Equity
Event/
Adjust.
Cash
+
Other
Assets
=
+
Common
Stock
+
Retained
Earnings
a.
(6,000)
+6,000
NA
NA
NA
a. Adj.1
NA
(4,500)
NA
NA
(4,500)
b.
NA
+2,400
+2,400
NA
NA
b. Adj.2
NA
(2,200)
NA
NA
(2,200)
c.
(7,200)
+7,200
NA
NA
NA
c. Adj.3
NA
(6,000)
NA
NA
(6,000)
d.
+18,000
NA
+18,000
NA
NA
d. Adj.4
NA
NA
(6,000)
NA
6,000
2-117
PROBLEM 2-38B
a.
Wages Company
Income Statement
For the Year Ended December 31, 2016
Revenue
$18,000
Expenses
Salary Expense
$13,000
Utility Expense
1,800
Rent Expense
1,600
Total Expense
(16,400)
Net Income
$ 1,600
b.
Accounts to be Closed:
1. Revenue
2. Salary Expense
3. Utility Expense
4. Rent Expense
5. Dividends
c.
Computation of Retained Earnings:
Beginning Retained Earnings
$19,700
Add: Net Income
1,600
Less: Dividends
(1,000)
Ending Retained Earnings
$20,300
Net income only includes revenues and expenses for the current
year. Retained earnings not only includes current year net
income, but also the balance from previous years and reductions
for dividends.
d. The balances are zero; they were closed to Retained Earnings on
2-118
December 31, 2016. The December 31 closing balance of one
2-119
PROBLEM 2-39B
Weaver Cleaning Company
Effect of Events on the Financial Statements
Balance Sheet
Income Statement
Stmt. of
Assets
=
Liabilities
+
Stock. Equity
Rev.
−
Exp.
=
Net
Inc.
Cash Flows
Even
t
Cash
+
Accts
Rec.
+
Supp.
=
Accts.
Pay.
+
Unearn
Rev.
+
Com.
Stock
+
Ret.
Earn.
1.
15,000
+
NA
+
NA
=
NA
+
NA
+
15,000
+
NA
NA
−
NA
=
NA
15,000 FA
2.
6,000
+
NA
+
NA
=
NA
+
NA
+
NA
+
6,000
6,000
−
NA
=
6,000
6,000 OA
3.
NA
+
18,000
+
NA
=
NA
+
NA
+
NA
+
18,000
18,000
−
NA
=
18,000
NA
4.
11,000
+
(11,000)
+
NA
=
NA
+
NA
+
NA
+
NA
NA
−
NA
=
NA
11,000 OA
5.
(1,400)
+
NA
+
1,400
=
NA
+
NA
+
NA
+
NA
NA
−
NA
=
NA
(1,400) OA
6.
NA
+
NA
+
(1,300)
=
NA
+
NA
+
NA
+
(1,300)
NA
−
1,300
=
(1,300)
NA
7.
3,600
+
NA
+
NA
=
NA
+
3,600
+
NA
+
NA
NA
−
NA
=
NA
3,600 OA
8.
NA
+
NA
+
NA
=
NA
+
(1,800)
+
NA
+
1,800
1,800
−
NA
=
1,800
NA
9.
(6,500)
+
NA
+
NA
=
NA
+
NA
+
NA
+
(6,500)
NA
−
6,500
=
(6,500)
(6,500) OA
10.
NA
+
NA
+
NA
=
2,800
+
NA
+
NA
+
(2,800)
NA
−
2,800
=
(2,800)
NA
11.
(2,100)
+
NA
+
NA
=
(2,100)
+
NA
+
NA
+
NA
NA
−
NA
=
NA
(2,100) OA
12.
(1,000)
+
NA
+
NA
=
NA
+
NA
+
NA
+
(1,000)
NA
−
NA
=
NA
(1,000) FA
Bal.
24,600
+
7,000
+
100
=
700
+
1,800
+
15,000
+
14,200
25,800
−
10,600
=
15,200
24,600 NC
2-120
PROBLEM 2-40B
(Prepared for Instructor's Use)
Accounting Equation
Assets
Liabilities
Stk. Equity
Date
Cash
Acc.
Rec.
Pp. Rent
Supp.
Int.
Rec.
Land
Acc. Pay.
Sal.
Pay.
Unear.
Rev.
Com.
Stock
Ret.
Earn.
Bal.
60,000
45,000
35,000
32,000
60,000
48,000
1/1
30,000
30,000
4/1
(7,200)
7,200
6/1
(5,000)
(5,000)
7/1
(40,000)
40,000
8/1
(21,000)
(21,000)
9/1
9,600
9,600
9/30
20,000
(20,000)
10/1
1,200
1,200
12/31
75,000
75,000
12/31
62,000
(62,000)
12/31
27,000
(27,000)
12/31
18,000
(18,000)
12/31
(1,100)
(1,100)
12/311
12/31a
(5,400)3
(5,400)
12/31a
(4,800)4
4,800
12/312
120
120
Bal.
108,400
58,000
1,800
100
120
55,000
39,200
18,000
4,800
90,000
71,420
1 No entry for the change in value of the land.
2 This assumes that some of the cash was invested in an interest bearing account.
3 12/31a Expired Rent ($7,200 x 9/12 = $5,400)
4 12/31a Unearned Revenue Earned ($9,600 x 4/8 = $4,800)
2-121
PROBLEM 2-40B (cont.)
1. April 1, prepaid rent.
2. Sept. 1, unearned revenue; cash was received in advance.
b. $35,000 + $40,000 − $20,000 = $55,000
c. $62,000 + $9,600 − $7,200 − $21,000 = $43,400
2-122
m. Beg. RE $48,000 + NI $28,420 − Div. $5,000 = Ending retained earnings $71,420
2-123
PROBLEM 2-41B
Shearer Company
Financial Statements
For the Year Ended December 31, 2016
Income Statement
Revenue
Service Revenue
$86,000
Total Revenue
$86,000
Expenses
Other Operating Expenses
$59,000
Supplies Expense
1,000
Rent Expense
3,500
Insurance Expense
2,500
Total Expenses
(66,000)
Net Income
$20,000
Statement of Changes in Stockholders’ Equity
Beginning Common Stock
$ 5,500
Plus: Stock Issued
9,000*
Ending Common Stock
$14,500
Beginning Retained Earnings
$47,200
Plus: Net Income
20,000
Less: Dividends
(5,000)
Ending Retained Earnings
62,200
Total Stockholders’ Equity
$76,700
2-124
PROBLEM 2-41B (cont.)
Shearer Company
Balance Sheet
As of December 31, 2016
Assets
Cash
$22,100
Accounts Receivable
21,000
Supplies
2,100
Prepaid Insurance
3,500
Land
43,000
Total Assets
$91,700
Liabilities
Accounts Payable
$15,000
Total Liabilities
$15,000
Stockholders’ Equity
Common Stock
$14,500
Retained Earnings
62,200
Total Stockholders’ Equity
76,700
Total Liab. and Stockholders’ Equity
$91,700
2-125
PROBLEM 2-41B (cont.)
Shearer Company
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flow From Operating Activities
$ 8,600
Cash Flow From Investing Activities
(6,000)
Cash Flow From Financing Activities
9,000
Net Change in Cash
11,600
Plus: Beginning Cash Balance
10,500*
Ending Cash Balance
$22,100
2-126
PROBLEM 2-42B
FOR THE YEARS
2016
2017
2018
Income Statements
Revenue (cash)
$ 400
$ 500
$ 800
Expense (cash)
(250)
(l) (400)
(425)
Net income
(a) $ 150
$ 100
$ 375
Statements of Changes in Stockholders’ Equity
Beginning common stock
$ -0-
(m) $8,000
$9,100
Plus: Common stock issued
(b) 8,000
1,100
310
Ending common stock
8,000
9,100
(s) 9,410
Beginning retained earnings
-0-
25
75
Plus: Net income
(c) 150
100
375
Less: Dividends
(d) (125)
(50)
(150)
Ending retained earnings
25
(n) 75
300
Total stockholders’ equity
(e) $8,025
$9,175
(t) $9,710
Balance Sheets
Assets
Cash
(f) $11,000
(o) $ 6,650
(u)$ 8,050
Land
-0-
(p) 5,000
2,500
Total assets
$11,000
$11,650
$10,550
Liabilities
(g) $ 2,975
(q) $ 2,475
$ 840
Stockholders’ equity
Common stock
(h) 8,000
(r) 9,100
9,410
Retained earnings
(i) 25
75
300
Total stockholders’ equity
8,025
9,175
9,710
Total liabilities and stk. equity
$11,000
$11,650
$10,550
