Chapter -3 Operating Decisions and the Income Statement
3-21
E3–11. (continued)
Req. 3
STACEY’S PIANO REBUILDING COMPANY
Balance Sheet (unadjusted)
At January 31, 2011
Assets
Current assets:
Cash
Accounts receivable
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Unearned fee revenue
Total current liabilities
$ 12,520
22,800
$ 7,980
4,440
12,420
Chapter 3 -Operating – Decisions – and -the – Income – Statement
E3–12.
STACEY’S PIANO REBUILDING COMPANY
Statement of Cash Flows
For the Month Ended January 31, 2011
Operating Activities
Cash received from customers
(=$18,400+$600+$820+$7,200)
$27,020
Cash paid to employees
Cash paid to suppliers (=$2,140+$960)
(3,100)
Total cash from operating activities
Investing Activities
None
0
Total cash provided by investing activities
0
Financing Activities
Dividends paid
(2,600)
Total cash used in financing activities
(2,600)
Increase in cash
Ending cash balance
$12,520
Chapter -3 Operating Decisions and the Income Statement
3-23
E3–13.
Req. 1 and 2
Cash
Accounts Receivable
Supplies
Beg. 0
(a)160,000
72,000 (b)
10,830 (d)
Beg. 0
(a) 2,000
Beg. 0
(a) 1,200
Equipment
Building
Accounts Payable
Beg. 0
Beg. 0
0 Beg.
68,300
380,000
420
Note Payable
Mortgage Payable
Contributed Capital
0 Beg.
50,000 (c)
0 Beg.
288,000(b)
0 Beg.
181,500 (a)
50,000
288,000
181,500
Retained
Earnings
Food Sales Revenue
Catering Sales
Revenue
0 Beg.
0 Beg.
11,900 (f)
0 Beg.
4,200 (e)
11,900
4,200
Supplies Expense
Utilities Expense
Wages Expense
10,830
Fuel Expense
64,427
Chapter 3 -Operating – Decisions – and -the – Income – Statement
E3–14.
Req. 1
TRAVELING GOURMET, INC.
Income Statement (unadjusted)
For the Month Ended March 31, 2011
$ (1,793)
Revenues:
Food sales revenue
Catering sales revenue
Total revenues
$ 11,900
4,200
16,100
Req. 2
TRAVELING GOURMET, INC.
Statement of Stockholders’ Equity (unadjusted)
For the Month Ended March 31, 2011
Contributed
Capital
Retained
Earnings
Total
Stockholders’
Equity
Beginning, March 1, 2011
$ 0
$ 0
$ 0
Chapter -3 Operating Decisions and the Income Statement
3-25
E3–14. (continued)
Req. 3
TRAVELING GOURMET, INC.
Balance Sheet (unadjusted)
At March 31, 2011
Assets
Current assets:
Cash
Liabilities
Current liabilities:
Accounts payable
Note payable
Total current liabilities
Mortgage payable
$ 64,427
$ 420
50,000
50,420
288,000
Req. 4
The company generated a small loss during its first month of operations, before making
any adjusting entries. The adjusting entries for depreciation and interest expense will
Chapter 3 -Operating – Decisions – and -the – Income – Statement
E3–15.
TRAVELING GOURMET, INC.
Statement of Cash Flows
For the Month Ended March 31, 2011
Operating Activities
Cash received from customers
(=$2,600+$11,900)
$ 14,500
Cash paid to employees
(6,280)
Cash paid to suppliers (=$10,830+$363)
(11,193)
Total cash used in operating activities
(2,973)
Purchased building (=$72,000+$20,000)
Purchased equipment
Total cash used in investing activities
Financing Activities
Borrowed on a note payable
Issued stock
Paid dividends
Total cash from financing activities
Increase in cash
64,427
Beginning cash balance
0
Ending cash balance
$ 64,427
Chapter -3 Operating Decisions and the Income Statement
3-27
E3–16.
Req. 1
Transaction
Brief Explanation
a
Issued capital stock to shareholders for $63,300 cash.
b
Purchased store fixtures for $13,700 cash.
Req. 2
Kate’s Kite Company
Income Statement
For the Month Ended April 30, 2011
Sales Revenue
Expenses:
Cost of sales
$ 13,640
6,510
on account.
e
Used $1,480 of utilities during the month, not yet paid.
Paid $1,240 in wages to employees.
$1,860 related to future months.
Chapter 3 -Operating – Decisions – and -the – Income – Statement
E3–16. (continued)
Kate’s Kite Company
Balance Sheet
At April 30, 2011
Assets
Liabilities and Shareholders’ Equity
Current Assets:
Current Liabilities:
Cash
$52,080
Accounts payable
$20,080
Accounts receivable
3,720
Unearned revenue
2,480
Inventory
Prepaid expenses
Contributed capital
Store fixtures
Retained earnings
Total Assets
E3–17.
Req. 1
Assets
=
Liabilities
+
Stockholders’ Equity
$ 3,200
$ 2,400
$ 4,800
$17,600
$ 8,000
Chapter -3 Operating Decisions and the Income Statement
3-29
E3–17. (continued)
Req. 2
Cash
Accounts
Receivable
Long-Term
Investments
Beg. 3,200
57,200 (d)
Beg. 8,000
5,600 (b)
Beg. 6,400
Accounts
Payable
Unearned
Revenue
Long-Term
Notes Payable
(d) 1,600
2,400 Beg.
800 (f)
5,600 Beg.
1,600 (e)
1,600 Beg.
1,600
7,200
1,600
Contributed Capital
Retained Earnings
4,800 Beg.
3,200 Beg.
4,800
2,720
Consulting Fee
Revenue
Investment
Income
0 Beg.
0 Beg.
58,000 (a)
400 (c)
58,000
400
Wages Expense
Travel Expense
Utilities Expense
Chapter 3 -Operating – Decisions – and -the – Income – Statement
3-30
E3–17. (continued)
Req. 3
Revenues
$58,400
($58,000 + $400)
– Expenses
56,400
($36,000 + $12,000 + $800 + $7,600)
Net Income
$ 2,000
Assets
=
Liabilities
+
Stockholders’ Equity
$ 1,120
$ 1,600
$ 4,800
Req. 4
$19,920
$10,400
$ 9,520
Chapter -3 Operating Decisions and the Income Statement
E3–18.
Req. 1
Accounts receivable increases with customer sales on account and decreases with
cash payments received from customers.
Req. 2
Accounts
Receivable
Prepaid
Expenses
Unearned
Subscriptions
1/1 438
1/1 90
81 1/1
2,949
2,983
313
277
148
151
12/31 404
12/31 126
84 12/31
Computations:
Beginning
+
“+”
−
“−”
=
Ending
Accounts
438
+
2,949
−
?
=
404
Chapter 3 -Operating – Decisions – and -the – Income – Statement
3-32
E3–19.
ITEM
LOCATION
1. Description of a company’s
primary business(es).
Letter to shareholders;
Management’s Discussion and Analysis;
Summary of significant accounting policies
note
2. Income taxes paid.
Notes; Statement of cash flows
3. Accounts receivable.
Balance sheet
Statement of cash flows
Summary of significant accounting policies
note
Income statement (Cost of Goods Sold)
Chapter -3 Operating Decisions and the Income Statement
PROBLEMS
P3-1.
Transactions
Debit
Credit
a.
Example: Purchased equipment for use in the business;
paid one-third cash and signed a note payable for the balance.
5
1, 8
b.
Paid cash for salaries and wages earned by employees this
period.
14
1
Paid cash on accounts payable for expenses
incurred last period.
7
1
d.
Purchased supplies to be used later; paid cash.
3
1
e.
Performed services this period on credit.
2
13
Collected cash on accounts receivable for services
performed last period.
1
2
g.
Issued stock to new investors.
1
11
h.
Paid operating expenses incurred this period.
14
1
i.
Incurred operating expenses this period to be paid
next period.
14
7
j.
Purchased a patent (an intangible asset); paid cash.
6
1
k.
Collected cash for services performed this period.
1
13
l.
Used some of the supplies on hand for operations.
14
3
Paid three-fourths of the income tax expense for the year;
the balance will be paid next year.
15
n.
Made a payment on the equipment note in (a); the payment
was part principal and part interest expense.
1
o.
On the last day of the current period, paid cash for an
insurance policy covering the next two years.
4
1
Chapter 3 -Operating – Decisions – and -the – Income – Statement
3-34
P3–2.
a.
Cash (+A) ………………………………………………………………….
40,000
Contributed capital (+SE) ………………………………………..
40,000
b.
Cash (+A) ………………………………………………………………….
60,000
Note payable (long-term) (+L) ………………………………….
60,000
f.
Inventory (+A) …………………………………………………………….
2,800
Cash (−A) …………………………………………………………….
2,800
g.
Advertising expense (+E, −SE)……………………………………..
350
Cash (−A) …………………………………………………………….
350
h.
Cash (+A) ………………………………………………………………….
Accounts receivable (+A) …………………………………………….
Sales revenue (+R, +SE) ……………………………………….
Cost of goods sold (+E, −SE) ……………………………………….
Inventory (−A) ………………………………………………………
Accounts payable (−L) …………………………………………………
Cash (−A) …………………………………………………………….
Cash (+A) ………………………………………………………………….
Rent expense (+E, −SE) ………………………………………………
Prepaid rent (+A) ………………………………………………………..
Cash (−A) ……………………………………………………………..
d.
Prepaid insurance (+A) ………………………………………………..
2,400
e.
Equipment (+A) ………………………………………………………….
15,000
Accounts payable (+L) …………………………………………..
12,000
Cash (−A) …………………………………………………………….
3,000
Chapter -3 Operating Decisions and the Income Statement
P3–3.
Req. 1
Req. 2
Balance Sheet
Income Statement
Stmt of
Cash
Flows
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
a.
+ / –
+
NE
NE
NE
NE
O
b.
+ / –
NE
NE
NE
NE
NE
I
+
NE
+
O
e.
NE
NE
+
NE
NE
NE
NE
g.
NE
+
NE
O
h.
NE
NE
+
O
* Cash is not affected in this transaction.
3-36
P3–4.
Req. 1 and 2
Cash
Accounts Receivable
Supplies
Beg. 0
5,640 (b)
Beg. 0
155 (k)
Beg. 0
Inventory
Prepaid Expenses
Equipment
Beg. 0
(c) 5,500
1,200 (h)
1,210 (m)
Beg. 0
(b) 5,640
Beg. 0
(f) 2,750
3,090
5,640
2,750
Furniture and Fixtures
Accounts Payable
Notes Payable
Beg. 0
(f) 8,250
5,500 (c)
11,000 (e)
8,250
4,950
11,000
Contributed Capital
Sales Revenue
Cost of Goods Sold
2,400 (m)
27,600
2,410
0 Beg.
0 Beg.
Beg. 0
Advertising Expense
Wage Expense
Repair Expense
1,500
Beg. 0
Beg. 0
Beg. 0
Chapter -3 Operating Decisions and the Income Statement
P3–4. (continued)
Req. 3
BRI’S SWEETS
Income Statement (unadjusted)
For the Month Ended February 28, 2011
Revenues:
Sales revenue
Expenses:
Cost of goods sold
$ 5,400
2,410
Net Income
$ 860
BRI’S SWEETS
Statement of Stockholders’ Equity (unadjusted)
For the Month Ended February 28, 2011
Contributed
Capital
Retained
Earnings
Total
Stockholders’
Equity
Chapter 3 -Operating – Decisions – and -the – Income – Statement
3-38
P3–4. (continued)
BRI’S SWEETS
Balance Sheet (unadjusted)
At February 28, 2011
Assets
Current assets:
Cash
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Total current liabilities
Notes payable
$ 23,080
$ 4,950
4,950
11,000
Req. 4
Date: (today’s date)
To: Brianna Webb
From: (your name)
After analyzing the effects of transactions for Bri’s Sweets for February, the
company has realized a profit of $860. This is 16% of sales revenue. However, this is
based on unadjusted amounts. There are several additional expenses that will
decrease the net income amount, perhaps resulting in a net loss. These include rent,
supplies, depreciation, interest, and wages. Therefore, the company does not appear to
Chapter -3 Operating Decisions and the Income Statement
P3–4. (continued)
Req. 5
2012
2013
Total Asset
=
Sales
$82,500
=
1.88
$93,500
=
1.36
Turnover
Average
Total Assets
$44,000*
$68,750**
* ($38,500 + $49,500) ÷ 2
** ($49,500 + $88,000) ÷ 2
The ratio for 2013 is lower than it otherwise would have been given Brianna’s decision
P3–5.
BRI’S SWEETS
Statement of Cash Flows
For the Month Ended February 28, 2011
Operating Activities
Cash received from customers
(=$2,675+$155+$2,400)
$ 5,230
Cash paid to employees
(1,500)
Cash paid to suppliers
(=$5,640+$1,430+$500+$550+$130)
Total cash used in operating activities
Investing Activities
Purchased equipment
Total cash used in investing activities
Financing Activities
Issued stock
Borrowed from bank
Total cash from financing activities
Increase in cash
Beginning cash balance
Ending cash balance
Chapter 3 -Operating – Decisions – and -the – Income – Statement
3-40
P3–6.
Req. 1 and 2
Cash
Receivables
Spare Parts, Supplies,
and Fuel
Beg. 360
4,598 (c)
Beg. 1,162
4,824 (e)
Beg. 294
Prepaid Expenses
Other Current Assets
Property and
Equipment (net)
Beg. 82
(c) 1,531
Beg. 1,196
Beg. 8,362
(b) 1,345
1,613
1,196
9,707
Other Noncurrent
Assets
Accounts
Payable
Accrued Expenses
Payable
835 Beg.
1,675 Beg.
51
1,675
Other Current
Liabilities
Long-Term
Notes Payable
Other Noncurrent
Liabilities
297 Beg.
(f) 18
667 Beg.
1,345 (b)
3,513
Beg.
297
1,994
3,513
Contributed Capital
Retained Earnings
492 Beg.
16 (g)
5,827 Beg.
508
5,827
Delivery Service
Revenue
Rental
Expense
Repair
Expense
0 Beg.
Beg. 0
3,067
5,348 (i)
784 (j)