2-32
EXERCISE 2-11A
a. Examples of expenses that would be matched directly with revenue:
2-33
EXERCISE 2-12A
a.
Pizza Express
Effect of Events on Financial Statements for 2016
Assets
=
Liab.
+
Stockholders’
Equity
Income Statement
Statement
of
Cash
+
Supplies
=
Accts.
Pay.
+
Com.
Stock
+
Ret.
Earn.
Rev.
−
Exp.
=
Net
Income
Cash
Flows
2,500
+
-0-
=
-0-
+
1,400
+
1,100
-0-
−
-0-
=
-0-
-0-
NA
+
3,600
=
3,600
+
NA
+
NA
NA
−
NA
=
NA
NA
12,300
+
NA
=
NA
+
NA
+
12,300
12,300
−
NA
=
12,300
12,300 OA
(2,700)
+
NA
=
(2,700)
+
NA
+
NA
NA
−
NA
=
NA
(2,700) OA
NA
+
(3,350)
=
NA
+
NA
+
(3,350)
NA
−
3,350
=
(3,350)
NA
12,100
+
250
=
900
+
1,400
+
10,050
12,300
−
3,350
=
8,950
9,600 NC
2-34
EXERCISE 2-13A a.
Yard Professionals Inc.
Effect of Events on the Accounting Equation
Assets
=
Liab.
+
Stk. Equity
Event
Cash
Supplies
=
Accounts
Payable
Retained
Earnings
1. Provided Service
35,000
35,000
2. Purchased Supplies
6,000
6,000
3. Used Supplies
(4,200)
(4,200)
Totals
35,000
1,800
=
6,000
30,800
b.
Yard Professionals Inc.
Income Statement
For the Year Ended December 31, 2016
Revenue
$35,000
Expense
(4,200)
Net Income
$30,800
Yard Professionals Inc.
Balance Sheet
As of December 31, 2016
Assets
Cash
$35,000
Supplies
1,800
Total Assets
$36,800
Liabilities
Accounts Payable
$ 6,000
Total Liabilities
$ 6,000
Stockholders’ Equity
Retained Earnings
30,800
Total Stockholders’ Equity
30,800
2-35
Total Liab. and Stockholders’ Equity
$36,800
2-36
EXERCISE 2-13A b. (cont.)
Yard Professionals Inc.
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Cash Receipt from Revenue
$35,000
Net Cash Flow from Operating Activities
$35,000
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities:
-0-
Net Change in Cash
35,000
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$35,000
2-37
EXERCISE 2-14A
a. A cost is the value sacrificed for goods and services that are expected
to bring a current or future benefit to the organization. A cost can be
b.
Asset
Expense
(1)
X (Purchased Building)
(2)
X (Purchased Supplies)
(3)
X (Used Supplies)
(4)
X (Paid Insurance in Advance)
(5)
X (Accrued Salaries)
EXERCISE 2-15A
a.
Life, Inc.
Effect of Events on the Accounting Equation
Assets
=
Stockholders’ Equity
Event
Cash
Prepaid
Rent
=
Retained Earnings
1. Performed Services
36,000
36,000
2. Prepaid Rent
(18,000)
18,000
3. Used Rent
(16,500)*
(16,500)
Totals
18,000
1,500
=
19,500
*$18,000 x 11/12 = $16,500
b.
Life, Inc.
Income Statement
For the Year Ended December 31, 2016
Revenue
$36,000
Expense
(16,500)
Net Income
$19,500
Life, Inc.
Balance Sheet
As of December 31, 2016
Assets
Cash
$18,000
Prepaid Rent
1,500
Total Assets
$19,500
Liabilities
-0-
Stockholders’ Equity
Retained Earnings
19,500
Total Stockholders’ Equity
19,500
Total Liab. and Stockholders’ Equity
$19,500
2-39
2-40
EXERCISE 2-15A b. (cont.)
Life, Inc.
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Cash Receipt from Revenue
$36,000
Cash Payment for Rent
(18,000)
Net Cash Flow from Operating Activities
$18,000
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities:
-0-
Net Change in Cash
18,000
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$18,000
2-41
EXERCISE 2-16A
a.
Maine Corporation
Accounting Equation 2016
Assets
=
Liab.
+
Stockholders’ Equity
Event
Cash
Prepaid
Rent
=
+
Com.
Stock
+
Retained
Earnings
Paid rent in
advance
(18,000)
18,000
Adj. Rent exp.
(13,500)*
(13,500)
Totals
(18,000)
4,500
=
-0-
+
-0-
+
(13,500)
*$18,000 x 9/12 = $13,500
b. The required entry would decrease assets by $13,500 [($18,000 12)
x 9] and decrease stockholders’ equity by $13,500 (retained
earnings). If this entry is not made, assets and stockholders’ equity
would both be overstated on the balance sheet by $13,500. On the
income statement, expenses would be understated causing net
income to be overstated by $13,500.
2-42
EXERCISE 2-17A
a.
Yard Designs 2016
Event
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
=
Unearned Revenue
+
Retained Earnings
event
54,000
54,000
Adj.
(13,500)*
13,500
54,000
=
40,500
13,500
*$54,000 x 3/12 = $13,500
b.
Yard Designs
Income Statement
For the Year Ended December 31, 2016
Revenue
$13,500
Expense
-0-
Net Income
$13,500
Yard Designs
Balance Sheet
As of December 31, 2016
Assets
Cash
$54,000
Total Assets
$54,000
Liabilities
-0-
Unearned Revenue
$40,500
Total Liabilities
$40,500
Stockholders’ Equity
Retained Earnings
13,500
Total Stockholders’ Equity
13,500
Total Liab. and Stockholders’ Equity
$54,000
2-43
EXERCISE 2-17A b. (cont.)
Yard Designs
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Cash Receipt from Revenue
$54,000
Net Cash Flow from Operating Activities
$54,000
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities:
-0-
Net Change in Cash
54,000
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$54,000
2-44
EXERCISE 2-18A
Note: This exercise can be used to assess writing skills.
2–45
EXERCISE 2-19A
Hart 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
=
Accts.
Payable
+
Unearn.
Rev.
+
Retained
Earnings
1.
36,000
+
NA
=
NA
+
36,000
+
NA
NA
−
NA
=
NA
36,000 OA
2.
54,000
+
NA
=
NA
+
NA
+
54,000
54,000
−
NA
=
54,000
54,000 OA
3.
NA
+
2,800
=
2,800
+
NA
+
NA
NA
−
NA
=
NA
NA
4.
(2,400)
+
NA
=
(2,400)
+
NA
+
NA
NA
−
NA
=
NA
(2,400) OA
5.
(5,000)
+
NA
=
NA
+
NA
+
(5,000)
NA
−
NA
=
NA
(5,000) FA
6.
(31,000)
+
NA
=
NA
+
NA
+
(31,000)
NA
−
31,000
=
(31,000)
(31,000) OA
7.
NA
+
(2,600)
=
NA
+
NA
+
(2,600)
NA
−
2,600
=
(2,600)
NA
8.
NA
+
NA
=
NA
+
(27,000)*
+
27,000
27,000
−
NA
=
27,000
NA
Totals
51,600
+
200
=
400
+
9,000
+
42,400
81,000
−
33,600
=
47,400
51,600 NC
*$36,000 x 9/12 = $27,000
2–46
EXERCISE 2-20A
a.
Bell Personal Financial Planning
Horizontal Statements Model for 2016
Assets
=
Liabilities
+
Stk. Equity
Income Statement
Statement
of
Event
Cash
=
Unearned
Revenue
+
Retained
Earnings
Rev.
−
Exp.
=
Net
Income
Cash
Flows
1. Advance Payment
36,000
36,000
NA
NA
NA
NA
36,000 OA
2. Revenue Earned
NA
(21,000)*
21,000
21,000
NA
21,000
NA
Totals
36,000
=
15,000
+
21,000
21,000
−
-0-
=
21,000
36,000 NC
2–47
EXERCISE 2-21A
a.
Josh Smith Attorney – 2016
Event
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
=
Unearned
Revenue
+
Common
Stock
+
Retained
Earnings
Cash collected
10,800
10,800
Revenue earned
(5,400)*
5,400
*$10,800 x 3/6 = $5,400
b.
James Company – 2016
Event
Assets
=
Liab.
+
Stockholders’ Equity
Cash
Prepaid
Legal Fees
=
+
Common
Stock
+
Retained
Earnings
Cash paid
(10,800)
10,800
Service used
(5,400)*
(5,400)
*$10,800 x 3/6 = $5,400
2–48
EXERCISE 2-22A
a. deferral
b. neither
c. neither
2–49
EXERCISE 2-23A
Note: There are many examples of events that illustrate the required
2–50
EXERCISE 2-24A
a.
Event
Requires year-end
adjusting entry?
1.
No
2.
No
3.
Yes
4.
Yes
5.
No
6.
Yes
7.
No
8.
No
9.
No
10.
No
b. Adjusting entries are required to update accounting records for income
2–51
EXERCISE 2-25A
a.
Event
Classification
1.
FA
2.
NA
3.
OA
4.
OA
5.
OA
6.
NA
7.
OA
8.
FA
9.
OA
10.
NA
b.
Ewing 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
8,000
Cash payment for supplies
(1,200)
Cash payment on accounts payable
(22,000)
Cash payment for rent
(6,500)
Net Cash Flow from Operating Activities
$29,300
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities:
Cash receipt from stock issue
$30,000
Cash payment for dividends
(4,000)
Net Cash Flow from Financing Activities
26,000
Net Change in Cash
$55,300
Plus: Beginning Cash Balance
-0-