Concept explainers
a.
Introduction: The users of financial statements review the financial statements of the company and perform appropriate analysis to take appropriate decisions, whenever required.
To prepare: Income statement for the month of June.
a.
Explanation of Solution
Income statement
Month ending on June 30
Particulars | Sub-total ($) | Total ($) |
Revenue (Note 1) | 30,750 | |
Less: Expenses | ||
Salaries and wages expense | (5,670) | |
Rent expense | (2,200) | |
Gas, electric and water expense | (2,700) | |
Advertising expense | (900) | (11,470) |
Net income | 19,280 |
Note 1: Service revenue
Particulars | $ |
Revenue earned for services performed in first half of the month | 12,350 |
Add: Revenue earned for services performed in second half of the month | 18,400 |
Ending balance | 30,750 |
b.
Introduction: The users of financial statements review the financial statements of the company and perform appropriate analysis to take appropriate decisions, whenever required.
To prepare: Statement of retained earnings.
b.
Explanation of Solution
Retained earnings statement
(For the month of June)
Particulars | $ |
Net income (WN1) | 19,280 |
Less: Cash dividends paid | (6,000) |
Retained earnings, ending balance | 13,280 |
WN1: Net income has been computed in part (a).
c.
Introduction: The users of financial statements review the financial statements of the company and perform appropriate analysis to take appropriate decisions, whenever required.
To prepare:
c.
Explanation of Solution
Balance sheet
As on June 30
Liabilities & Equity | $ | Assets | $ |
Equity: | Current assets | ||
Capital stock | 30,000 | Cash (Note 1) | 44,580 |
Retained earnings, ending balance (WN2) | 13,280 | Accounts receivable (Note 2) | 18,400 |
Total equity (A) | 43,280 | Total current assets (a) | 62,980 |
Liabilities | Non-current assets | ||
Current liabilities | Computer | 12,000 | |
Accounts payable | 9,500 | Total non-current assets (b) | 12,000 |
Rent payable | 2,200 | ||
Total current liabilities (a) | 11,700 | ||
Long-term liabilities | |||
Promissory note | 20,000 | ||
Total long-term liabilities (b) | 20,000 | ||
Total liabilities [(B) = (a) + (b)] | 31,700 | ||
Total liabilities and equity [(A) + (B)] | 74,980 | Total assets [(a) + (b)] | 74,980 |
Note 1: Cash account
Particulars | $ |
Received from issue of shares of $10,000 to each of 3 the owners | 30,000 |
Less: Paid as down payment for computer | (2,500) |
Add: Received from issue of promissory note | 20,000 |
Less: Paid for advertising expense | (900) |
Add: Received from customers on account for first half of service revenue | 12,350 |
Less: Paid gas, electric and water expenses | (2,700) |
Less: Paid salaries and wages expense | (5,670) |
Less: Paid cash dividends | (6,000) |
Ending balance | 44,580 |
Note 2: Accounts receivable
Particulars | $ |
Revenue earned for services performed in first half of the month | 12,350 |
Less: Cash received from customers on account | (12,350) |
Revenue earned for services performed in second half of the month | 18,400 |
Ending balance | 18,400 |
Refer to part (b) for the computation of retained earnings, ending balance.
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Chapter 3 Solutions
Using Financial Accounting Information
- Analyzing the Accounts The controller for Summit Sales Inc. provides the following information on transactions that occurred during the year: a. Purchased supplies on credit, $18,600 b. Paid $14,800 cash toward the purchase in Transaction a c. Provided services to customers on credit1 $46,925 d. Collected $39,650 cash from accounts receivable e. Recorded depreciation expense, $8,175 f. Employee salaries accrued, $15,650 g. Paid $15,650 cash to employees for salaries earned h. Accrued interest expense on long-term debt, $1,950 i. Paid a total of $25,000 on long-term debt, which includes $1.950 interest from Transaction h j. Paid $2,220 cash for l years insurance coverage in advance k. Recognized insurance expense, $1,340, that was paid in a previous period l. Sold equipment with a book value of $7,500 for $7,500 cash m. Declared cash dividend, $12,000 n. Paid cash dividend declared in Transaction m o. Purchased new equipment for $28,300 cash. p. Issued common stock for $60,000 cash q. Used $10,700 of supplies to produce revenues Summit Sales uses the indirect method to prepare its statement of cash flows. Required: 1. Construct a table similar to the one shown at the top of the next page. Analyze each transaction and indicate its effect on the fundamental accounting equation. If the transaction increases a financial statement element, write the amount of the increase preceded by a plus sign (+) in the appropriate column. If the transaction decreases a financial statement element, write the amount of the decrease preceded by a minus sign (-) in the appropriate column. 2. Indicate whether each transaction results in a cash inflow or a cash outflow in the Effect on Cash Flows column. If the transaction has no effect on cash flow, then indicate this by placing none in the Effect on Cash Flows column. 3. For each transaction that affected cash flows, indicate whether the cash flow would be classified as a cash flow from operating activities, cash flow from investing activities, or cash flow from financing activities. If there is no effect on cash flows, indicate this as a non-cash activity.arrow_forwardJournal Entries, Trial Balance, and Financial Statements Neveranerror Inc. was organized on June 2 by a group of accountants to provide accounting and tax services to small businesses. The following transactions occurred during the first month of business: June 2: Received contributions of $10,000 from each of the three owners of the business in exchange for shares of stock. June 5: Purchased a computer system for $12,000. The agreement with the vendor requires a down payment of $2,500 with the balance due in 60 days. June 8: Signed a two-year promissory note at the bank and received cash of $20,000. June 15: Billed $12,350 to clients for the first half of June. Clients are billed twice a month for services performed during the month, and the bills are payable within ten days. June 17: Paid a $900 bill from the local newspaper for advertising for the month of June. June 23: Received the amounts billed to clients for services performed during the first half of the month. June 28: Received and paid gas, electric, and water bills. The total amount is $2,700. June 29: Received the landlords bill for $2,200 for rent on the office space that Neveranerror leases. The bill is payable by the 10th of the following month. June 30: Paid salaries and wages for June. The total amount is $5,670. June 30: Billed $18,400 to clients for the second half of June. June 30: Declared and paid dividends in the amount of $6,000. Required Prepare journal entries on the books of Neveranerror Inc. to record the transactions entered into during the month. Ignore depreciation expense and interest expense. Prepare a trial balance at June 30. Prepare the following financial statements: Income statement for the month of June Statement of retained earnings for the month of June Classified balance sheet at June 30 Assume that you have just graduated from college and have been approached to join this company as an accountant. From your reading of the financial statements for the first month, would you consider joining the company? Explain your answer. Limit your answer to financial considerations only.arrow_forwardAccounting Question: The following are independent situations: Record the sales transactions and related taxes for each client. Show steps please. 1. Max rang up $14,000 of sales, plus HST of 13%, on it's cash register on April 10. 2. Quince rang up $35,400 of sales, before sales taxes, on its cash register on April 21. The company charges 5% GST and No PST. 3. Jace charges 5% GST and 7% PST on all sales. On April 27, the company collected $23,200 sales in cash plus sales taxes.arrow_forward
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- Journal Entries for Accounts and Notes ReceivableLancaster, Inc., began business on January 1. Certain transactions for the year follow: Jun.8 Received a $18,000, 60 day, eight percent note on account from R. Elliot. Aug.7 Received payment from R. Elliot on her note (principal plus interest). Sep.1 Received a $21,000, 120 day, nine percent note from B. Shore Company on account. Dec.16 Received a $17,000, 45 day, ten percent note from C. Judd on account. Dec.30 B. Shore Company failed to pay its note. Dec.31 Wrote off B. Shore's account as uncollectible. Lancaster, Inc., uses the allowance method of providing for credit losses. Dec.31 Recorded expected credit losses for the year by an adjusting entry. Accounts written off during this first year have created a debit balance in the Allowance for Doubtful Accounts of $25,600. An analysis of aged receivables indicates that the desired balance of the allowance account should be $22,500. Dec.31 Made the…arrow_forwardJournal Entries for Accounts and Notes ReceivableLancaster, Inc., began business on January 1. Certain transactions for the year follow: Jun.8 Received a $18,000, 60 day, eight percent note on account from R. Elliot. Aug.7 Received payment from R. Elliot on her note (principal plus interest). Sep.1 Received a $21,000, 120 day, nine percent note from B. Shore Company on account. Dec.16 Received a $17,000, 45 day, ten percent note from C. Judd on account. Dec.30 B. Shore Company failed to pay its note. Dec.31 Wrote off B. Shore's account as uncollectible. Lancaster, Inc., uses the allowance method of providing for credit losses. Dec.31 Recorded expected credit losses for the year by an adjusting entry. Accounts written off during this first year have created a debit balance in the Allowance for Doubtful Accounts of $25,600. An analysis of aged receivables indicates that the desired balance of the allowance account should be $22,500. Dec.31 Made the…arrow_forwardJournal Entries for Accounts and Notes ReceivableLancaster, Inc., began business on January 1. Certain transactions for the year follow: Jun.8 Received a $18,000, 60 day, eight percent note on account from R. Elliot. Aug.7 Received payment from R. Elliot on her note (principal plus interest). Sep.1 Received a $21,000, 120 day, nine percent note from B. Shore Company on account. Dec.16 Received a $17,000, 45 day, ten percent note from C. Judd on account. Dec.30 B. Shore Company failed to pay its note. Dec.31 Wrote off B. Shore's account as uncollectible. Lancaster, Inc., uses the allowance method of providing for credit losses. Dec.31 Recorded expected credit losses for the year by an adjusting entry. Accounts written off during this first year have created a debit balance in the Allowance for Doubtful Accounts of $25,600. An analysis of aged receivables indicates that the desired balance of the allowance account should be $22,500. Dec.31 Made the…arrow_forward
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