2-1. Effect of collecting accounts receivable on the accounting equation and financial statements

Holloway Company earned $18,000 of service revenue on account during 2018. The company collected $14,000 cash from accounts receivable during 2018.

Required

Based on this information alone, determine the following for Holloway Company. (Hint: Record the events in general ledger accounts under an accounting equation before satisfying the requirements.)

a. The balance of the accounts receivable that would be reported on the December 31, 2018, balance sheet.

b. The amount of net income that would be reported on the 2018 income statement.

c. The amount of net cash flow from operating activities that would be reported on the 2018 statement of cash flows.

d. The amount of retained earnings that would be reported on the 2017 balance sheet.

e. Why are the answers to Requirements b and c different?

2-2. Effect of accrued expenses on the accounting equation and financial statements

During 2018, Chung Corporation earned $8,000 of cash revenue and accrued $5,000 of salaries expense.

Required

(Hint: Record the events in general ledger accounts under an accounting equation before satisfying the requirements.) Based on this information alone:

a. Prepare the December 31, 2018, balance sheet.

b. Determine the amount of net income that Chung would report on the 2018 income statement.

c. Determine the amount of net cash flow from operating activities that Chung would report on the 2018 statement of cash flows.

d. Why are the answers to Requirements b and c different?

2-3. Effect of accruals on the financial statements

Milea Inc. experienced the following events in 2018, its first year of operations:

1. Received $20,000 cash from the issue of common stock.

2. Performed services on account for $56,000.

3. Paid the utility expense of $2,500.

4. Collected $48,000 of the accounts receivable.

5. Recorded $10,000 of accrued salaries at the end of the year.

6. Paid a $2,000 cash dividend to the stockholders.

Required

a. Record the events in general ledger accounts under an accounting equation. In the last column of the table, provide appropriate account titles for the Retained Earnings amounts.

The first transaction has been recorded as an example.

b. Prepare the income statement, statement of changes in stockholders equity, balance sheet, and statement of cash flows for the 2018 accounting period.

c. Why is the amount of net income different from the amount of net cash flow from operating activities?

2-4. Effect of accounts receivable and accounts payable transactions on financial statements

The following events apply to Lewis and Harper, a public accounting firm, for the 2018 accounting period:

1. Performed $70,000 of services for clients on account.

2. Performed $40,000 of services for cash.

3. Incurred $36,000 of other operating expenses on account.

4. Paid $10,000 cash to an employee for salary.

5. Collected $47,000 cash from accounts receivable.

6. Paid $16,000 cash on accounts payable.

7. Paid an $8,000 cash dividend to the stockholders.

8. Accrued salaries were $2,000 at the end of 2016.

Required

a. Show the effects of the events on the financial statements using a horizontal statements model like the following one. In the

Cash Flow column, use OA to designate operating activity, IA for investment activity, FA for financing activity, and NC for net change in cash. Use NA to indicate the element is not affected by the event. The first event is recorded as an example.

b. What is the amount of total assets at the end of 2018?

c. What is the balance of accounts receivable at the end of 2018?

d. What is the balance of accounts payable at the end of 2018?

e. What is the difference between accounts receivable and accounts payable?

f. What is net income for 2018?

g. What is the amount of net cash flow from operating activities for 2018?

2-5. Missing information related to accruals

Castile Inc. had a beginning balance of $4,000 in its Accounts Receivable account. The ending balance of Accounts Receivable was $4,500. During the period, Castile recognized $68,000 of revenue on account. Castiles Salaries Payable account has a beginning balance of $2,600 and an ending balance of $1,500. During the period, the company recognized $46,000 of accrued salary expense.

Required

a. Based on the information provided, determine the amount of net income.

b. Based on the information provided, determine the amount of net cash flow from operating activities.