Financial accounting


Assignment:

Question 1- Prepaid items on financial statements

Life Inc. experienced the following events in 2013, its first year of operation:
1. Performed counseling services for $36,000 cash.
2. On February 1, 2013, paid $18,000 cash to rent office space for the coming year.
3. Adjusted the accounts to reflect the amount of rent used during the year.

Based on this information alone
a. Record the events under an accounting equation.

Question 2 A Supplies, unearned revenue, and the financial statements model

Hart, Attorney at Law, experienced the following transactions in 2013, the first year of operations:
1. Accepted $36,000 on February 1, 2013, as a retainer for services to be performed evenly over the next 12 months.
2. Performed legal services for cash of $ 54,000.
3. Purchased $2800 of office supplies on account.
4. Paid $2400 of the amount due on accounts payable.
5. Paid a cash dividend to the stockholders of $5,000.
6. Paid cash for salaries expense of $31,000.
7. Determined that at the end of the accounting period, $200 of office supplies remained on hand.
8. On December 31, 2013, recognized the revenue that had been earned for services performed in accordance with Transaction 1

Show the effects of the events on the financial statements using horizontal statements model like the following one. In the cash flows column, use the initials OA to designate operating activity, IA for investing activity, FA for financial Activity and NC for net change in cash. Use NA to show accounts not affected by the events


Question 3 Effect of accounting events on the income statement and statement of cash flows.

Explain how each of the following events or series of events and the related adjusting entry will affect the amount of net income and the amount of cash flow from operating activities reported on the year-end financial statements. Identify the direction of change (increase, decrease, or NA) and the amount of the change. Organize your answers according to the following table. The first event is recorded as an example. If an event does not have a related adjusting entry, record only the effects of the event

Net Income                                                                             Cash Flow from Operating Activities

Event               Direct of          Amount of                              Direction of                 Amount of

                        Change            Change                                    Change                        Change

 

   3                   NA                  NA                                          NA                              NA

a. Paid $9,000 cash on October 1 to purchase a one-year insurance policy.

b. Purchased $2,000 of supplies on account. Paid $500 cash on accounts payable. The ending balance in the Supplies account, after adjustment, was $300.
c. Provided services for $10,000 cash.
d. Collected $2,400 in advance for services to be performed in the future. The contract called for services to start on May 1 and to continue for one year.
e. Accrued salaries amounting to $5600.
f. Sold land that cost $3,000 for $3,000 cash.
g. Acquired $15,000 cash from the issue of common stock.
h. Earned $12,000 of revenue on account. Collected $8,000 cash from accounts receivable
i. Paid cash for other operating expenses of $4,500

 

 

 

NET INCOME

 

Cash flows from Operating activities

 

Event

Direction of change

Amount of change

Direction of change

Amount of change

A

 

          NA

        NA

Decrease

 

9000

 

B

 

           NA

       NA

      Decrease

  500

C

Increase

    10000

Increase

10000

D

 

    NA

 

         NA

 

Increase

 

2400

 

E

 

Decrease

 

       5600

 

          NA

 

         NA

 

F

 

Increase

3000

             NA

          NA

G

 

     NA

NA

Increase

15000

H

 

Increase

 

 12000

 

Increase

 

8000

 

I

 

NA

     NA

Decrease

4500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Question 4 Identifying source, use, and exchange transactions

Indicate whether each of the following transactions is an asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE) transaction:

a. Acquired cash from the issue of common stock. (AS)
b. Paid a cash dividend to the stockholders. (AU)
c. Paid cash on accounts payable.(AU)
d. Incurred other operating expenses on account. (AU)
e. Paid cash for salary expense. (AU)
f. Performed services for cash.(AS)
g. Collected cash from accounts receivable. (AE)
h. Performed services for clients on account.(AS)
i. Received cash for services to be performed in the future. (AS)
j. Purchased land with cash. (AE)

Question 5.Identifying asset source, use, and exchange transactions

a. Name an asset use transaction that will not affect the income statement.

Deposits for future Services

b. Name an asset exchange transaction that will affect the statement of cash flows.

Cash received from accounts receivable

C.Name an asset source transaction that will not affect the income statement

Cash received from issuing of common stock

d. Name an asset source transaction that will not affect the statement of cash flows

Equity from owners

e. Name an asset source transaction that will affect the income statement

Revenue from operations

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