Determining the Impact of Transactions, Including Analysis of Cash Flows

E$9-8$

Vernon Company sells a wide range of goods through two retail stores operated in adjoining cities. Most

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purchases of goods for resale are on invoices. Occasionally, a short$-$term note payable is used to obtain cash for current use. The following transactions were selected from those occurring during $2015$:

a$.$ Purchased merchandise on credit, $$18,000$ on January $10,2015$ ; the company uses a periodic inventory system.

b$.$ Borrowed $$45,000$ cash on March $1,2015,$ from City Bank and gave an interest$-$bearing note payable: face amount, $$45,000,$ due at the end of six months, with an annual interest rate of $10$ percent payable at maturity.

Required:

Describe the impact of each transaction on the balance sheet equation. Indicate the effects $($e$.$g$.,$ cash $+$ or $-),$ using the following schedule:

Date

Assets

Liabilities

Stockholders' Equity

What amount of cash is paid on the maturity date of the note?

Discuss the impact of each transaction on Vernon's cash flows.

Recording and Reporting Current Liabilities with Discussion of Cash Flow Effects

Rogers Company completed the following transactions during $2014.$ The annual accounting period ends December $31,2014.($AP$9-1)$

Jan. $8$ Purchased merchandise for resale on account at an invoice cost of $$14,860$; assume a periodic inventory system.

$17$ Paid January $8$ invoice.

Apr. $1$ Borrowed $$35,000$ from National Bank for general use; executed a $12-$month, $8$ percent interest$-$bearing note payable.

June $3$ Purchased merchandise for resale on account at an invoice cost of $$17,420.$

July $5$ Paid June $3$ invoice.

Aug. $1$ Rented a small office in a building owned by the company and collected six months' rent in advance amounting to $$6,000.($Record the collection in a way that will not require an adjusting entry at year$-$end.$)$

Dec. $20$ Received a $$100$ deposit from a customer as a guarantee to return a large trailer "borrowed" for $30$ days.

$31$ Determined wages of $$9,500$ earned but not yet paid on December $31($disregard payroll taxes$).$

P$9-2$

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Required:

Prepare journal entries for each of these transactions.

Prepare all adjusting entries required on December $31,2014.$

Show how all of the liabilities arising from these transactions are reported on the balance sheet at December $31,2014.$

For each transaction, state whether cash flow from operating activities is increased or decreased or whether there is no effect.