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2-52
Ending Cash Balance
$55,300
EXERCISE 2-26A
Item/Account
Statement
Item/Account
Statement
a. Supplies
BS
u. Rent Exp.
IS
b. Cash Flow from
Financing Act.
CF
v. P/E Ratio
NA
c. “As of” Date Notation
BS
w. Taxes Payable
BS
d. End Retained Earn.
BS/SE
x. Unearned Revenue
BS
e. Net Income
IS/SE
y. Service Revenue
IS
e. Dividends
SE/CF
z. Cash Flow from
Investing Activities
CF
g. Net Change in Cash
CF
aa. Consulting Revenue
IS
h. “For the Period
Ended”
IS, CF,SE
bb. Utilities Expense
IS
i. Land
BS
cc. End. Common Stock
BS/SE
j. Ending Common
Stock
BS,SE
dd. Total Liabilities
BS
k. Salaries Expense
IS
ee. Operating Cycle
NA
l. Prepaid Rent
BS
ff. Cash Flow from
Operating Activities
CF
m. Accounts Payable
BS
gg. Operating Expenses
IS
n. Total Assets
BS
hh. Supplies Expense
IS
o. Salaries Payable
BS
ii. Beg. Retained Earn.
SE
p. Insurance Expense
IS
jj. Beg. Common Stock
SE
q. Notes Payable
BS
kk. Prepaid Insurance
BS
r. Accounts Receivable
BS
ll. Salary Expense
IS
s. Interest Receivable
BS
mm. Beginning Cash
CF
t. Interest Revenue
IS
nn. Ending Cash
BS/CF
2-53
EXERCISE 2-27A
Net Income
Cash Flow from
Operating Activities
Event/Adj.
Direction of
Change
Amount of
Change
Direction of
Change
Amount of
Change
a. Event
Adj.
NA
Decrease
NA
$2,2501
Decrease
NA
$9,000
NA
b. Event
Adj.
NA
Decrease
NA
1,7002
Decrease
NA
500
NA
c. Event
No adj.
Increase
10,000
Increase
10,000
d. Event
Adj.
NA
Increase
NA
1,6003
Increase
NA
2,400
NA
e. Event
No adj.
Decrease
5,600
NA
NA
f. Event
No adj.
NA
NA
NA
NA
h. Event
No adj.
NA
NA
NA
NA
i. Event
No adj.
Increase
12,000
Increase
8,000
j. Event
No adj.
Decrease
4,500
Decrease
4,500
1$9,000 x 3/12 = $2,250
2$2,000 − $300 = $1,700
3$2,400 x 8/12 = $1,600
2-54
EXERCISE 2-28A
The following are only example transactions. There are also other
transactions that would cause the desired effect.
a. The business acquired cash by issuing stock to its owners.
2-55
EXERCISE 2-29A
a. Asset Source
b. Asset Use
2-56
EXERCISE 2-30A
Note: These are only sample transactions. Other similar transactions will
2-57
EXERCISE 2-31A
Horizontal Statements Model
Stock. Equity
Income Statement
Statement
of
Type of
Com.
Ret.
Net
Cash
Event
Event
Assets
=
Liab.
+
Stock
+
Earn
Rev.
−
Exp
=
Inc.
Flows
a.
AS
I
NA
NA
I
I
NA
I
I
OA
b.
AS
I
I
NA
NA
NA
NA
NA
NA
c.
AE
I/D
NA
NA
NA
NA
NA
NA
D
OA
d.
AE
I/D
NA
NA
NA
NA
NA
NA
D
IA
e.
AU
D
NA
NA
D
NA
NA
NA
D
FA
f.
AS
I
NA
I
NA
NA
NA
NA
I
FA
g.
AU
D
D
NA
NA
NA
NA
NA
D
OA
h.
AE
I/D
NA
NA
NA
NA
NA
NA
I
OA
i.
AS
I
I
NA
NA
NA
NA
NA
I
OA
j.
CE
NA
I
NA
D
NA
I
D
NA
k.
AS
I
NA
NA
I
I
NA
I
NA
l.
AU
D
NA
NA
D
NA
I
D
NA
m.
AU
D
NA
NA
D
NA
I
D
D
OA
n.
AU
D
NA
NA
D
NA
I
D
NA
o.
CE
NA
I
NA
D
NA
I
D
NA
p.
AU
D
D
NA
NA
NA
NA
NA
D
OA
q.
AS
I
NA
NA
I
I
NA
I
NA
2-58
EXERCISE 2-32A
The six principles of the AICPA Code of Professional Conduct and a brief
explanation is as follows:
Responsibilities Principle
In carrying out their responsibilities as professionals, members should
2-59
EXERCISE 2-33A (Appendix)
a.
Tracey’s Restaurant
Accounting Equation for 2016
Assets
=
Stockholders’ Equity
Event
Cash
Cook Top
Accum.
Depr.
=
Com.
Stock
+
Retained
Earnings
1. Issue Stk.
21,000
21,000
2. Pur. Cooktop
(22,000)
22,000
3. Rev.
32,000
32,000
4. Paid Sal Exp.
(16,000)
(16,000)
5. Paid Op. Exp.
(7,000)
(7,000)
6. Depr. Exp.
(4,000)*
(4,000)
Totals
8,000
22,000
(4,000)
=
21,000
+
5,000
2-60
EXERCISE 2-34A (Appendix)
d. Compute the depreciation expense per year.
(Cost – Salvage) ÷ Useful Life = Depreciation expense per year.
expense.
EXERCISE 2-35A (Appendix)
a. $8,000 x 6% = $480; $480 x 5/12 = $200
2-62
EXERCISE 2-36A (Appendix)
a. Interest revenue recognized for 2016: $80,000 x 2% = $1,600;
$1,600 x 7/12 = $933 (rounded)
b.
Leach Company
Accounting Equation for 2016
Assets
=
Liab.
+
Equity
Even
t
Cash
+
Interest
Rec.
+
CD
=
+
Common
Stock
+
Retained
Earnings
CD
(80,000)
NA
80,000
NA
NA
NA
Adj.
NA
933
NA
NA
NA
933
See the adjusting entry in the accounting equation above (assets
increase, equity increases).
c. $-0-. All interest will be paid at maturity, June 1, 2017, for this CD.
d. $933
e. $1,600 ($80,000 x 2%). All interest will be collected when the CD
matures.
f. $667 ($80,000 x 2% x 5/12) or ($1,600 − $933 = $667)
g. $-0-
2-63
SOLUTIONS TO PROBLEMS – SERIES A
PROBLEM 2-37A
The Accounting Equation
Total Assets
=
Liabilities
+
Stockholders’ Equity
Event/
Adjust.
Cash
+
Other
Assets
=
+
Common
Stock
+
Retained
Earnings
a.
(4,800)
+4,800
NA
NA
NA
a. Adj.
NA
(1,200)1
NA
NA
(1,200)
b.
+3,600
NA
+3,600
NA
NA
b. Adj.
NA
NA
(2,700)2
NA
+2,700
c.
NA
+1,200
+1,200
NA
NA
c. Adj.
NA
(1,025)
NA
NA
(1,025)
d.
(9,600)
+9,600
NA
NA
NA
d. Adj.
NA
(4,000)4
NA
NA
(4,000)
1$4,800 x 3/12 = $1,200
2$3,600 x 9/12 = $2,700
3$1,200 − $175 = $1,025
4$9,600 x 5/12 = $4,000
2-64
EXERCISE 2-38A a.
Nowell Company
Income Statement
For the Year Ended December 31, 2016
Consulting Revenue
$18,200
Expenses
Travel Expense
$2,100
Rent Expense
3,500
Salary Expense
7,200
Other Operating Expenses
2,300
Total Expenses
(15,100)
Net Income
$3,100
Accounts to be Closed:
Consulting Revenue
Travel Expense
Dividends
Rent Expense
Salary Expense
Other Operating Expenses
Computation of Retained Earnings:
Beginning Retained Earnings
$16,200
Add: Net Income
3,100
Less: Dividends
(4,000)
Ending Retained Earnings
$15,300
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.
e. The balances are zero; they were closed to Retained Earnings on
2-65
December 31, 2016. The December 31 closing balance of one
2-66
PROBLEM 2-39A
Super Cleaning Co.
Effect of Events on the Financial Statements
Balance Sheet
Income Statement
Stmt. of
Assets
=
Liabilities
+
Stockholders’
Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
Event
No.
Cash
+
Accts
Rec.
+
Pp. Rent
=
Accts.
Pay.
+
Unearn
Rev.
+
Com.
Stock
+
Ret.
Earn.
1.
10,000
+
NA
+
NA
=
NA
+
NA
+
10,000
+
NA
NA
−
NA
=
NA
10,000 FA
2.
NA
+
15,000
+
NA
=
NA
+
NA
+
NA
+
15,000
15,000
−
NA
=
15,000
NA
3.
5,000
+
NA
+
NA
=
NA
+
NA
+
NA
+
5,000
5,000
−
NA
=
5,000
5,000 OA
4.
2,800
+
NA
+
NA
=
NA
+
2,800
+
NA
+
NA
NA
−
NA
=
NA
2,800 OA
5.
12,200
+
(12,200)
+
NA
=
NA
+
NA
+
NA
+
NA
NA
−
NA
=
NA
12,200 OA
6.
(1,900)
+
NA
+
NA
=
NA
+
NA
+
NA
+
(1,900)
NA
−
1,900
=
(1,900)
(1,900) OA
7.
NA
+
NA
+
NA
=
NA
+
(1,400)
+
NA
+
1,400
1,400
−
NA
=
1,400
NA
8.
NA
+
NA
+
NA
=
3,600
+
NA
+
NA
+
(3,600)
NA
−
3,600
=
(3,600)
NA
9.
(4,800)
+
NA
+
4,800
=
NA
+
NA
+
NA
+
NA
NA
−
NA
=
NA
(4,800) OA
10.
(2,800)
+
NA
+
NA
=
(2,800)
+
NA
+
NA
+
NA
NA
−
NA
=
NA
(2,800) OA
11.
(1,500)
+
NA
+
NA
=
NA
+
NA
+
NA
+
(1,500)
NA
−
NA
=
NA
(1,500) FA
12.
NA
+
NA
+
(3,600)*
=
NA
+
NA
+
NA
+
(3,600)
NA
−
3,600
=
(3,600)
NA
Bal.
19,000
+
2,800
+
1,200
=
800
+
1,400
+
10,000
+
10,800
21,400
−
9,100
=
12,300
19,000 NC
*$4,800 x 9/12 = $3,600
2-67
PROBLEM 2-40A
Accounting Equation (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.
35,000
9,000
51,000
7,500
40,000
47,500
1/1
20,000
20,000
2/1
(6,000)
6,000
3/1
(2,000)
(2,000)
4/1
(15,000)
15,000
5/1
(5,500)
(5,500)
7/1
9,600
9,600
9/1
30,000
(30,000)
10/1
2,500
2,500
12/31
58,000
58,000
12/31
46,000
(46,000)
12/31
28,000
(28,000)
12/31
6,500
(6,500)
12/31
(2,450)
(2,450)
12/311
12/312
500
500
12/31a
(5,500)3
(5,500)
12/31a
(4,800)4
4,800
Bal.
112,100
21,000
500
50
500
36,000
32,500
6,500
4,800
60,000
66,350
1 12/31 No entry required for the change in the value of the land.
2 12/31 This assumes that part of the cash was invested in an interest-bearing account.
3 12/31a Expired Rent $6,000 x 11/12 = $5,500
4 12/31a Unearned Revenue earned $9,600 x 6/12 = $4,800
2-68
PROBLEM 2-40A (cont.)
1. Feb. 1, prepaid rent.
2. July 1, unearned revenue; cash was received in advance.
b. $36,000; its historical cost.
c. $46,000 + $9,600 − $6,000 − $5,500 = $44,100
