2-127
PROBLEM 2-42B (cont.)
FOR THE YEARS
2016
2018
Statements of Cash Flows
Cash flows from oper. activities:
Cash receipts from revenue
(j)$ 400
(v) $ 800
Cash payments for expenses
(k) (250)
(w) (425)
Net cash flows from oper. Act.
150
375
Cash flows from invest. activities:
Cash payments for land
-0-
-0-
Cash receipt from sale of land
-0-
2,500
Net cash flows from invest. act.
-0-
2,500
Cash flows from fin. activities:
Cash rec. from borrowed funds
2,975
-0-
Cash payments to reduce debt
-0-
(x) (1,635)
Cash receipts from stock issue
8,000
(y) 310
Cash payments for dividends
(125)
(z) (150)
Net cash flows from fin. activities
10,850
(1,475)
Net change in cash
11,000
1,400
Plus: beginning cash balance
-0-
6,650
Ending cash balance
$11,000
$ 8,050
2-128
PROBLEM 2–42B (cont.)
Computations of amounts:
a. $150 Net Income = $400 Revenue − $250 Expenses.
b. $8,000 Common Stock Issued = $8,000 Ending Common Stock − $-0- Beginning
Common Stock.
i. $25 Retained Earnings = $25 Ending Retained Earnings from Statement of Changes
in Stockholders’ Equity.
j. $400 Cash Receipts from Revenue = $400 Revenue from Income Statement.
k. $250 Cash Payments for Expenses = $250 Expenses from Income Statement.
l. $400 Expenses = $500 Revenue − $100 Net Income.
issued.
t. $9,710 Total Stockholders’ Equity = $9,410 Ending Common Stock + $300 Ending
Retained Earnings.
u. $8,050 Cash = $10,550 Total Assets − $2,500 Land.
v. $800 Cash Receipts from Revenue = $800 Revenue from Income Statement.
w. $425 Cash Payments for Expenses = $425 Expenses from Income Statement.
2-129
PROBLEM 2-43B
a.
Iowa Service Company
Accounting Equation for 2016
Assets
=
Liabilities
+
Stk. Equity
Event
Type of
Event
Cash
Accts.
Rec.
Supp.
Prepd.
Rent
Land
=
Accts.
Pay.
Salaries
Payable
Unearn.
Rev.
+
Com.
Stock
Retained
Earnings
1.
AS
60,000
60,000
2.
AS
1,200
1,200
3.
AE
(18,000)
18,000
4.
AU
(800)
(800)
5.
AS
42,000
42,000
6.
AU
(21,000)
(21,000)
7.
AE
38,000
(38,000)
8.
CE
3,200
(3,200)
9.
AU
(1,000)
(1,000)
Totals
58,200
4,000
200
-0-
18,000
=
400
3,200
-0-
+
60,000
16,800
2-130
PROBLEM 2-43B. (cont.)
Iowa Service Company
Accounting Equation for 2017
Assets
=
Liabilities
+
Stk. Equity
Event
Type of
Event
Cash
Accts.
Rec.
Supp.
Prepd.
Rent
Int.
Rec.
Land
=
Accts.
Pay.
Salaries
Payable
Unearn.
Revenue
+
Com.
Stock
Retained
Earnings
Bal.
58,200
4,000
200
-0-
18,000
400
3,200
-0-
60,000
16,800
1.
AS
20,000
20,000
2.
AU
(3,200)
(3,200)
3.
AE
(3,600)
3,600
4.
AE
15,000
(15,000)
5.
AS
4,800
4,800
6.
AS
1,000
1,000
7.
AS
32,000
32,000
8.
AE
33,000
(33,000)
9.
AU
(5,000)
(5,000)
10.
AU
(19,500)
(19,500)
11.
AU
(3,000)1
(3,000)
12.
CE
(1,200)2
1,200
13.
AU
(900)
(900)
14.
CE
3,900
(3,900)
15.
AS
400
400
Totals
99,700
3,000
300
600
400
3,000
=
1,400
3,900
3,600
+
80,000
18,100
1$3,600 x 10/12 = $3,000
2$4,800 x 3/12 = $1,200
2-131
PROBLEM 2-43B (cont.)
b.
Iowa Service Company
Financial Statements
For the Years Ended December 31, 2016 and 2017
Income Statements
2016
2017
Service Revenue
$ 42,000
$ 33,200
Interest Revenue
-0-
400
42,000
33,600
Expenses
Operating Expenses
(21,000)
(19,500)
Supplies Expense
(1,000)
(900)
Salaries Expense
(3,200)
(3,900)
Rent Expense
-0-
(3,000)
Total Expenses
(25,200)
(27,300)
Net Income
$16,800
$ 6,300
Statements of Changes in Stockholders’ Equity
Beginning Common Stock
$ -0-
$60,000
Plus: Stock Issued
60,000
20,000
Ending Common Stock
60,000
80,000
Beginning Retained Earnings
-0-
16,800
Plus: Net Income
16,800
6,300
Less: Dividends
-0-
(5,000)
Ending Retained Earnings
16,800
18,100
Total Stockholders’ Equity
$76,800
$98,100
2-132
PROBLEM 2-43B b. (cont.)
Iowa Service Company
Balance Sheets
As of December 31, 2016 and 2017
2016
2017
Assets
Cash
$58,200
$99,700
Accounts Receivable
4,000
3,000
Interest Receivable
-0-
400
Supplies
200
300
Prepaid Rent
-0-
600
Land
18,000
3,000
Total Assets
$80,400
$107,000
Liabilities
Accounts Payable
$ 400
$ 1,400
Salaries Payable
3,200
3,900
Unearned Revenue
-0-
3,600
Total Liabilities
3,600
8,900
Stockholders’ Equity
Common Stock
60,000
80,000
Retained Earnings
16,800
18,100
Total Stockholders’ Equity
76,800
98,100
Total Liab. and Stockholders’ Equity
$80,400
$107,000
2-133
PROBLEM 2-43B b. (cont.)
Iowa Service Company
Statements of Cash Flows
For the Years Ended December 31, 2016 and 2017
2016
2017
Cash Flows From Operating Activities:
Cash Received from Customers
$38,000
$37,800
Cash Payment for Expenses1
(21,800)
(26,300)
Net Cash Flow from Operating Activities
16,200
11,500
Cash Flows From Investing Activities:
Cash Payment for Land
(18,000)
-0-
Cash Proceeds from Sale of Land
15,000
Net Cash Flow From Investing Activities
(18,000)
15,000
Cash Flows From Financing Activities:
Cash Receipts from Stock Issue
60,000
20,000
Cash Payment for Dividends
-0-
(5,000)
Net Cash Flow From Financing Activities
60,000
15,000
Net Change in Cash
58,200
41,500
Plus: Beginning Cash Balance
-0-
58,200
Ending Cash Balance
$58,200
$99,700
2-134
PROBLEM 2-44B
a.
Several of the principles should be mentioned in the memo.
Responsibilities Principle
As a professional, Kato should exercise professional and moral
2-135
PROBLEM 2-45B
(Prepared for Instructor’s Use)
Accounting Equation
Assets
Liabilities
Stk. Equity
Date
Cash
Acc.
Rec.
Pp. Rent
Supp
CD
Int.
Rec.
Van
Acc.
Depr.
Land
Acc.
Pay.
Sal.
Pay.
Note
Pay.
Int.
Pay.
Unear.
Rev.
Com.
Stock
Ret. Earn.
Bal.
61,000
45,000
27,000
25,000
90,000
18,000
1/1
70,000
70,000
1/1
(26,000)
26,000
3/1
21,000
21,000
4/1
(6,600)
6,600
6/1
(3,000)
(3,000)
7/1
(25,000)
25,000
8/1
(13,000)
(13,000)
9/1
8,400
8,400
10/1
900
900
11/1
(30,000)
30,000
12/31
80,000
80,000
12/31
56,000
(56,000)
12/31
16,000
(16,000)
12/31
5,000
(5,000)
12/31
(650)
(650)
12/31a1
(3,800)1
(3,800)
12/31a2
1,4002
(1,400)
12/31a3
(4,950)3
(4,950)
12/31a4
(4,200)4
4,200
12/31a5
2005
200
Bal.
112,800
69,000
1,650
250
30,000
200
26,000
(3,800)
52,000
28,900
5,000
21,000
1,400
4,200
160,000
67,600
(1) 12/31a Depreciation Expense ($26,000 − $7,000 = $19,000; $19,000 5 = $3,800 per year)
(2) 12/31a Interest Expense ($21,000 x 8% = $1,680; $1,680 x 10/12 = $1,400)
(3) 12/31a Expired Rent ($6,600 x 9/12 = $4,950)
(4) 12/31a Unearned Revenue Earned ($8,400 x 4/8 = $4,200)
(5) 12/31a Interest Earned ($30,000 x 4% = $1,200; $1,200 x 2/12 = $200)
2-1
PROBLEM 2-45B (cont.)
1. Jan. 1, purchase of delivery van. Depreciation expense is recorded.
2. March 1, note payable issued. Interest expense is recorded.
3. April 1, prepaid rent. Expired rent is recorded.
4. Sept. 1, unearned revenue; cash was received in advance. Earned
5. Nov. 1, purchase of CD. Interest revenue is recorded.
b. $21,000 X 8% X 10/12=$1,400.
c. $56,000 + $8,400 − $6,600 − $13,000 = $44,800
d. $6,600 X 9/12 = $4,950
2-2
2-3
ATC 2-1 (All dollar amounts are in millions.)
1. Target’s accrual accounts are: Credit card receivables (2012 only),
Accounts payable, Accrued and other current liabilities. Note 16
2. Target’s deferral accounts are: Inventories, Buildings and
improvements, Fixtures and equipment, Computer hardware and
3. Net income for 2013 was $1,971
4. Net income decreased by $1,028 from 2012 to 2013 ($1,971 – $2,999).
2-4
ATC 2-2
a. 1. (in millions)
2013
2012
2011
Revenue
$120,550
$115,846
$110,875
Less: Operating expenses
88,582
102,686
97,995
Operating income
$ 31,968
$ 13,160
$ 12,880
2. The balance in Retained earnings is affected as follows:
3. Growth rates for operating income are:
2-5
ATC 2-3
Dollar amounts are in thousands.
a.
2012
2013
Revenues
$2,434,435
$2,644,630
– Expenses
2,331,354
2,527,365
Net income
$ 103,081
$ 117,265
Beg. retained earnings
$ 298,757
$ 374,932
+ Net income
103,081
117,265
– Dividends
26,915
53,515
End. Retained earnings
$ 374,932
$ 438,673
2-6
ATC 2-4
Dollar amounts in thousands.
a. and b.
2012
2013
Cash from operating activities
$ 145,188
$ 179,360
Cash from investing activities
(142,753)
(145,741)
Cash from financing activities
(1,588)
3,039
Net change in cash
847
36,658
+ Beg. cash balance
20,530
21,377
= End. Cash balance
$ 21,377
$ 58,035
2-7
ATC 2-5
Dollar amounts are in thousands.
a.
Aeropostale
American
Eagle
Outfitters
Revenues
$ 2,386,178
$ 3,475,802
Expenses
2,351,255
3,243,694
Net income
$ 34,923
$ 232,108
Beg. retained earnings
$ 459,279
$ 1,771,464
+ Net income
34,923
232,108
– Dividends
–
(414,301)
End. Retained earnings
$ 494,202
$ 1,589,271
2-8
ATC 2-6
Dollar amounts in thousands.
a. and b.
H&R Block
Intuit
Revenues
$ 2,905,943
$ 4,171,000
Expenses
2,471,995
3,313,000
Net income
$ 433,948
$ 858,000
Cash from operating activities
$ 497,108
$ 1,366,000
Cash from investing activities
(110,937)
(485,000)
Cash from financing activities
(584,541)
(262,000)
Net change in cash
(198,370)
619,000
+ Beg. cash balance
1,944,334
393,000
= End. Cash balance
$1,745,964
$ 1,012,000
2-9
ATC 2-7
a.
Income Statement
Balance Sheet
Service Revenue
$120,000
Assets:
$167,000
Operating Exp.
(40,000)
Net Income
$ 80,000
Liabilities:
$ 5,000
Stockholders’
Equity:
Common Stock
82,000
Retained Earnings
80,000
Total Liab.
162,000
Total Liab. and
Stk. Equity
$167,000
2-10
ACT 2-7 (cont.)
c. The auditing profession has identified three elements that are
typically present when fraud occurs. They are: (1) the availability of
2-11
ATC 2-8
This solution is based on Netflix’s 2013 financial report.
a. Netflix’s accrual accounts are:
Current content liabilities (though students will probably not list
this account)