Alcorn Service Company was formed on January 1, Year 1.

Events Affecting the Year 1 Accounting Period

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

2. Purchased $800 of supplies on account.

3. Purchased land that cost $14,000 cash.

4. Paid $800 cash to settle accounts payable created in Event 2.

5. Recognized revenue on account of $10,500.

6. Paid $3,800 cash for other operating expenses.

7. Collected $7,000 cash from accounts receivable.

Information for Year 1 Adjusting Entries

8. Recognized accrued salaries of $3,600 on December 31, Year 1.

9. Had $100 of supplies on hand at the end of the accounting period.

Events Affecting the Year 2 Accounting Period

1. Acquired $15,000 cash from the issue of common stock.

2. Paid $3,600 cash to settle the salaries payable obligation.

3. Paid $9,000 cash in advance to lease office space.

4. Sold the land that cost $14,000 for $14,000 cash.

5. Received $6,000 cash in advance for services to be performed in the future.

6. Purchased $2,400 of supplies on account during the year.

7. Provided services on account of $24,500.

8. Collected $12,600 cash from accounts receivable.

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

10. Paid other operating expenses of $2,850.

Information for Year 2 Adjusting Entries

11. The advance payment for rental of the office space (see Event 3) was made on March 1 for a oneyear term.

12. The cash advance for services to be provided in the future was collected on October 1 (see Event 5).

The one-year contract started on October 1.

13. Had $300 of supplies remaining on hand at the end of the period.

14. Recognized accrued salaries of $4,800 at the end of the accounting period.

15. Recognized $500 of accrued interest revenue.

Required

a. Identify each event affecting the Year 1 and Year 2 accounting periods as asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE). Record the effects of each event under the appropriate general ledger account headings of the accounting equation.

b. Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 1 and Year 2, using the vertical statements model.