P5-18 (Appendix 5B: Taccounts analysis) 9.Issued additional common stock for $120,000 cash. 10. On September 30, 1997 a customer gave the company a note due on May 1, 1998 in pay¬ ment of a $72,000 account receivable. 11. The company declared and paid a cash dividend of $50,000. 12. The company purchased stock in Microsoft as a long-term investment for $50,000. J.D.F. used the following information to prepare adjusting journal entries on December 31, 1997.

(a) 40 percent of the prepaid insurance on January 1 was still in effect as of December 31, 1997.

(b) A physical count of the supplies inventory indicated that the company had $40,000 on hand as of December 31, 1997.

(c) A review of the company’s advertising campaign indicates that of the expenditures made during 1997 for advertising, $25,000 applies to promotions to be undertaken during 1998.

(d) The company is charged at a rate of $3,500 per month for its rental contracts. Note that it paid $36,000 for rent during the year.

(e) The company owes employees $43,000 for wages as of December 31, 1997.

(f) The $72,000 note receivable accepted in payment of an account receivable (see [10] above) specifies an annual interest rate of 9 percent. (g) Equipment has an estimated useful life of ten years, and machinery has an estimated use¬ ful life of twenty years. The patent originally cost $125,000 and had an estimated useful life of ten years. The company uses the straight-line method to depreciate and amortize all property, plant, equipment, and intangibles. (h) The note issued by the company (see [4] above) has a stated rate of 10 percent and was issued on September 12, 1997. REQUIRED:

a. Open T-accounts for all balance sheet accounts as of January 1, 1997. Post beginning bal¬ ances. Leave room for twenty-two additional T-accounts with nine lines per account.

b. Prepare journal entries for the activity during 1997. Post the entries to the ledger.

c. Prepare a work sheet and an unadjusted trial balance.

d. Prepare adjusting journal entries. Post these entries to the appropriate T-accounts and to the work sheet.

e. Prepare closing entries, and complete the work sheet. Post these entries to the appropriate T-accounts.

f. Prepare an income statement, a statement of retained earnings, a balance sheet, and a state¬ ment of cash flows using the direct and indirect methods. Excerpts from the financial statements of Tree Tops Services are provided below. 1997 1996 Balance Sheet: Accounts receivable $ 2,500 $ 3,100 Unearned revenue 1,300 2,600 Income Statement: Revenues from services 54,700 49,800 Statement of Cash Flows: Net cash from operations 62,400 58,700 Note: Net cash from operations consist of two components: (1) cash collections from services rendered, and (2) cash payments due to operating activities. REQUIRED: For 1997, compute (1) cash collections from services rendered, and (2) cash payments due to operating activities. Chapter 5 The Mechanics of Financial Accounting 253