2-6. Effect of accruals on the financial statements

Cordell Inc. experienced the following events in 2018, its first year of operation:

1. Received $40,000 cash from the issue of common stock.

2. Performed services on account for $82,000.

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

4. Collected $76,000 of the accounts receivable.

5. Paid $53,000 cash for other operating expenses.

6. Performed services for $19,000 cash.

7. Recognized $3,500 of accrued utilities expense at the end of the year.

Required

a. Identify the events that result in revenue or expense recognition.

b. Based on your response to Requirement a, determine the amount of net income reported on the 2018 income statement.

c. Identify the events that affect the statement of cash flows.

d. Based on your response to Requirement c, determine the amount of cash flow from operating activities reported on the 2018 statement of cash flows.

e. What is the before- and after-closing balance in the Service Revenue account? What other accounts would be closed at the end of the accounting cycle?

f. What is the balance of the Retained Earnings account that appears on the 2018 balance sheet?

2-7. Net income versus changes in cash

In 2018, Lee Inc. billed its customers $62,000 for services performed. The company collected $51,000 of the amount billed. Lee incurred $39,000 of other operating expenses on account. Lee paid $31,000 of the accounts payable. Lee acquired $40,000 cash from the issue of common stock. The company invested $21,000 cash in the purchase of land.

Required

(Hint: Identify the six events described in the paragraph and record them in general ledger accounts under an accounting equation before attempting to answer the questions.) Use the preceding information to answer the following questions:

a. What amount of revenue will Lee report on the 2018 income statement?

b. What amount of cash flow from revenue will be reported on the statement of cash flows?

c. What is the net income for the period?

d. What is the net cash flow from operating activities for the period?

e. Why is the amount of net income different from the net cash flow from operating activities for the period?

f. What is the amount of net cash flow from investing activities?

g. What is the amount of net cash flow from financing activities?

h. What amounts of total assets, liabilities, and equity will be reported on the year-end balance sheet?

2-8. Supplies and the financial statements model

Pizza Express Inc. began the 2018 accounting period with $2,500 cash, $1,400 of common stock, and $1,100 of retained earnings. Pizza Express was affected by the following accounting events during 2018:

1. Purchased $3,600 of supplies on account.

2. Earned and collected $12,300 of cash revenue.

3. Paid $2,700 cash on accounts payable.

4. Adjusted the records to reflect the use of supplies. A physical count indicated that $250 of supplies was still on hand on December 31, 2018.

Required

a. Show the effects of the events on the financial statements using a horizontal statements model like the following one. In the Cash Flows column, use OA to designate operating activity, IA

for investing activity, FA for financing activity, and NC for net

change in cash. Use NA to indicate accounts not affected by the event. The beginning balances are entered in the following example:

b. Explain the difference between the amount of net income and amount of net cash flow from operating activities.

2-9. Supplies on financial statements

Yard Professionals Inc. experienced the following events in 2018, its first year of operation:

1. Performed services for $35,000 cash.

2. Purchased $6,000 of supplies on account.

3. A physical count on December 31, 2018, found that there was

$1,800 of supplies on hand.

Required

Based on this information alone:

a. Record the events under an accounting equation.

b. Prepare an income statement, balance sheet, and statement of cash flows for the 2018 accounting period.

c. What is the balance in the Supplies account as of January 1, 2019?

d. What is the balance in the Supplies Expense account as of January 1, 2019?

2-22. Closing the accounts

The following information was drawn from the accounting records of Wyckoff Company as of December 31, 2018, before the temporary accounts had been closed. The Cash balance was

$3,600, and Notes Payable amounted to $4,000. The company had revenues of $7,500 and expenses of $3,400. The companys Land account had a $8,000 balance. Dividends amounted to

$1,000. The balance of the Common Stock account was $2,000.

Required

a. Identify which accounts would be classified as permanent and which accounts would be classified as temporary.

b. Assuming that Wyckoffs beginning balance (as of January 1, 2018) in the Retained Earnings account was $2,500, determine its balance after the temporary accounts were closed at the end

of 2018.

c. What amount of net income would Wyckoff Company report on its 2018 income statement?

d. Explain why the amount of net income differs from the amount of the ending Retained Earnings balance.

e. What are the balances in the revenue, expense, and dividend

accounts on January 1, 2019

2-25. Classifying events on the statement of cash flows

The following transactions pertain to the operations of Ewing Company for 2018:

1. Acquired $30,000 cash from the issue of common stock.

2. Provided $65,000 of services on account.

3. Paid $22,000 cash on accounts payable.

4. Performed services for $8,000 cash.

5. Collected $51,000 cash from accounts receivable.

6. Incurred $37,000 of operating expenses on account.

7. Paid $6,500 cash for one years rent in advance.

8. Paid a $4,000 cash dividend to the stockholders.

9. Paid $1,200 cash for supplies to be used in the future.

10. Recognized $3,100 of accrued salaries expense.

Required

a. Classify the cash flows from these transactions as operating activities (OA), investing activities (IA), or financing activities (FA). Use NA for transactions that do not affect the statement of

cash flows.

b. Prepare a statement of cash flows. (There is no beginning cash balance.)

Use an example to explain the matching concept.