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2-69
m. Beg. RE $47,500 + NI $20,850 − Div. $2,000 = Ending retained earnings $66,350
2-70
PROBLEM 2-41A
Barker Company
Financial Statements
For the Year Ended December 31, 2016
Income Statement
Revenue
Service Revenue
$65,200
Total Revenue
$65,200
Expenses
Other Operating Expenses
$41,000
Supplies Expense
1,100
Rent Expense
2,500
Insurance Expense
2,100
Total Expenses
(46,700)
Net Income
$18,500
Statement of Changes in Stockholders’ Equity
Beginning Common Stock
$40,000
Plus: Stock Issued
5,000
Ending Common Stock
$45,000
Beginning Retained Earnings
$ 9,300
Plus: Net Income
18,500
Less: Dividends
(3,000)
Ending Retained Earnings
24,800
Total Stockholders’ Equity
$69,800
2-71
PROBLEM 2-41A (cont.)
Barker Company
Balance Sheet
As of December 31, 2016
Assets
Cash
$ 48,000
Accounts Receivable
14,200
Supplies
1,000
Prepaid Insurance
1,200
Prepaid Rent
4,800
Land
24,000
Total Assets
$93,200
Liabilities
Accounts Payable
$17,000
Unearned Revenue
6,400
Total Liabilities
$23,400
Stockholders’ Equity
Common Stock
$45,000
Retained Earnings
24,800
Total Stockholders’ Equity
69,800
Total Liab. and Stockholders’ Equity
$93,200
2-72
PROBLEM 2-41A (cont.)
Barker Company
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flow From Operating Activities
$15,600
Cash Flow From Investing Activities
(5,200)
Cash Flow From Financing Activities
(5,000)
Net Change in Cash
5,400
Plus: Beginning Cash Balance
42,600*
Ending Cash Balance
$48,000
2-73
PROBLEM 2-42A
FOR THE YEARS
2016
2017
2018
Income Statements
Revenue (cash)
$ 700
$1,300
$ 2,000
Expense (cash)
(a) (500)
(700)
(1,300)
Net Income (Loss)
$ 200
(m) $ 600
$ 700
Statements of Changes in Stockholders’ Equity
Beginning Common Stock
$ -0-
(n) $5,000
$6,000
Plus: Common Stock Issued
5,000
1,000
2,000
Ending Common Stock
5,000
6,000
(t) 8,000
Beginning Retained Earnings
-0-
100
200
Plus: Net Income (Loss)
(b) 200
(o) 600
700
Less: Dividends
(c) (100)
(500)
(300)
Ending Retained Earnings
100
(p) 200
600
Total Stockholders’ Equity
(d) $5,100
$6,200
$8,600
Balance Sheets
Assets
Cash
(e) $8,100
(q) $3,200
(u)$ 2,600
Land
-0-
(r) 8,000
8,000
Total Assets
(f) $8,100
$11,200
$10,600
Liabilities
(g) $3,000
$ 5,000
$ 2,000
Stockholders’ Equity
Common Stock
(h) 5,000
(s) 6,000
8,000
Retained Earnings
(i) 100
200
600
Total Stockholders’ Equity
(j) 5,100
6,200
8,600
Total Liab. and Stk. Equity
$8,100
$11,200
$10,600
2-74
PROBLEM 2-42A (cont.)
FOR THE YEARS
2016
2017
2018
Statements of Cash Flows
Cash Flows From Oper. Activities:
Cash Receipts from Customers
(k)$ 700
$ 1,300
(v) $ 2,000
Cash Payments for Expenses
(l) (500)
(700)
(w) (1,300)
Net Cash Flows from Oper. Act.
200
600
700
Cash Flows From Invest. Activities:
Cash Payments for Land
-0-
(8,000)
-0-
Cash Flows From Fin. Activities:
Cash Receipts from Loan
3,000
3,000
-0-
Cash Payments to Reduce Debt
-0-
(1,000)
(x) (3,000)
Cash Receipts from Stock Issue
5,000
1,000
(y) 2,000
Cash Payments for Dividends
(100)
(500)
(z) (300)
Net Cash Flows from Fin. Activities
7,900
2,500
(1,300)
Net Change in Cash
8,100
(4,900)
(600)
Plus: Beginning Cash Balance
-0-
8,100
3,200
Ending Cash Balance
$8,100
$3,200
$2,600
2-75
PROBLEM 2-42A (cont.)
Computations of amounts:
a. $500 Expense = $700 Revenue − $200 Net Income.
b. $200 Net Income = $200 Net Income from Income Statement.
c. $100 Dividends = $200 Net Income − $100 Ending Ret. Earnings.
k. $700 Cash Receipts from Revenue = $700 Revenue from Income Statement.
l. $500 Cash Payment for Expenses = $500 Expense from Income Statement.
m. $600 Net Income = $1,300 Revenue − $700 Expense.
n. $5,000 Beginning Common Stock = $5,000 Ending Common Stock 2016.
o. $600 Net Income = $600 Net Income from Income Statement.
w. $1,300 Cash Payments for Expenses = $1,300 Expense from Income Statement.
x. $3,000 Cash Payment to Reduce Debt = $5,000 Balance of Liabilities, 2017− $2,000
Balance of Liabilities, 2018.
y. $2,000 Cash Receipts from Stock Issue = $2,000 Stock Issued from Statement of
Changes in Stockholders’ Equity.
2-76
PROBLEM 2-43a
a.
Alcorn 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
Ret. Earn.
1.
AS
20,000
20,000
2.
AS
800
800
3.
AE
(14,000)
14,000
4.
AU
(800)
(800)
5.
AS
10,500
10,500
6.
AU
(3,800)
(3,800)
7.
AE
7,000
(7,000)
8.
CE
3,600
(3,600)
9.
AU
(700)
(700)
Totals
8,400
3,500
100
-0-
14,000
=
-0-
3,600
-0-
+
20,000
2,400
2-77
PROBLEM 2-43A a. (cont.)
Alcorn Service Company
Accounting Equation for 2017
Assets
=
=
Liabilities
+
Stk. Equity
Event
Type of
Event
Cash
Accts.
Rec.
Supp.
Prepd.
Rent
Land
Int.
Rec.
Accts.
Pay.
Salaries
Payable
Unearn
Rev.
+
Com.
Stock
Ret.
Earn.
Bal.
8,400
3,500
100
-0-
14,000
-0-
3,600
-0-
20,000
2,400
1.
AS
15,000
15,000
2.
AU
(3,600)
(3,600)
3.
AE
(9,000)
9,000
4.
AE
14,000
(14,000)
5.
AS
6,000
6,000
6.
AS
2,400
2,400
7.
AS
24,500
24,500
8.
AE
12,600
(12,600)
9.
AU
(2,000)
(2,000)
10.
AU
(2,850)
(2,850)
11.
AU
(7,500)1
(7,500)
12.
CE
(1,500)2
1,500
13.
AU
(2,200)3
(2,200)
14.
CE
4,800
(4,800)
15.
AS
500
500
Totals
38,550
15,400
300
1,500
-0-
500
2,400
4,800
4,500
+
35,000
9,550
2-78
2-79
PROBLEM 2-43A (cont.)
b.
Alcorn Service Company
Financial Statements
For the Years Ended December 31, 2016 and 2017
Income Statements
2016
2017
Service Revenue
$10,500
$26,000
Interest Revenue
-0-
500
Total Revenue
10,500
26,500
Expenses
Operating Expenses
(3,800)
(2,850)
Supplies Expense
(700)
(2,200)
Salaries Expense
(3,600)
(4,800)
Rent Expense
-0-
(7,500)
Total Expenses
(8,100)
(17,350)
Net Income (Loss)
$2,400
$ 9,150
Statements of Changes in Stockholders’ Equity
Beginning Common Stock
$ -0-
$20,000
Plus: Stock Issued
20,000
15,000
Ending Common Stock
20,000
35,000
Beginning Retained Earnings
-0-
2,400
Plus/Less: Net Income (Loss)
2,400
9,150
Less: Dividends
-0-
(2,000)
Ending Retained Earnings
2,400
9,550
Total Stockholders’ Equity
$22,400
$44,550
2-80
PROBLEM 2-43A b. (cont.)
Alcorn Service Company
Balance Sheets
As of December 31, 2016 and 2017
2016
2017
Assets
Cash
$ 8,400
$38,550
Accounts Receivable
3,500
15,400
Interest Receivable
-0-
500
Supplies
100
300
Prepaid Rent
-0-
1,500
Land
14,000
-0-
Total Assets
$26,000
$56,250
Liabilities
Accounts Payable
$ -0-
$ 2,400
Salaries Payable
3,600
4,800
Unearned Revenue
-0-
4,500
Total Liabilities
3,600
11,700
Stockholders’ Equity
Common Stock
20,000
35,000
Retained Earnings
2,400
9,550
Total Stockholders’ Equity
22,400
44,550
Total Liab. and Stock. Equity
$26,000
$56,250
2-81
PROBLEM 2-43A b. (cont.)
Alcorn Service Company
Statements of Cash Flows
For the Years Ended December 31, 2016 and 2017
2016
2017
Cash Flows From Operating Activities:
Cash Receipts from Customers1
$7,000
$18,600
Cash Payments for Expense2
(4,600)
(15,450)
Net Cash Flow from Operating Activities
2,400
3,150
Cash Flows From Investing Activities:
Cash Payment for Land
(14,000)
-0-
Cash Proceeds from Sale of Land
-0-
14,000
Net Cash Flow From Investing Activities
(14,000)
14,000
Cash Flows From Financing Activities:
Cash Receipts from Stock Issue
20,000
15,000
Cash Payment for Dividends
-0-
(2,000)
Net Cash Flow From Financing Activities
20,000
13,000
Net Change in Cash
8,400
30,150
Plus: Beginning Cash Balance
-0-
8,400
Ending Cash Balance
$8,400
$38,550
2-82
PROBLEM 2-44A
1. The availability of an opportunity
2. The existence of some sort of pressure
3. The capacity for rationalization
1. Even though Pete has exceeded his authority, no one has
2. Pete is in a financial bind and does not want to discuss his
3. He rationalizes that his actions do not hurt anyone because the
fee.
2-83
PROBLEM 2-45A (Appendix)
Accounting Equation (Prepared for Instructor's Use)
Accounting Equation
Assets
Liabilities
Stk. Equity
Date
Cash
Acc Rec.
Pp.
Rent
Supp.
CD
Int.
Rec.
Truck
Acc
Depr.
Land
Acc.
Pay.
Sal.
Pay.
Note
Pay.
Int
Pay.
Unear.
Rev.
Com.
Stock
Ret.
Earn
Bal.
26,000
9,000
42,000
5,000
28,000
44,000
1/1
15,000
15,000
1/1
(22,000)
22,000
2/1
12,000
12,000
2/1
(3,000)
3,000
3/1
(2,000)
(2,000)
4/1
(28,000)
28,000
5/1
(4,000)
(4,000)
7/1
5,400
5,400
9/1
42,000
(42,000)
10/1
5,000
5,000
11/1
(50,000)
50,000
12/31
42,000
42,000
12/31
40,000
(40,000)
12/31
6,000
(6,000)
12/31
5,200
(5,200)
12/31
(4,800)
(4,800)
12/31a
(5,000)1
(5,000)
12/31a
9902
(990)
12/31a
(2,750)3
(2,750)
12/31a
(2,700)4
2,700
12/31a
5005
500
Bal.
31,400
11,000
250
200
50,000
500
22,000
(5,000)
28,000
12,000
5,200
12,000
990
2,700
43,000
62,460
(1) 12/31a Depreciation Expense $22,000 − $2,000 = $20,000; $20,000 4 = $5,000
(2) 12/31a Interest Expense $12,000 x 9% = $1,080; $1,080 x 11/12 = $990
(3) 12/31a Expired Rent $3,000 x 11/12 = $2,750
(4) 12/31a Unearned Revenue earned $5,400 x 6/12 = $2,700
(5) 12/31a Interest Earned $50,000 x 6% = $3,000; $3,000 x 2/12 = $500
2-84
PROBLEM 2-45A (cont.)
1. Jan. 1, purchase of truck; depreciation expense.
2. Feb. 1, note payable issued; interest expense.
3. Feb. 1, prepaid rent; rent expense.
4. July 1, unearned revenue; cash was received in advance; earned
revenue.
5. Nov. 1, purchase of CD; interest revenue.
b. $12,000 X 9% X 11/12 = $990
c. $40,000 + $5,400 − $3,000 − $4,000 = $38,400
d. $3,000 X 11/12 = $2,750
2-85
