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123
P4–2
Balance Sheet
Assets = Liabilities + Stockholders’ Equity
Accts. Retained
Balance Sheet
Assets = Liabilities + Stockholders’ Equity
Accts. Retained
Rec. + Inventory = Earnings
Jan. 8. 19,800* (14,000) 5,800
Statement of Cash Flows Income Statement
No effect 0 Jan. 8. Sales 19,800
Cost of
g
oods sold
(
14,000
)
Gross profit 5,800
*$19,800 = $20,000 – ($20,000 × 1%)
Balance Sheet
Assets = Liabilities + Stockholders’ Equity
Accts. Retained
Rec. + Inventory = Earnings
124
P4–2, Continued
Balance Sheet
Assets = Liabilities + Stockholders’ Equity
Accts.
Balance Sheet
Assets = Liabilities + Stockholders’ Equity
Accts. Est. Returns Cust. Refunds
Rec. + Inventory Inventory = Payable
Jan. 19. (4,500) 2,700 (2,700) (4,500)
Statement of Cash Flows Income Statement
No effect 0 No effect 0
Balance Sheet
Assets = Liabilities + Stockholders’ Equit
y
Accts.
125
P4–2, Concluded
Balance Sheet
Assets = Liabilities + Stockholders’ Equity
Retained
Balance Sheet
Assets = Liabilities + Stockholders’ Equit
y
Accts.
Cash + Rec.
Jan. 31. 14,000
(
14,000
)
Statement of Cash Flows Income Statement
Jan. 31. Operatin
g
14,000 No effect 0
126
P4–3
1. Snipes Company
Balance Sheet
Assets = Liabilities + Stockholders’ Equit
y
Accts. Retained
Cash + Rec. + Inv. = Earnin
g
s
*$17,885 = $18,250 – ($18,250 × 2%)
Balance Sheet
Assets = Liabilities + Stockholders’ Equit
y
Accts. Est. Ret. Cust. Refunds
Rec. + Inventor
y
+ Inventor
y
= Pa
y
able
June 12.
(
4,900
)
* 3,000
(
3,000
)
(
4,900
)
Statement of Cash Flows Income Statement
No effect 0 No effect 0
*$4,900 = $5,000 – ($5,000 × 2%)
Balance Sheet
Assets = Liabilities + Stockholders’ Equit
y
Accts.
127
P4–3, Continued
Balance Sheet
Assets = Liabilities + Stockholders’ Equit
y
Accts. Retained
Balance Sheet
Assets = Liabilities + Stockholders’ Equit
y
Accts.
Cash + Rec.
June 30. 15,000
(
15,000
)
Statement of Cash Flows Income Statement
June 30. Operatin
g
15,000 No effect 0
2. Beejoy Company
Balance Sheet
Assets = Liabilities + Stockholders’ Equity
Accts.
128
P4–3, Continued
Balance Sheet
Assets = Liabilities + Stockholders’ Equity
Accts.
Balance Sheet
Assets = Liabilities + Stockholders’ Equit
y
Accts.
Cash = Pa
y
able
June 23.
(
12,985
)
*
(
12,985
)
Statement of Cash Flows Income Statement
June 23. Operatin
g
(
12,985
)
No effect 0
*$12,985 = $17,885 – $4,900
Balance Sheet
Assets = Liabilities + Stockholders’ Equit
y
Accts.
129
P4–3, Concluded
Balance Sheet
Assets = Liabilities + Stockholders’ Equity
Cash + Inventory
June 26. (375) 375
Statement of Cash Flows Income Statement
June 26. Operatin
g
(
375
)
No effect 0
Balance Sheet
Assets = Liabilities + Stockholders’ Equity
Accts.
130
P4–4
1.
PRESCOTT INC.
Income Statement
For the Year Ended September 30, 20Y8
Sales ................................................................. $ 7,134,000
Cost of goods sold .......................................... (4,350,000)
Gross profit ...................................................... $ 2,784,000
Operating expenses:
Selling expenses:
Sales salaries expense ......................... $777,600
Administrative expenses:
Office salaries expense ........................ $154,800
Rent expense ........................................ 79,800
Insurance expense ................................ 45,900
Depreciation expense—office
equipment ........................................ 32,400
Office supplies expense ....................... 3,300
2.
PRESCOTT INC.
Statement of Stockholders’ Equity
For the Year Ended September 30, 20Y8
Common Stock Retained Earnings Total
Balances, Oct. 1, 20Y7 .................... $30,000 $ 507,600 $ 537,600
131
P4–4, Continued
3.
PRESCOTT INC.
Balance Sheet
September 30, 20Y8
Assets
Current assets:
Cash ............................................................ $ 167,000
Accounts receivable .................................. 300,000
Inventory .................................................... 735,000
Estimated returns inventory ..................... 25,000
Office supplies ........................................... 30,000
Prepaid insurance ..................................... 24,000
Total current assets ................................ $ 1,281,000
Liabilities
Current liabilities:
Accounts payable ...................................... $ 67,000
Customer refunds payable ....................... 30,200
Salaries payable ........................................ 19,200
Note payable (current portion) ................. 16,000
Total current liabilities ............................ $ 132,400
132
P4–4, Concluded
4. The multiple-step form of income statement includes numerous sections and
P4–5
1.
PRESCOTT INC.
Income Statement
For the Year Ended September 30, 20Y8
Sales ................................................................................... $7,134,000
Expenses:
Cost of goods sold ..................................................... $4,350,000
Selling expenses ........................................................ 890,000
2.
PRESCOTT INC.
Statement of Stockholders’ Equity
For the Year Ended September 30, 20Y8
Common Stock Retained Earnings Total
Balances, Oct. 1, 20Y7 .................... $30,000 $ 507,600 $ 537,600
Net income ...................................... 1,550,000 1,550,000
133
1.
OMEGA SYSTEMS INC.
Statement of Cash Flows
For the Year Ended March 31, 20Y5
Cash flows from (used for) operating activities:
Net income .......................................................... $105,450
Depreciation expense—store
equipment .................................................. $ 24,650
Depreciation expense—office
equipment .................................................. 3,735
Changes in noncash current operating assets
and liabilities:
Increase in accounts receivable .................. (36,120)
Increase in inventory .................................... (9,000)
Cash flows from (used for) investing activities:
Purchase of store equipment ............................ $ (65,000)
Purchase of office equipment ........................... (8,355)
Net cash flows used for investing activities .... (73,355)
Cash flows from (used for) financing activities:
2. Depreciation is added to net income in determining net cash flows from
operating activities. This is because depreciation is deducted in arriving at net
income, but it does not involve any cash payments.
